Current ratio = 2.6 timesProfit margin = 10%Sales = $1,210mROE = 10%Long-term debt to Long-term debt and equity = 50%

Use the above information to complete the balance sheet below. (Enter your answers in millions.)

  Current assets $ m   Current liabilities $ 220 m

  Fixed assets m   Long-term debt m

  Stockholders’ equity m

  Total assets $ m   Total liabilities and equity $ m

 Explanation:

Step 1: Current ratio = 2.6 times = Current assets / $220m => Current assets = 2.6 × $220m = $572mStep 2: Profit margin = 10% = Net income / $1,210m => Net income = 0.10 × $1,210m = $121m           =>   ROE = 10% = $121m / Total equity => Total equity = $121m / 0.10 = $1,210mStep 3: Long-term debt / Long-term debt and equity = 50% => 0.50(Long-term debt + $1,210m) = Long-term debt           => (0.50 × Long-term debt) + (0.50 × $1,210m) = Long-term debt => $605m = (1 − 0.50) × Long-term debt           =>  Long-term debt = $605m / (1− 0.50) = $1,210mStep 4: Total liabilities & equity = Current liabilities + Long-term debt + Stockholders’ equity = $220m + $1,210m           + $1,210m = $2,640m = Total assetsStep 5: Fixed assets = Total assets − Current assets = $2,640.0m − $572m = $2,068.0m

Mandesa, Inc., has current liabilities of $8,600,000, current ratio of 2.0 times, inventory turnover of 12 times, average collection period of 30 days, and credit sales of $64,000,006.  Calculate the value of cash and marketable securities. (Use 365 days a year. Round your intermediate calculations and final answer to the nearest dollar amount.)  

  Cash and marketable securities $

rev: 03_13_2012

572

2,068 1,210

1,210

2,640 2,640

6,606,392 ± 4

 Explanation:

Current assets

  Current ratio = 2.0 times= =>

 Current assets = 2.0 × $8,600,000 = $17,200,000

$8,600,000  

$64,000,006

  Inventory turnover = 12 times=

=> Inventory = $64,000,006 / 12 = $5,333,334

Inventory  

Accounts receivable × 365 days

  Average collection period (ACP) = 30 days =

$64,000,006      => Accounts receivable = 30 × $64,000,006 / 365 = $5,260,274  => Cash and marketable securities = $17,200,000 – $5,333,334 – $5,260,274 = $6,606,392

 Brenda’s Bar and Grill has current liabilities of $20 million. Cash makes up 20 percent of the current assets and accounts receivable makes up another 50 percent of current assets. Brenda’s current ratio is 2.0 times.  Calculate the value of inventory listed on the firm’s balance sheet. (Enter your answer in millions of dollars rounded to 2 decimal places.)    Value of inventory $ m

 Explanation:

Current ratio = 2.0 = Current assets / $20m => Current assets = 2.0 × $20m = $40.0mCash = 0.20 × $40.0m = $8.00mAccounts receivable = 0.50 × $40.0m = $20.00m=> Inventory = $40.0m – $8.00m – $20.00m = $12.00m

Current ratio = 2.3 timesCredit sales = $730mAverage collection period = 60 daysInventory turnover = 1.25 timesTotal asset turnover = 0.50 timesDebt ratio = 75%

12.00

   Use the above information to complete the balance sheet below. (Enter your answer in millions. Round your answers to the nearest whole million. Use 365 days a year.)   

  Cash $ m  Accounts receivable m   Current liabilities $ 430 m

  Inventory m   Long-term debt m

  Current assets $ m   Total debt $ m

  Fixed assets m   Stockholders’ equity m

  Total assets $ m  Total liabilities and equity

$ m

 Explanation:

Step 1: Current ratio = 2.30 times = Current assets / $430m => Current assets = 2.30 × $430m = $989mStep 2: Average collection period = 60 days = (Accounts receivable × 365) / $730m           => Accounts receivable = (60 × $730m) / 365 = $120mStep 3: Inventory turnover = 1.25 times = $730m / Inventory => Inventory = $730m / 1.25 = $584mStep 4: Cash = $989m − $120m − $584m = $285mStep 5: Total asset turnover = 0.50 times = $730m / Total assets => Total assets = $730m / 0.50 = $1,460mStep 6: Fixed assets = $1,460m − $989m = $471mStep 7: Debt ratio = 75% = Total debt / $1,460m => Total debt = 0.75 × $1,460m = $1,095mStep 8: Stockholders’ equity = Total liabilities & equity − Total debt = $1,460m − $1,095m = $ 365mStep 9: Long-term debt = Total debt − Current liabilities = $1,095m − $430m = $665.m

Current ratio = 2.6 timesProfit margin = 10%Sales = $1,270mROE = 10%Long-term debt to Long-term debt and equity = 60%   Use the above information to complete the balance sheet below. (Enter your answers in millions.)    

