Reference no: EM132045108

SECTION 3-2

SOLUTIONS TO SELF-TEST

Morris Corporation has the following information on its balance sheets: Cash = $40, accounts receivable = $30, inventories = $100, net fixed asset = $500, accounts payable = $20, accruals = $10, short-term debt (matures in less than a year) = $25, long-term debt = $200, and total common equity = $415. What is its current ratio? Its quick ratio?

A company has current liabilities of $800 million, and its current ratio is 2.5.   What is its level of current assets?  If this firm’s quick ratio is 2, how much inventory does it have?

SECTION 3-2

Morris Corporation has the following information on its balance sheets: Cash = $40, accounts receivable = $30, inventories = $100, net fixed asset = $500, accounts payable = $20, accruals = $10, short-term debt (matures in less than a year) = $25, long-term debt = $200, and total common equity = $415. Its income statement reports: Sales = $820, costs of goods sold (excluding depreciation) = $450, depreciation = $50, interest expense = $20, and tax rate = 40%.

Calculate the following ratios: total assets turnover, fixed assets turnover, days sales outstanding (based on a 365 day year), inventory turnover. Hint: This is the same company used in the previous Self-Test.

A firm has $200 million annual sales, $180 million costs of goods sold, $40 million of inventory, and $60 million of accounts receivable. What is its inventory turnover ratio? 

SECTION 3-4

Morris Corporation has the following information on its balance sheets: Cash = $40, accounts receivable = $30, inventories = $100, net fixed asset = $500, accounts payable = $20, accruals = $10, short-term debt (matures in less than a year) = $25, long-term debt = $200, and total common equity = $415. Its income statement reports: Sales = $820, costs of goods sold (excluding depreciation) = $450, depreciation = $50, interest expense = $20, and tax rate = 40%.

Calculate the following ratios: Debt-to-assets ratio, debt-to-equity ratio, liabilities-to-assets ratio, times-interest earned ratio, and EBITDA coverage ratio (the firm has no lease payments or required principal payments). Hint: This is the same company used in the previous Self-Test.

Suppose the previous company has 100 shares of stock with a price of $15 per share. What is its market debt ratio (assume the market value of debt is close to the book value)? How does this compare with the previously calculated debt-to-assets ratio? Does the market debt ratio imply that the company is more or less risky than the debt-to-assets ratio indicated?

A company has EBITDA of $600 million, interest payments of $60 million, lease payments of $40 million, and required principal payments (due this year) of $30 million.  What is its EBITDA coverage ratio?

SECTION 3-5

Morris Corporation has the following information on its balance sheets: Cash = $40, accounts receivable = $30, inventories = $100, net fixed asset = $500, accounts payable = $20, accruals = $10, short-term debt (matures in less than a year) = $25, long-term debt = $200, and total common equity = $415. Its income statement reports: Sales = $820, costs of goods sold (excluding depreciation) = $450, depreciation = $50, interest expense = $20, and tax rate = 40%. Net profit margin, operating profit margin, basic earning power ratio, return on total assets , and return on common equity. Hint: This is the same company used in the previous Self-Test.

A company has $200 billion of sales and $10 billion of net income.  Its total assets are $100 billion, financed half by debt and half by common equity.  What is its profit margin?  What is its ROA?  What is its ROE?

SECTION 3-6

A company has $6 billion of net income, $2 billion of depreciation and amortization, $80 billion of common equity, and one billion shares of stock.  If its stock price is $96 per share, what is its price/earnings ratio? Its price/cash flow ratio?  Its market/book ratio?

SECTION 3-8

A company has a profit margin of 6%, a total asset turnover ratio of 2, and an equity multiplier of 1.5.  What is its ROE?

Attachment:- Ch-03 data.rar