Ctezto.mheducation.com/hm.tpx connect Final Exam Question 2 fof 12 2 8.34 points
ID: 2617165 • Letter: C
Question
Ctezto.mheducation.com/hm.tpx connect Final Exam Question 2 fof 12 2 8.34 points Problem 3-37 DuPont Analysis (LG3-6) You are considering investing in Dakota's Security Services. You have been able to locate the information on the firm Total assets are $33.4 milion, accounts receivable are $4.54 million, ACP is 25 days, net income is $4 80 million, and debl-to-equity is 1.2 times All sales are on credit Dakota's is considering loosening its credit pollicy such that ACP will increase to 30 days. The change is expected to increase credit sales by 5 percent. Any change in accounts receivable will be offset with a change in debt No other balance sheet changes are expected. Dakota's profit margin will remain unchanged How will this change in accounts receivable policy afect Dakota's net income, total asset turmover, equity multipler, ROA and ROE? (Do not round intermediate calculations. Enter your answer in millions of dollars rounded to 2 decimal places and other answers to 2 decimal places. Use 365 days a year.) Click to sele (Click to sele (Click to sele Click to sele Cick to sele m. Not income Total asset turnover Equity multiplier ROA ROE times References Book & Resources pot registrationDetails pof registrationDetails Type here to searchExplanation / Answer
ACP=365/(inital sales/4.54)=25
Initial sales=365/25*4.54=66.284
Net income=4.8
Net profit margin=4.8/66.284=7.24155%
Intial equity=33.4/2.2=15.18
Intial debt=1.2*15.18=18.216
New sales=66.284*1.05=69.5982
New net income=69.5982*7.24155%=5.04
New accounts receivable=69.5982/(365/30)=5.72
New debt=18.216+5.72-4.54=19.396
Answer:
Net income=5.04
Total asset turnover=69.5982/(33.4+5.72-4.54+5.04-4.8)=2.252
Equity multiplier=(33.4+5.72-4.54+5.04-4.8)/(33.4+5.72-4.54+5.04-4.8-19.396)=2.257
RoA=5.04/(33.4+5.72-4.54+5.04-4.8)=14.475%
RoE=5.04/(33.4+5.72-4.54+5.04-4.8-19.396)=32.67%
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