Reference no: EM132949741
Question 1 - a. Saturn Computer is considering to expand, but before that, the management wants to know the financial position of the company compared to that of the industry. Data for Saturn Computer Co. and its industry averages follow.
Items Amount ($)
Cash 87,500
Accounts Payable 110,000
Total Operating Expense 123,000
Interest Expense 26,500
Income Tax 18,200
Total Sales 1,607,500
Net Fixed Assets 292,500
Long-term Bank Loan 246,500
Cost of Goods Sold 1,352,500
Common Stock Equity 361,000
Inventories 211,500
Other Current Liabilities 84,000
Accounts Receivables
336,000
Notes Payable (Maturity within 1 year) 107,000
Total Operating Profit 110,000
Net Profit after tax 88,300
Industry Average Ratios
Current ratio 2.8
Quick Ratio 1.8
Debt-to-Equity ratio 20%
Total Assets Turnover 1.50
Times interest earned 9
Net Profit margin 6.50%
Inventory turnover 10
Return on Total Assets 9%
Financial Leverage 2.0
Return on Equity 19.50%
Required -
1. Calculate the following ratios for Saturn: 1) Net Profit Margin, 2) Total Asset Turnover 3) Financial Leverage, 4) Return on Equity 5) Construct the DuPont equation of Saturn and the industry. Based on the DuPont equation constructed identify the area where Saturn needs to improve its performance.
b. Walton decided to issue additional new common stock. Mr. Adib Rahman, an individual investor purchased 100 shares of this stock from Munawar Associates, the underwriter. Would this transaction be a primary or a secondary market transaction? If Mr. Adib Rahman purchased previously outstanding Walton stock from another investor, then which financial market will this transaction be traded in?
Question 2 - a. You want to buy a house that costs $60,000. You took a $60,000 mortgage loan at an annual rate of 7%, where you will make the payment to the bank in installment at the end of every 6 months. The loan will take 3 years to be paid entirely. How large would each semi-annual installment be? Why there is a "Time Value" associated with money?
b. ACC firm has a cash conversion cycle of 120 days, an average collection period of 25 days, and an average age of inventory of 145 days. Calculate the firm's average payment period in days.
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