Chapter 4-8 Use the above information from the tables to work out the following
ID: 2728362 • Letter: C
Question
Chapter 4-8
Use the above information from the tables to work out the following missing entries, and then calculate the company’s return on equity. Note: Turnover and the average collection period are calculated using start-of-year, not average, values. (Enter your answers in millions. Round intermediate calculations and final answers to 2 decimal places.)
Long-term debt ratio 0.1 Times interest earned 8.0 Current ratio 1.8 Quick ratio 1.0 Cash ratio 0.4 Inventory turnover 4.0 Average collection period 73 daysExplanation / Answer
Inventory turnover ratio = Cost of goods sold / inventory
4 = Cost of goods sold / 44
Cost of goods sold = 44 * 4 = $ 176 Million
Debtor Turnover ratio = 365 / Debtor collection period =365 / 73 = 5 Times
Debtor Turnover ratio = Sales / Account receivable
5 = Sales / 52
Sales = 52 *5 = $ 260 Million
Times interest earned ratio = EBIT / Interest
EBIT = Sales - Cost of goods sold - Operating expenses
= 260 - 176 - (28 + 38)
= 260 - 176 - 66
= $ 18 Million
Times interest earned ratio = 18 / Interest
8 (Given) = 18 / Interest
Interest = 18 /8 = $ 2.25 Million
Income before Tax = EBIT - Interest = 18 - 2.25 = $ 15.75 Million
Tax = 35 % of $ 15.75 Million = $ 5.5125 Million
Net income = 15.75 - 5.5125 = $ 10.2375 Million
Conclusion:
Note: All the figures are in millions of dollars ($).
Sales 260 Cost of goods 176 EBIT 18 Interest 2.25 Income before tax 15.75 Tax expense 5.5125 Net income 10.2375Related Questions
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