Below is selected financial data on Peter Parker Insect Control Company.

Net profit margin: 8.6%

COGS $3,700,000

Addition to retained earnings: $115,000

Current ratio: 2.5

Price-earnings ratio: 15.2

Current liabilities: $400,000

Fixed asset turnover: 1.5

Gross margin: 26%

Equity multiplier: 1.75

Common shares: 650,000

Determine the following (show all calculations):

a. Fixed assets (2 points) - round to nearest $

b. Total assets (2 points) - round to nearest $

c. Total liabilities (2 points) - round to nearest $

d. Return on equity (2 points) - use 2 decimals

e. Share price (2 points) - use 2 decimals

Solutions

Expert Solution

Answer to Part a:
Gross Margin = (Sales – COGS) / Sales
0.26 = (Sales - $3,700,000) / Sales
0.26 * Sales = Sales - $3,700,000
$3,700,000 = 0.74* Sales
Sales = $5,000,000

Fixed Assets Turnover = Sales / Fixed Assets
1.5 = $5,000,000 / Fixed Assets
Fixed Assets = $3,333,333

Answer to Part b:
Current Ratio = Current Assets / Current Liabilities
2.5 = Current Assets / $400,000
Current Assets = $1,000,000

Total Assets = Current Assets + Fixed Assets
Total Assets = $1,000,000 + $3,333,333
Total Assets = $4,333,333

Answer to Part c:
Equity Multiplier = Total Assets / Total Equity
1.75 = $4,333,333 / Total Equity
Total Equity = $2,476,190

Total Assets = Total Liabilities + Total Equity
$4,333,333 = Total Liabilities + $2,476,190
Total Liabilities = $1,857,143

Answer to Part d:
Net Profit Margin = Net Income / Sales
0.086 = Net Income / $5,000,000
Net Income = $430,000

Return on Equity = Net Income / Equity * 100
Return on Equity = $430,000 / $2,476,190 * 100
Return on Equity = 17.37%

Answer to Part e:
Earnings per Share = Net Income / Shares Outstanding
Earnings per Share = $430,000 / 650,000
Earnings per Share = $0.66

Price-Earnings Ratio = Share Price per Share / Earnings per Share
15.2 = Share Price per Share / $0.66
Share Price per Share = $10.03

jeff jeffy answered 2 years ago

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