  Current assets $ m   Current liabilities $ 280 m

  Fixed assets m   Long-term debt m

285

120

584 665

989 1,095

471 365

1,460 1,460

728

2,727 1,905

  Stockholders’ equity m

  Total assets $ m   Total liabilities and equity $ m

 Explanation:

Step 1: Current ratio = 2.6 times = Current assets / $280m => Current assets = 2.6 × $280m = $728mStep 2: Profit margin = 10% = Net income / $1,270m => Net income = 0.10 × $1,270m = $127m           =>   ROE = 10% = $127m / Total equity => Total equity = $127m / 0.10 = $1,270mStep 3: Long-term debt / Long-term debt and equity = 60% => 0.60(Long-term debt + $1,270m) = Long-term debt           => (0.60 × Long-term debt) + (0.60 × $1,270m) = Long-term debt => $762m = (1 − 0.60) × Long-term debt           =>  Long-term debt = $762m / (1− 0.60) = $1,905mStep 4: Total liabilities & equity = Current liabilities + Long-term debt + Stockholders’ equity = $280m + $1,905m           + $1,270m = $3,455m = Total assetsStep 5: Fixed assets = Total assets − Current assets = $3,455.0m − $728m = $2,727.0m

You are thinking of investing in Nikki T's, Inc. You have only the following information on the firm at year-end 2012: net income is $170,000, total debt is $2.60m, and debt ratio is 65 percent.  What is Nikki T's ROE for 2012? (Do not round intermediate calculations and round your final answer to 2 decimal places.)  

  ROE %

 Explanation:

Debt ratio = 0.65 = $2.60 / Total assets => Total assets = $2.60m / 0.65 = $4.00m=> Total equity = $4.00m – $2.60m = $1.40m=> ROE = $170,000 / $1.40m = 12.14%

Current ratio = 2.5 timesProfit margin = 10%Sales = $1,150mROE = 25%Long-term debt to Long-term debt and equity = 60%  

1,270

3,455 3,455

12.14

Use the above information to complete the balance sheet below. (Enter your answers in millions.)    

  Current assets $ m   Current liabilities $ 160 m

  Fixed assets m   Long-term debt m

  Stockholders’ equity m

  Total assets $ m   Total liabilities and equity $ m

 Explanation:

Step 1: Current ratio = 2.5 times = Current assets / $160m => Current assets = 2.5 × $160m = $400mStep 2: Profit margin = 10% = Net income / $1,150m => Net income = 0.10 × $1,150m = $115m           =>   ROE = 25% = $115m / Total equity => Total equity = $115m / 0.25 = $460mStep 3: Long-term debt / Long-term debt and equity = 60% => 0.60(Long-term debt + $460m) = Long-term debt           => (0.60 × Long-term debt) + (0.60 × $460m) = Long-term debt => $276m = (1 − 0.60) × Long-term debt           =>  Long-term debt = $276m / (1− 0.60) = $690mStep 4: Total liabilities & equity = Current liabilities + Long-term debt + Stockholders’ equity = $160m + $690m           + $460m = $1,310m = Total assetsStep 5: Fixed assets = Total assets − Current assets = $1,310.0m − $400m = $910.0m

ou have located the following information on Webb’s Heating & Air Conditioning: debt ratio is 58 percent, capital intensity is 1.20 times, profit margin is 12.9 percent, and the dividend payout is 29.00 percent.   Calculate the sustainable growth rate for Webb. (Do not round intermediate calculations and round your final answer to 2 decimal places.)  

  Sustainable growth rate %

 Explanation:

Equity multiplier = Total assets / Total equity => 1 / Equity multiplier = Total equity / Total assetsDebt ratio = Total debt / Total assets = (Total assets – Total equity) / Total assets = 1 – (Total equity / Total assets)0.58 = 1 – (Total equity / Total assets) => Total equity / Total assets = 1 – 0.58 = 0.42 = 1 / Equity multiplier

400

910 690

460

1,310 1,310

22.21 ± 0.1

     => Equity multiplier = 1 / 0.42 = 2.3810  ROE = Profit margin  × Total asset turnover × Equity multiplier

= 0.129 × 1 / 1.20 × 2.3810 = 25.60%  Retention ratio (RR) = 1 – Dividend payout ratio = 1 – 0.29 = 0.71  

0.2560 × 0.71Sustainable growth rate = =22.21%

1 – (0.2560 × 0.71)

Last year, Stumble-on-Inn, Inc., reported an ROE of 20 percent. The firm’s debt ratio was 55 percent, sales were $29 million, and the capital intensity was 1.20 times.  Calculate the net income for Stumble- on-Inn last year. (Do not round intermediate calculations. Enter your answer in dollars not in millions.)

  Net income $

 Explanation:

Capital intensity  = 1.20 = Total assets / $29m => Total assets = 1.20 × $29m = $34.80m=> Debt ratio = 0.55 = Total debt / $34.80m => Total debt = 0.55 × $34.80m = $19.14m=> Total equity = $34.80m – $19.14m = $15.66m=> ROE = 0.20 = Net income / $15.66m => Net income = 0.20 × $15.66m = $3,132,000

You are considering investing in Nuran Security Services. You have been able to locate the following information on the firm: total assets are $24.75 million, accounts receivable are $3.90 million, ACP is 25 days, net income is $4.10 million, and debt-to-equity is 1.20 times.  Calculate the ROE for the firm. (Do not round intermediate calculations and round your final answer to 2 decimal places.)  

  ROE %

 Explanation:

Debt-to-equity

= 1.20 = Total debt / Total equity = Total debt / (Total assets – Total debt)

1.20 = Total debt / ($24.75m – Total debt) => (1.20 × $24.75m) – 1.20 × Total debt = Total debt

=> $29.70m = 2.2 × Total debt => Total debt = $29.70m / 2.2 = $13.50m=> Total equity = $24.75m – $13.50m = $11.25m=> ROE = $4.10m / $11.25m = 36.44%

3,132,000

36.44