"3-14. (Continued)b. The new level of sales will be:Sales = Total assets × Total assets turnover= $1,600,000 × 3= $4,800,000 Net income = Sales × Profit margin = $4,800,000 × 3.5%= $168,000 Net income Return on stockholders' equity = Stockholders' equity $168,000 = =14% $1,200,000 15. Assume the following data for Interactive Technology and Silicon Software.Interactive SiliconTechnology (IT) Software (SS)Net income???????..$ 15,000 $ 50,000Sales??????????150,000 1,000,000Total assets???????..160,000 400,000Total debt????????.60,000 240,000Stockholders ? ? e ??? quity . 100,000 160,000a. Compute return on stockholders ? a inequithe t te y fx otr. both firms using ratioWhich firm has the higher return?b. Compute the following additional ratios for both firms.Net income/SalesNet income/Total assetsSales/Total assetsDebt/Total assetsc. Discuss the factors from part b that added or detracted from one firm having a higherreturn on stockholders a ? .equity than the other firm as cS3-20 3-15. SolutionInteractive Technology and Silicon Softwarea. Interactive Silicon Technology (IT)Software (SS)Net income $15,000 $50,000 = =15%=31.25%Stockholders' equity $100,000 $160,000 Silicon Software (SS) has a much higher return onstockholders ? IT ). equity than Interactive S3-21 3-15. (Continued)b. Interactive SiliconTechnology (IT) Software (SS)Net income $15,000 $50,000 = =10% = 5% Sales $150,000 $1,000,000 Net income $15,000 $50,000 = = 9.37% =12.5% Total assets $160,000 $400,000 Sales $150,000 $1,000,000 = = .937x = 2.5x Total assets $160,000 $400,000 Debt $60,000 $240,000 = = 37.5% = 60% Total assets $160,000 $400,000 c. As previously indicated, Silicon Software (SS) has a substantiallyhigher return on stockholder ?s equity than InteractTechnology (IT). The reason is certainly not to be found on returnon the sales dollar where Interactive Technology has a higherreturn than Silicon Software (10% vs. 5%).However, Silicon Software has a higher return than InteractiveTechnology on total assets (12.5% versus 9.37%). The reason isclearly to be found in total asset turnover, which strongly favorsSilicon Software over Interactive Technology (2.5x versus .937x).This factor alone leads to the higher return on total assets.S3-22 16. A firm has sales of $3 million, and 10 percent of the sales are for cash. The year-endaccounts receivable balance is $285,000. What is the average collection period? (Use a 360-day year.)3-16. Solution:Accounts receivable Average collection period = Average daily credit sales ($3,000,000 ×90%) = $285,000/ 360 days$285,000 = $7,500 per day = 38 days 17. Martin Electronics has an accounts receivable turnover equal to 15 times. If accountsreceivable are equal to $80,000, what is the value for average daily credit sales?3-17. Solution:Martin ElectronicsCredit sales Average daily credit sales =360 To determine credit sales, multiply accounts receivable byaccounts receivable turnover.$80,000× 15= $1,200,000$1,200,000 Average daily credit sales = = $3,333360 S3-23 18. Perez Corporation has the following financial data for the years 2007 and 2008:2007 2008Sales?????????? $8,000,000 $10,000,000Cost of goods sold????? 6,000,000 9,000,000Inventory????????.. 800,000 1,000,000a. Compute inventory turnover based on ratio number 6, Sales/Inventory, for each year.b. Compute inventory turnover based on an alternative calculation that is used by manyfinancial analysts, Cost of goods sold/Inventory, for each year.c. What conclusions can you draw from part a and part b?3-18. Solution:Perez Corporation 2007 2008Sales $8,000,000 $10,000,000 a. = =10x =10xInventory 8,00,000 1,000,000 Cost of goods sold $6,000,000 $9,000,000 b. = = 7.5x = 9xInventory 800,000 1,000,000 c. Based on the sales to inventory ratio, the turnover hasremained constant at 10x. However, based on the cost ofgoods sold to inventory ratio, it has improved from 7.5x to 9x.The latter ratio may be providing a false picture ofimprovement in this example simply because cost of goodssold has gone up as percentage of sales (from 75 percent to90 percent). Inventory is not really turning over any faster.S3-24 "