Perry Technologies Inc had the following financial informati

Perry Technologies Inc. had the following financial information for the past year:

.     Inventory turnover = 8.0.

.     Quick ratio = 1.5.

.     Sales = $860,000.

.     Current ratio = 1.75.

            What were Perry’s current liabilities?

           

$430,000

$500,000

$107,500

$ 61,429

$573,333

Shepherd Enterprises has an ROE of 15 percent, a debt ratio of 40 percent, and a profit margin of 5 percent. The company’s total assets equal $800 million. What are the company’s sales? (Assume that the company has no preferred stock.

$1,440,000,000

$2,400,000,000

$   120,000,000

$   360,000,000

$   960,000,000

7)        Tapley Dental Supply Company has the following data:

Net income: $240            Sales:      $10,000    Total assets:   $6,000

Debt ratio:       75%          TIE ratio: 2.0             Current ratio: 1.2

BEP ratio:   13.33%

If Tapley could streamline operations, cut operating costs, and raise net income to $300, without affecting sales or the balance sheet (the additional profits will be paid out as dividends), by how much would its ROE increase?

a.   3.00%

b.   3.50%

c.   4.00%

d.   4.25%

e.   5.50%

8)      A company had the following balance sheet and income statement information:

Balance sheet:

Cash                                        $    20

A/R                                           1,000

Inventories                                5,000

Total C.A.                               $ 6,020                        Debt                $ 4,000

Net F.A.                                   2,980                        Equity                 5,000

Total Assets                            $ 9,000                        Total claims    $ 9,000

Income statement:

Sales                                        $10,000

Cost of goods sold                    9,200

EBIT                                       $   800

Interest (10%)                                400

EBT                                         $   400

Taxes (40%)                                   160

Net Income                              $   240

The industry average inventory turnover is 5. You think you can change your inventory control system so as to cause your turnover to equal the industry average, and this change is expected to have no effect on either sales or cost of goods sold. The cash generated from reducing inventories will be used to buy tax-exempt securities which have a 7 percent rate of return. What will your profit margin be after the change in inventories is reflected in the income statement?

a.   2.1%

b.   2.4%

c.   4.5%

d.   5.3%

e.   6.7%

9)         The Meryl Corporation\'s common stock is currently selling at a P/E ratio of 10. If the firm has 100 shares of common stock outstanding, a return on equity of 20 percent, and a debt ratio of 60 percent, what is its return on total assets (ROA)?

a.   8.0%

b.   10.0%

c.   12.0%

d.   16.7%

e.   20.0%

10)     Collins Company had the following partial balance sheet and complete annual income statement:

Partial Balance Sheet:

Cash                                        $    20

A/R                                           1,000

Inventories                                2,000

Total current assets                  $ 3,020

Net fixed assets                         2,980

Total assets                              $ 6,000

Income Statement:

Sales                                      $10,000

Cost of goods sold                  9,200

EBIT                                       $   800

Interest (10%)                            400

EBT                                         $   400

Taxes (40%)                                160

Net Income                              $   240

The industry average DSO is 30 (based on a 360-day year). Collins plans to change its credit policy so as to cause its DSO to equal the industry average, and this change is expected to have no effect on either sales or cost of goods sold. If the cash generated from reducing receivables is used to retire debt (which was outstanding all last year and which has a 10 percent interest rate), what will Collins\' debt ratio (Total debt/Total assets) be after the change in DSO is reflected in the balance sheet?

a.   33.33%

b.   45.28%

c.   52.75%

d.   60.00%

e.   65.71%

Solution

PERRY\'S CURRENT LIABILITIES

INVENTORY RATIO = NET SALES/INVENTORY

i.e , 8=860000/inventory

inventory = $107500

Current ratio = Current Asset/ current liability

i.e, 1.75=CA/CL

OR CA = 1.75 CL

QUICK RATIO = TOTAL CURRENT ASSET-INVENTORY-PREPAID EXP/CURRENT LIABILITIES

1.5 = 1.75CL - 107500 - 0/CL

CL = $ 430000

SHEPHERD ENTERPRISES

CALCULATION OF SALES

DEBT RATIO = TOTAL LIABILITIES/ TOTAL ASSETS

0.4 = TL/$800 M

TL = $320 MILLION

ROE = NET INCOME/ SHAREHOLDERS EQUITY

SHAREHOLDERS EQ = TOTAL ASSETS- LIABILITIES

0.15 = NET INCOME/ $(800 - 320)

NET INCOME = $ 72 MILLION

PROFIT MARGIN = NET INCOME / NET SALE

.05 = $ 72 MILLION/ SALES

SALES = $ 1440 MILLION

ANS TO Q 9

Equity multiplier = 1/(1 - D/A) = 1/(1 - 0.60) = 2.5

.ROE = ROA* Equity multiplier.

20% = (ROA)(2.5).

ROA = 8%

ANSWER TO Q 8

Profit margin

Current inventory turnover = SALES/INV = 10,000/5,000 = 2.

Inv = $5,000
New turnover = SALES/INV = 5

Inv = Sales/5 = 10,000/5 = $2,000.

Freed cash = $5,000 - $2,000 = $3,000.
Increase in NET INCOME = 0.07($3,000) = $210.

New Profit margin = NI/Sales = (240 + 210)/10,000 = 0.0450 = 4.5%.