Problem 3-17 Asset Management and Profitability Ratios. You have the following i

Question

Problem 3-17 Asset Management and Profitability Ratios. You have the following information on Els' Putters, Inc.: sales to working capital is 5.2 times, profit margin is 20 percent, net income available to common stockholders is $6.20 million, and current liabilities are $6.6 million. What is the firm's balance of current assets? (Enter your answer In millions of dollars rounded to 2 decimal places.) Moving Cash Flows What is the value in year 5 of a $1,500 cash flow made in year 8 when interest rates are 8.8 percent? Problem 4-12 Present Value Compute the present value of an $1,000 payment made in 10 years when the discount rate is 12 percent (Do not round Intermediate calculations and round your final answer to 2 decimal places.)

Explanation / Answer

Ans. The questions have been solved as given below:

Problem 3-17 Profit Margin = Net Income/Net Sales

0.20 = (6.20)/ Sales

Sales = (6.20/0.20) = $31.00 million

Note: As we do not have Sales returns figure, we will use Sales figure instead of Net Sales.

Sales / Working Capital = 5.20

31/ Working Capital = 5.20

Working Capital = (31/5.20) = 5.961538462

Working Capital = Current Assets - Current Liabilities

Current Assets = Working Capital + Current Liabilites

= 5.961538462 + 6.6

= 12.56153846

Ans: Current Assets is $12.56 million

Mc. Qu11 Here, we will use formula: Present value = Future value/ (1+r)n

where r = rate of interest expressed in decimal points, n = Number of periods

Here, cash flow in year 8 is beginning of year 8 and we have to find present value of cash flow in year 5 (at the begiining), so the given cash flow has to be discounted by three periods (three years).

Present value = 1500/(1.088)3   = 1164.674516

Ans: Present value is $1164.67

Problem 4-12. We will use CMPD function of Financial calculator FC-200V to solve the question.

Set Mode as End, PMT= -1000, N=10, I=12, PV=?

Solve for PV.

PV = 5650.223028

Ans: Present value is $5650.22

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