[amandeep kathuria]

Answer: (C) the ease with which resources can be shifted to and from the production of this commodity to other uses.

[amandeep kathuria]

Answer: (A) less than unity. In case of inelastic demand, revenue and price move in the same direction.

[amandeep kathuria]

Solution

Income Statement

Sales 29,000
COGS 13,000
Depreciation
EBIT 3,753.85
Interest Expense 1,600
EBT 2,153.85
Taxes 753.85
Net income 1,400
Dividend Paid 900
Transfer to RE 500

EBT=Net Income/(1-Tax rate)
EBT=1,400/0.65
EBT=2,153.85

Tax Rate=2,153.85*0.35
Tax Rate= 753.85

EBIT=Interest Expense +EBT
EBIT= 1,600+2,153.85
EBIT=3,753.85

Depreciation =Sale-COGS-EBIT
Depreciation=29,000-13,000-3,753.85
Depreciation=12,246.15

[amandeep kathuria]

SOLUTION:

Return on Equity = ROE =25%
=Net income ÷ shareholders’ equity,
where Shareholder’s equity = Net income/ROE = $2,500/0.25 = $10,000

Net Profit Margin = NPM=5%
=Net income / sales revenue ,
where Net income=sales revenue*NPM = $50,000*0.05 = $2,500

Total Asset Turnover = TA T = Net sales/ Average Total Assets
Where, Net sales=$50,000
Average Total Assets=Net Sales / TAT = $50,000 / 2 = $25,000

Inventory = $4,000
Accounts Receivables = $2,500
Sales = $50,000,
Current Liabilities = $5,000

Net Working Capital = NWC = $2,000 = Current Assets – Current Liabilities,
Where Current Assets= Net Working Capital + Current Liabilities = $2,000+$5,000 = $ 7,000

Total Assets = Average Total Assets*2 = $25,000 * 2 = $50,000

All sales are on credit.
Assume no prepaid expenses.
Assume 365 days

Compute the following:

• Debt ratio
= Total Liabilities/ Total Assets = $40,000/$50,000 = 0.8 or 80%

Where,
Total liabilities = Total Assets – shareholder’s equity = $50,000 – $10,000 = $40,000

• Debt/equity ratio = Total Liabilities / Shareholders’ Equity = $40,000/$10,000 = 4

• Equity multiplier = Total Assets/ Total Stockholder Equity = $50,000/$10,000 = 5

Total assets

Total Assets = Average Total Assets*2 = $25,000 * 2 = $50,000

• Total debt =
Total liabilities = Total Assets – shareholder’s equity = $50,000 – $10,000 = $40,000

• Long term debt = Total Debt – Short term debt = $40,000 – $5,000 = $35,000

• If total assets comprise of CA and Fixed Assets, compute Fixed Assets

Fixed Assets = Total Assets – Current Assets = $50,000 – $7,000 = $43,000

Current Ratio = Current Assets / Current Liabilities = $7,000/$5,000= 1.4

Quick Ratio = (Current Assets- Inventory) / Current Liabilities
= ($7,000-$4,000)/ $5,000 = 0.6

Accounts Receivable Turnover, Average Collection Period

Accounts Receivable Turnover= Net Credit Sales/ Average Accounts Receivable
= $50,000/ $2,500 = 20

Average Collection Period= 365 / Receivables Turnover = 365/20 = 18.25 days

• Return on Assets = ROA = Net income/ Total Assets = $2,500/$50,000 = 0.05
Return on Assets= 5%

• This reply was modified 6 years, 6 months ago by amandeep kathuria.

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