Question

1. Braswell & Associates has a DSO of 27 days, and its annual sales are $6,200,000. What is its accounts receivable balance? Assume it uses a 365-day year.

	a.	$167,400,000
	b.	$629
	c.	$344,130
	d.	$229,630
	e.	$458,630

2.A firm has a profit margin of 2.5 percent and an equity multiplier of 2. Its sales are $120 million and it has total assets of $30 million. What is its return on equity (ROE)?

	a.	1.25%
	b.	20.00%
	c.	32.00%
	d.	5.00%
	e.	10.00%

3.

You are given the following information about a company:

Shareholders’ equity (from balance sheet)	$1,588,000
Price / earnings ratio	6.7
Common shares outstanding	66,000
Market / book ratio	1.9

Calculate the price of a share of the company’s common stock.

	a.	$161.21
	b.	$84.85
	c.	$19.34
	d.	$45.72
	e.	$6.82

Answer 1

1. The amount is computed as follows:

= (DSO x Sales) / 365 days

= (27 x $ 6,200,000) / 365

= $ 458,630

2. Return on equity is computed as follows:

= profit margin x Equity multiplier x Sales / Total Assets

= 0.025 x 2 x $ 120 million / $ 30 million

= 20.00%

3. Price is computed as follows:

= Market to book ratio x book value per share

book value per share is computed as follows:

= Shareholder's Equity / Number of shares outstanding

= $ 1,588,000 / 66,000

= $ 24.06060606

So, the price will be as follows:

= 1.9 x $ 24.06060606

= $ 45.72 Approximately