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  • in reply to: Price Elasticity of demand #15679

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

    in reply to: Price Elasticity of demand #15678

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

    in reply to: calculate the depreciation expense #15653

    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

    in reply to: Need help with calculate financial ratio #15651

    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%

Viewing 4 posts - 41 through 44 (of 44 total)