2. ABC Ltd. has following items on its Balance sheet as of Dec 2017 (in $ mn) Ba
ID: 2616961 • Letter: 2
Question
2. ABC Ltd. has following items on its Balance sheet as of Dec 2017 (in $ mn) Balance Sheet Liabilities Assets Cash Account Rec Inventories 50 2450 550 Account Payable Accrual Notes Payable 200 200 500 Total Cuntent Asset 3050 Total Current Liabilities 900 Gross FA Depreciation Long Term Debt 2000 Total Liabilities 2900 1000 300 200 Net Fixed Asset Total Asset 1350 4400 Common Equity RE Preferred Equity Total Equity Total L & E 1500 4400 Revenue-5000; Gross Profit Margin-30%; Operating Expense (before depreciation) 1000 Depreciation-50; Interest-30; Average Tax rate:4096, Common Dividend 10: Preferred Dividend-5 Number of shares outstanding-50 million; Per share Price of common stock $50 Complete the income statement and answer the following questions based on information: 1. Quick Ratio 2. Current Ratio 3.EPS 4. Book Value of common equity 5. P/E 6. P/B (8+ 2*620 marks)Explanation / Answer
Answer 1.
Quick Ratio = (Current Assets - Inventories) / Current Liabilities
Quick Ratio = ($3,050 - $550) / $900
Quick Ratio = 2.78
Answer 2.
Current Ratio = Current Assets / Current Liabilities
Current Ratio = $3,050 / $900
Current Ratio = 3.39
Answer 3.
Net Income = (Revenue * Gross Profit Margin - Operating Expense - Depreciation - Interest) * (1 - tax)
Net Income = ($5,000 * 30% - $1,000 - $50 - $30) * (1 - 0.40)
Net Income = $252
EPS = (Net Income - Preferred Dividend) / Number of shares outstanding
EPS = ($252 - $5) / 50
EPS = $4.94
Answer 4.
Book Value of Common Equity = (Common Equity + Retained Earnings) / Number of shares outstanding
Book Value of Common Equity = ($1,000 + $300) / 50
Book Value of Common Equity = $26
Answer 5.
Price Earnings Ratio = Per share price of common stock / EPS
Price Earnings Ratio = $50 / $4.94
Price Earnings Ratio = 10.12
Answer 6.
PB Ratio = Per share price of common stock / Book Value of Common Equity
PB Ratio = $50 / $26
PB Ratio = 1.92
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