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Assignment#3 Ratio

The document contains a series of financial questions and calculations related to various companies, including Reliable Auto Parts, Predator Pucks, Inc., and others. It covers topics such as gross profits, EBIT, net profits after taxes, shareholders' equity, depreciation expense, TIE ratio, and return on equity. Each question requires specific financial data to derive key metrics for analysis.

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Shafayat Hossain
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© © All Rights Reserved
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Download as DOCX, PDF, TXT or read online on Scribd
1 views

Assignment#3 Ratio

The document contains a series of financial questions and calculations related to various companies, including Reliable Auto Parts, Predator Pucks, Inc., and others. It covers topics such as gross profits, EBIT, net profits after taxes, shareholders' equity, depreciation expense, TIE ratio, and return on equity. Each question requires specific financial data to derive key metrics for analysis.

Uploaded by

Shafayat Hossain
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Q1. Reliable Auto Parts has 5,000 shares of common stock outstanding.

The company also


has the following amounts in revenue and expense accounts.
Sales revenue $
85,000
General and administrative expense excluding 7,500
depreciation
Selling expense 4,000
Interest expense 3,500
Depreciation expense 5,000
Preferred stock dividends 500
Cost of goods sold 50,000
Total investment in asset during the year 12,500
Calculate: (a) Gross profits. (b) EBIT.
(c) Net profits after taxes (assume a 40 percent tax rate). (d) Operating Cash flow

(e) Free cash flow (f) Earnings per share.


(g) Dividend per share if 60% of the earnings are distributed as dividend.

Q2. Predator Pucks, Inc., has current assets of $4,000, net fixed assets of
$22,500, current liabilities of $3,400, and long-term debt of $6,800. What is
the value of the shareholders’ equity account for this firm? How much is net
working capital?

Q3. Given the following information for Mama Mia Pizza Co., calculate the
depreciation expense:
Sales $34,000; all costs except depreciation $16,000; addition to retained
earnings $4,300; dividends paid $1,200; interest expense $2,300; tax rate 35
percent.

Q4. For the year just ended, Ratterman Frozen Yogurt shows an increase in
its net fixed assets account of $625. The company took $170 in depreciation
expense for the year. How much did the company spend on new fixed
assets? Is this a source or use of cash?

Q5. Wolken Corporation has $500,000 of debt outstanding, and it pays an interest rate of 10
percent annually. Wolken’s annual sales are $2 million, its average tax rate is 20 percent,
and its net profit margin is 5 percent. If the company does not maintain a TIE ratio of at least
5, its bank will refuse to renew the loan, and bankruptcy will result. What is Wolken’s TIE
ratio?

Q6. Coastal Packaging’s ROE last year was only 3 percent, but its management has
developed a new operating plan designed to improve things. The new plan calls for a total
debt ratio of 60 percent, which will result in interest charges of $300 per year. Management
projects an EBIT of $1,000 on sales of $10,000, and it expects to have a total assets
turnover ratio of 2.0. Under these conditions, the average tax rate will be 30 percent. If the
changes are made, what return on equity (ROE) will Coastal earn? What is the ROA?
Q7. Star Lakes, Inc., has a total debt ratio of .29. What is its debt–equity ratio? What
is its equity multiplier?

Q8. Culver Inc. has earnings after interest but before taxes of $300. The company’s
times interest earned ratio is 7.00. Calculate the company’s interest charges.
Q9. A firm has a debt/equity ratio of 50 percent. Currently, it has interest expense of
$500,000 on $5,000,000 of total debt outstanding. Its tax rate is 40 percent. If the
firm’s ROA is 6 percent, by how many percentage points is the firm’s ROE greater
than its ROA?

Q10. Kansas Office Supply had $24,000,000 in sales last year. The company’s net
income was $400,000, its total assets turnover was 6.0, and the company’s ROE was
15 percent. The company is financed entirely with debt and common equity. What is
the company’s debt ratio?

Q11. Cleveland Corporation has 100,000 shares of common stock outstanding, its net
income is $750,000, and its P/E is 8. What is the company’s stock price?

Q12. Taft Technologies has the following relationships:

Annual sales $1,200,000.00


Current liabilities $ 375,000.00
Days sales outstanding (DSO) (365-day year) 40.00
Inventory turnover ratio 4.80
Current ratio 1.20
CGS 70% of sales

The company’s current assets consist of cash, inventories, and accounts


receivable. How much cash does Taft have on its balance sheet?

Q13. Lombardi Trucking Company has the following data:

Assets $10,000
Profit margin 3.0%
Tax rate 40%
Debt ratio 60.0%
Interest rate 10.0%
Total assets turnover 2.0
What is Lombardi’s TIE ratio?

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