Question

terrible long question ... please help! manengiral accounting

Assume that you are purchasing an investment and have decided to invest in a company in the Your strategy is to invest in companies that have low price/earnings ratios but appear to be in digital phone business. You have narrowed the choice to Better Digital Corp. and Every Zone, Inc. good shape financially. Assume that you have analyzed all other factors and that your decision and have assembled the following data. depends on the results of ratio analysis. Click to view the income statement data) Read the requirements 3 Click to view the balance sheet and market price data) Requirement 1a. Compute the acid-test ratio for both companies for the current year, Begin by selecting the formula to compute the acid-test ratio. Acid-test ratio = (Cash + Short-term investments Accounts receivable, net)/Total current liabilities Now, compute the acistest ratio for both companies. (Round your answers to two decimal places, X.XX.) Better Digital Every Zone Acid-test ratio .87 Requirement 1b. Compute the inventory tumover for both companies for the current year. Choose from any list or enter any number in the input fields and then continue to the next question

Answer 1

1) Answer:-

(a) Acid-test ratio = (Cash + ST Investments + AR) / CL

Better Digital: $(28,000 + 41,000 + 35,000) / $104,000 = $104,000/$104,000 = 1

Every Zone = $(21,000 + 14,000 + 48,000) / $95,000 = $83,000 / $95,000 = 0.87

(b) Inventory turnover - COGS / Average inventory

Better Digital: $209,000 / [$(66,000 + 80,000) / 2] = $209,000 / $73,000 = 2.86

Every Zone: $260,000 / [$(100,000 + 86,000) / 2] = $260,000 / $93,000 = 2.80

(c) Days' sales in receivables = 365 x Average account receivable / Credit Sales

Better Digital: 365 x [$(35,000 + 40,000) / 2] / $423,035 = 365 x $37,500 / $423,035 = 32.36

Every Zone: 365 x [$(48,000 + 51,000) / 2] / $496,035= 365 x $49,500 / $496,035= 36.42

(d) Debt ratio = TL / TA

Better Digital: $104,000 / $261,000 = 0.3985 = 39.85%

Every Zone: $134,000 / $329,000 = 0.4073 = 40.73%

(e) EPS = (NI - Preferred dividend) / WACS

Better Digital: $(60,000 - 0) / [(10,000 + 10,000) / 2] = $60,000 / 10,000 = $6

Every Zone: $(76,000 - 0) / [(15,000 + 15,000) / 2] = $76,000 / 15,000 = $5.07

(f) P/E = Market price / EPS

Better Digital: $96 / $6 = 16.00

Every Zone: $131.82 / $5.07= 26.00

(g) Dividend payout = DPS / EPS

Better Digital: $0.90/ $6 = 0.15

Every Zone $0.70 / $5.07= 0.19

2) Better Digital is a better company to invest in as it is available at cheap valuation with better liquidity and less Debt as compared to Every Zone

I HOPE IT USEFUL TO YOU IF YOU HAVE ANY DOUBT PLZ COMMENT GIVE ME UP-THUMB. THANKS..