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Q1. The following data apply to A.L.

Kaiser & Company (millions of


dollars): Cash and marketable securities $100.00 Fixed assets 283.50 Sales $1,000.00 Net income $50.00 Quick ratio 2.0x Current ratio 3.0x DSOa 40.55 days ROE 12% a Calculation is based on a 365-day year. Kaiser has no preferred stockonly common equity, current liabilities, and long-term debt. a. Find Kaisers (1) accounts receivable (A/R), (2) current liabilities, (3) current assets, (4) total assets, (5) ROA, (6) common equity, and (7) long-term debt. b. In part a, you should have found Kaisers accounts receivable (A/R) = $111.1 million. If Kaiser could reduce its DSO from 40.55 days to 30.4 days while holding other things constant, how much cash would it generate? If this cash were used to buy back common stock (at book value), thus reducing the amount of common equity, how would this affect (1) the ROE, (2) the ROA, and (3) the total debt/total assets ratio?

Q2.

The Petry Company has $1,312,500 in current assets and

$525,000 in current liabilities. Its initial inventory level is $375,000, and it will raise funds as additional notes payable and use them to increase inventory. How much can Petrys short-term debt (notes payable) increase without pushing its current ratio below 2.0? What

will be the firms quick ratio after Petry has raised the maximum amount of short-term funds?

Q3. The Kretovich Company had a quick ratio of 1.4, a current ratio of
3.0, an inventory turnover of 6 times, total current assets of $810,000, and cash and marketable securities of $120,000 in 2001. What were Kretovichs annual sales and its DSO for that year? Assume there are 365 days in a year.

Q4.

The H.R. Pickett Corporation has $500,000 of debt outstanding,

and it pays an interest rate of 10 percent annually. Picketts annual sales are $2 million, its average tax rate is 30 percent, and its net profit margin on sales is 5 percent. If the company does not maintain a TIE ratio of at least 5 times, its bank will refuse to renew the loan, and bankruptcy will result. What is Picketts TIE ratio?

Q5.

Complete the balance sheet and sales information in the table

that follows for Hoffmeister Industries using the following financial data: Debt ratio: 50% Quick ratio: 0.80x Total assets turnover: 1.5x Days sales outstanding: 36.5 days a Gross profit margin on sales: (Sales - Cost of goods sold)/Sales = 25% Inventory turnover ratio: 5x a Calculation is based on a 365-day year. BALANCE SHEET Cash ________________ A/R ____________ Inventories __________________ Fixed assets __________________ Total assets $300,000 Sales __________________

Accounts payable Long-term debt Common stock Retained earnings Total liab. & equity Cost of goods sold

_________ 60,000 __________ 97,500 __________ __________

Q6. Data for Barry Computer Company and its industry averages
follow. a. Calculate the indicated ratios for Barry. b. Construct the extended Du Pont equation for both Barry and the industry. c. Outline Barrys strengths and weaknesses as revealed by your analysis. d. Suppose Barry had doubled its sales as well as its inventories, accounts receivable, and common equity during 2001. How would that information affect the validity of your ratio analysis? (Hint: Think about
averages and the effects of rapid growth on ratios if averages are not used. No calculations are needed.)

Barry Computer Company: Balance Sheet as of Dec 31, 2001 (In 000s) Cash $ 77,500 Accounts payable $ 129,000 Receivables 336,000 Notes payable 84,000 Inventories 241,500 Other current liab. 117,000 Tot. C Assets $ 655,000 Tot C liabilities $ 330,000 Net fixed assets 292,500 Long-term debt 256,500 Common equity 361,000 Total assets $ 947,500 Total liabilities and equity $ 947,500 Barry Computer Company: P&L for Year End Dec31, 2001 (In 000s) Sales $1,607,500 Cost of goods sold: Materials $717,000 Labor 453,000 Heat, light, and power 68,000 Indirect labor 113,000 Depreciation 41,500 COGS 1,392,500 Gross profit $ 215,000 Selling expenses 115,000 General and administrative expenses 30,000 Earnings before interest and taxes (EBIT) $ 70,000 Interest expense 24,500

Earnings before taxes (EBT) Federal and state income taxes (40%) Net income
RATIO

BARRY

$ 45,500 18,200 $ 27,300

INDUSTRY AVG

Current assets/current liabilities Days sales outstanding a Sales/inventories Sales/total assets Net income/sales Net income/total assets Net income/common equity Total debt/total assets
a

__________________ __________________ __________________ __________________ __________________ __________________ __________________ __________________

Calculation is based on a 365-day year.

2.0x 35 days 6.7x 3.0x 1.2% 3.6% 9.0% 60.0%