Question

m AA newconnect.mheducation.com Dashboard Chapter 4 Homework Homework Help Save & Exit Submit Check my work Long-term debt ratio Times interest earned Current ratio Quick ratio Cash ratio Inventory turnover Average collection period 0.4 10.0 1.2 1.0 2.5 4.0 73 days Use the above information from the tables to work out the following missing entries, and then calculate the company's return on equity. Note: Turnover and the average collection period are calculated using start-of-year, not average, values. (Enter your answers in millions. Round intermediate calculations and final answers to 2 decimal places.) $ 190,00 INCOME STATEMENT (Figures in 5 millions) Net sales Cost of goods sold Selling, general, and administrative expenses Depreciation Earnings before interest and taxes (EBIT) Interest expense Income before tax Tax (35% of income before tax) Net income 14.00 24.00 BALANCE SHEET (Figures in $ millions) This Year Last Year

Answer 1

Ans.

INCOME STATEMENT
(Figures in $ millions)
Net sales	$         190.00
Cost of goods sold	$         120.00
Selling, general, and administrative expenses	$           14.00
Depreciation	$           24.00
Earnings before interest and taxes (EBIT)	$           32.00
Interest expense	$             3.20
Income before tax	$           28.80
Tax (35% of income before tax)	$           10.08
Net income	$           18.72

BALANCE SHEET
(Figures in $ millions)
	This Year	Last Year
Assets
Cash and marketable securities	$          37.50	$          24.00
Accounts receivable	$          37.50	$          38.00
Inventories	$          15.00	$          30.00
Total current assets	$          90.00	$          92.00
Net property, plant, and equipment	$          50.00	$          29.00
Total assets	$        140.00	$       121.00
Liabilities and shareholders' equity
Accounts payable	$          35.00	$          30.00
Notes payable	$          40.00	$          45.00
Total current liabilities	$          75.00	$          75.00
Long-term debt	$          56.00	$          24.00
shareholders' equity	$            9.00	$          22.00
Total liabilities and shareholders' equity	$        140.00	$       121.00

Working Notes:

Current liabilities = Accounts Payable + Notes Payable
Current liabilities = $35.00 + $40.00
Current liabilities = $75.00

Current Ratio = Current Assets / Current Liabilities
1.2 = Current Assets / $75.00
Current Assets = $90.00

Quick Ratio = (Current Assets - Inventories) / Current Liabilities
1.0 = ($90.00 - Inventories) / $75.00
$75.00 = $90.00 - Inventories
Inventories = $15.00

Cash Ratio = Cash and Marketable Securities / Current Liabilities
0.5 = Cash and Marketable Securities / $75.00
Cash and Marketable Securities = $37.50

Current Assets = Cash and Marketable Securities + Inventories + Accounts Receivable
$90.00 = $37.50 + $15.00 + Accounts Receivable
Accounts Receivable = $37.50

Total Assets = Total Liabilities and Shareholders' Equity
Total Assets = $140.00
Total Current Assets + Net Property, plant and equipment = $140.00
$90.00 + Net Property, plant and equipment = $140.00
Net Property, plant and equipment = $50.00

Long-term Debt Ratio = Long-term Debt / Total Assets
0.40 = Long-term Debt / $140.00
Long-term Debt = $56.00

Total Liabilities and Shareholders' Equity = Total Current Liabilities + Long-term Debt + Shareholders' Equity
$140.00 = $75.00 + $56.00 + Shareholders' Equity
Shareholders' Equity = $9.00

Average Collection Period = 365 * Beginning Accounts Receivable / Net Sales
73 = 365 * 38 / Net Sales
Net Sales = $190.00

Inventory Turnover = Cost of Goods Sold / Beginning Inventory
4.00 = Cost of Goods Sold / $30
Cost of Goods Sold = $120.00

EBIT = Net Sales - Cost of Goods Sold - Selling, general and administrative expenses - Depreciation
EBIT = $190.00 - $120.00 - $14.00 - $24.00
EBIT = $32.00

Times Interest Earned = EBIT / Interest Expense
10.00 = $32.00 / Interest Expense
Interest Expense = $3.20

Income before tax = EBIT - Interest Expense
Income before tax = $32.00 - $3.20
Income before tax = $28.80

Tax = 35% * Income before tax
Tax = 35% * $28.80
Tax = $10.08

Net Income = Income before tax - Tax
Net Income = $28.80 - $10.08
Net Income = $18.72