Question

The balance sheet and income statement shown below are for Koski Inc. 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 $4,200 Accounts receivable 17,500 Inventories 20,300 Total current assets $42,000 Net plant and equipment $28,000 Total assets $70,000 Liabilities and Equity Accounts payable $27,531 Accruals 12,369 Notes payable 5,000 Total current liabilities $44,900 Long-term bonds $9,000 Total liabilities $53,900 Common stock $3,864 Retained earnings 12,236 Total common equity $16,100 Total liabilities and equity $70,000

Income Statement (Millions of $) 2019

Net sales $112,000 Operating costs except depreciation 104,160 Depreciation 2,240 Earnings before interest and taxes (EBIT) $5,600 Less interest 840 Earnings before taxes (EBT) $4,760 Taxes 1,190 Net income $3,570

Other data:

Shares outstanding (millions) 500.00 Common dividends (millions of $) $1249.50 Int rate on notes payable & L-T bonds 6% Federal plus state income tax rate 25% Year-end stock price $68.54

Refer to Exhibit 4.1. What is the firm's total debt to total capital ratio? Do not round your intermediate calculations.

Refr to Exhibit 4.1 What is the firm's days sales outstanding? Assume a 365-day year for this calculation. Do not round your intermediate calculations.

Refer to Exhibit 4.1. What is the firm's current ratio? Do not round your intermediate calculations.

Refer to Exhibit 4.1. What is the firm's BEP? Do not round your intermediate calculations.

excel answer

Answer 1

Part A)

The debt to capital ratio is calculated as below:

Debt to Capital Ratio = Total Debt/Total Capital

where, Total Debt = Total Liabilities = $53,900 and Total Capital = Total Liabilities + Total Stockholer's Equity = 53,900 + 3,864 + 12,236 = $70,000

Using these values in the above formula, we get,

Debt to Capital Ratio = 53,900/70,000 = 77%

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Part B)

The value of days sales outstanding is arrived as below:

Days Sales Outstanding = 365/Accounts Receivable Turnover Ratio

where, Accounts Receivable Turnover Ratio = Net Sales/Accounts Receivables = 112,000/17,500 = 6.40

Days Sales Outstanding = 365/6.40 = 57.03 days

_____

Part C)

The current ratio is calculated as follows:

Current Ratio = Total Current Assets/Total Current Liabilities

where, Total Current Assets = $42,000 and Total Current Liabilities = $44,900

Using these values in the above formula, we get,

Current Ratio = 42,000/44,900 = 0.94

_____

Part D)

The value of firm's BEP is derived as below:

BEP = EBIT/Total Assets

where, EBIT = $5,600 and Total Assets = $70,000

Using these values in the above formula, we get,

BEP = 5,600/70,000 = 8%