Business Finance

Assignment
Due: September 3, 2021

Instruction: Answer the following questions. Write your answer in a clean paper.

1. Last year K. Billingsworth & Co. had earnings per share of P4 and dividends per share of P2. Total retained
earnings increased by P12 million during the year, while book value per share at year-end was P40.
Billingsworth has no preferred stock, and no new common stock was issued during the year. If its year-end
total debt was P120 million, what was the company’s year-end debt/assets ratio?

2. The following data apply to A.L. Kaiser & Company (millions of pesos):
Cash and equivalents P100.00
Fixed assets 283.50
Sales 1,000.00
Net income 50.00
Current liabilities 105.50
Current ratio 3.00×
DSO* 40.55 days
ROE 12.00%
*This calculation is based on a 365-day year.

Kaiser has no preferred stock—only common equity, current liabilities, and long-term debt.
a. Find Kaiser’s (1) accounts receivable, (2) current assets, (3) total assets, (4) ROA, (5) common equity,
(6) quick ratio, and (7) long-term debt.
b. In Part a, you should have found that Kaiser’s accounts receivable (A/R) = P111.1 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 common equity, how would this affect (1) the ROE, (2) the ROA, and (3) the total debt/total
assets ratio?

3. Baker Brothers has a DSO of 40 days, and its annual sales are P7,300,000. What is its accounts receivable
balance? Assume that it uses a 365-day year.

4. 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 debt ratio?

5. Doublewide Dealers has an ROA of 10%, a 2% profit margin, and an ROE of 15%. What is its total assets
turnover? What is its equity multiplier?

6. Jaster Jets has P10 billion in total assets. Its balance sheet shows P1 billion in current liabilities, P3 billion
in long-term debt, and P6 billion in common equity. It has 800 million shares of common stock
outstanding, and its stock price is P32 per share. What is Jaster’s market/book ratio?

7. A company has an EPS of P2.00, a cash flow per share of P3.00, and a price/cash flow ratio of 8.0×. What
is its P/E ratio?

8. A firm has a profit margin of 2% and an equity multiplier of 2.0. Its sales are P100 million, and it has total
assets of P50 million. What is its ROE?

9. Ebersoll Mining has P6 million in sales, its ROE is 12%, and its total assets turnover is 3.2×. The company
is 50% equity financed. What is its net income?

10. Duval Manufacturing recently reported the following information:

Net income P600,000

 ROA 8%
Interest expense P225,000

Duval’s tax rate is 35%. What is its basic earning power (BEP)?

11. You are given the following information: Stockholders’ equity = P3.75 billion, price/earnings ratio = 3.5,
common shares outstanding = 50 million, and market/book ratio = 1.9. Calculate the price of a share of the
company’s common stock.

12. Assume the following relationships for the Brauer Corp.:

Sales total assets 1.5×

Return on assets (ROA) 3%
Return on equity (ROE) 5%

Calculate Brauer’s profit margin and debt ratio.

13. Graser Trucking has P12 billion in assets, and its tax rate is 40%. Its basic earning power (BEP) ratio is
15%, and its return on assets (ROA) is 5%. What is its times-interest-earned (TIE) ratio?

14. The H.R. Pickett Corp. has P500,000 of debt outstanding, and it pays an annual interest rate of 10%. Its
annual sales are $2 million, its average tax rate is 30%, and its net profit margin is 5%. What is its TIE
ratio?

15. Midwest Packaging’s ROE last year was only 3%; but its management has developed a new operating plan
that calls for a total debt ratio of 60%, which will result in annual interest charges of P300,000.
Management projects an EBIT of P1,000,000 on sales of P10,000,000, and it expects to have a total assets
turnover ratio of 2.0. Under these conditions, the tax rate will be 34%. If the changes are made, what will
be the company’s return on equity?

16. Lloyd Inc. has sales of P200,000, a net income of P15,000, and the following balance sheet:

Cash P 10,000 Accounts payable P 30,000

Receivables 50,000 Other current liabilities 20,000
Inventories 150,000 Long-term debt 50,000
Net fixed assets 90,000 Common equity 200,000
Total assets P300,000 Total liabilities and equity P300,000

The new owner thinks that inventories are excessive and can be lowered to the point where the current ratio
is equal to the industry average, 2.5×, without affecting sales or net income. If inventories are sold off and
not replaced (thus reducing the current ratio to 2.5×), if the funds generated are used to reduce common
equity (stock can be repurchased at book value), and if no other changes occur, by how much will the ROE
change? What will be the firm’s new quick ratio?

17. AEI Incorporated has P5 billion in assets, and its tax rate is 40%. Its basic earning power (BEP) ratio is
10%, and its return on assets (ROA) is 5%. What is AEI’s times-interest-earned (TIE) ratio?

18. The Petry Company has P1,312,500 in current assets and P525,000 in current liabilities. Its initial inventory
level is P375,000, and it will raise funds as additional notes payable and use them to increase inventory.
How much can its short-term debt (notes payable) increase without pushing its current ratio below 2.0?