Question

In: Accounting

The balance sheet and income statement shown below. Note that the firm has no amortization charges,...

The balance sheet and income statement shown below. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over.

Balance Sheet (Millions of $)
Assets 2019
Cash and securities $ 2,500
Accounts receivable 11,500
Inventories 16,000
Total current assets $30,000
Net plant and equipment $20,000
Total assets $50,000
Liabilities and Equity
Accounts payable $ 9,500
Accruals 5,500
Notes payable 7,000

Total current liabilities

$22,000
Long-term bonds $15,000
Total liabilities $37,000
Common stock $ 2,000
Retained earnings 11,000
Total common equity $13,000
Total liabilities and equity $50,000
Income Statement (Millions of $) 2019
Net sales $87,500
Operating costs except depreciation 81,813
Depreciation 1,531
Earnings bef interest and taxes (EBIT) $ 4,156
Less interest 1,375
Earnings before taxes (EBT) $ 2,781
Taxes 973
Net income $ 1,808
Other data:
Shares outstanding (millions) 500.00
Common dividends $632.73
Int rate on notes payable & L-T bonds 6.25%
Federal plus state income tax rate 35%

Year-end stock price

$43.39

What is the firm's BEP?

What is the firm's current ratio?

What is the firm's book value per share?

What is the firm's days sales outstanding? Assume a 365-day year for this calculation.

Solutions

Expert Solution

Answer:

1) The firm's BEP is calculated as

               BEP = EBIT/ Total Assets
                     = $4,156/$50,000

                     = 0.08312 i.e. 8.312%

2)    current ratio = Current Assets / Current liabilities
                               = $30,000 / $22,000
                               = 1.36 times

3) Book value per share = Equity / Number of shares outstanding
                                   = $13000/ 500
                                   = $26 per share

4) Firms Days Sales Outstanding = [Average Accounts Receivables / Net credit Sales] * 365

= [11,500 / 87,500] * 365

= 47.97 Days in a Year

Note: Assume all net sales are credit sales


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