Total Current Asset Current Ratio Effect on Net Income a Cash is acquired throug
ID: 2630941 • Letter: T
Question
Total Current Asset Current Ratio Effect on Net Income
a
Cash is acquired through issuance of additional common stock
____
____
____
b
Merchandise is sold for cash
____
____
____
c
Federal income tax due for the previous year is paid
____
____
____
d
A fixed asset is sold for less than book value
____
____
____
e
A fixed asset is sold for more than book value
____
____
____
f
Merchandise is sold on credit
____
____
____
g
Payment is made to trade creditors for previous purchases
____
____
____
h
A cash dividend is declared and paid
____
____
____
I
Cash is obtained through short- term bank loans
____
____
____
J
Short- term notes receivable are sold at a discount
____
____
____
k
Marketable securities are sold below cost
____
____
____
L
Advances are made to employees
____
____
____
m
Current operating expenses are paid
____
____
____
n
Short- term promissory notes are issued to trade creditors in exchange for past due accounts payable
____
____
____
o
10- year notes are issued to pay off accounts payable
____
____
____
p
A fully depreciated asset is retired
____
____
____
4 DEBT RATIO- Bartley Barstools has an equity multiplier of 2.4, and its assets are financed with some combination of long-term debt and common equity. What is its equity ratio? What is its debt ratio?
6 MARKET/BOOK RATIO- Jaster Jets has $10 billion in total assets. Its balance sheet shows $1 billion in current liabilities, $3 billion in long-term debt and $6 billion in common equity. It has 800 million shares of common stock outstanding, and its stock price is $32 per share. What is Jaster
a
Cash is acquired through issuance of additional common stock
____
____
____
b
Merchandise is sold for cash
____
____
____
c
Federal income tax due for the previous year is paid
____
____
____
d
A fixed asset is sold for less than book value
____
____
____
e
A fixed asset is sold for more than book value
____
____
____
f
Merchandise is sold on credit
____
____
____
g
Payment is made to trade creditors for previous purchases
____
____
____
h
A cash dividend is declared and paid
____
____
____
I
Cash is obtained through short- term bank loans
____
____
____
J
Short- term notes receivable are sold at a discount
____
____
____
k
Marketable securities are sold below cost
____
____
____
L
Advances are made to employees
____
____
____
m
Current operating expenses are paid
____
____
____
n
Short- term promissory notes are issued to trade creditors in exchange for past due accounts payable
____
____
____
o
10- year notes are issued to pay off accounts payable
____
____
____
p
A fully depreciated asset is retired
____
____
____
Explanation / Answer
Hi
Please see answers below
4 DEBT RATIO
Equity Multiplier = 2.4
Therefore Equity Ratio = 1/EM
Equity Ratio = 1/2.4 = 0.476
Formula:
Debt Ratio + Equity Ratio = 1
Therefor Debt Ratio = 1 - Equity Ratio = 1 - 0.476 = 0.52 or 52%
6 MARKET/BOOK RATIO-
Book Value per share is $6 Billion / 800 mil shs, or $7.5 per share.
Market to Book ratio is 32.00 / 7.5, or 4.26 times. Answer looks suspicious, doesn't it?
The market capitalization is 800 mil shs. x $32, or 25.6 Billion;
Total Market value to Book value is 25.6 / 6, also 4.26 times.
7 PRICE/EARNINGS RATIO-
Rearranged another way, cash flow per share = 1.5EPS
Price/cash flow = 8 can be rearranged as
Price /1.5EPS =8
Price = 12 EPS
so P/E ratio is 12
8 DuPONT AND ROE-
ROE = 8%
9 RATIO CALCULATIONS
1
Return on assets = Profit margin x Assets turnover
.03 = profit margin x 1.5
.03/1.5 = .02 or 2 percent
therefore profit margin = 2 percent
2
Return on assets / Return on equity = .03/.05 = 0.6 or 60 percent of total assets is from equity, therefore debt = Assets - equity = 1-0.6 = 0.4 or 40 percent therefore debt ratio =40 percent
Thank you