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In: Finance

1) From the WSJ 12/15/19: “Three years ago, Simon Brown, a 36-year-old public-relations professional in Washington,...

1) From the WSJ 12/15/19: “Three years ago, Simon Brown, a 36-year-old public-relations professional in Washington, D.C., purchased a 1938 Joe DiMaggio baseball card for $1,500. Its value now: $2,500, up about two-thirds, based on sales records for comparable cards, he says.” What is Simon Brown’s annual rate of return on his investment (hint: it is not 2/3

2) You are given the following information: Cash = $407, Inventory = $579, Notes payable = $301, Long-term debt = $1,680, Accounts payable = $393, Accounts receivable = $265, Net fixed assets= $6,141 and Total shareholder equity = ???. Build a balance sheet and solve for and include shareholder’s equity. a.What is the company’s quick ratio? b.What is the company’s total debt to equity ratio? c.What is the company’s total working capital

Expert Solution

Answer to 1: Calculation of annual rate of return on investment:

Amount invested 3 years ago: $ 1500, Current year value= $ 2500

Appreciation in value of investment= 2500-1500

= $ 1000

Annual Rate of Return = ((Capital Appreciation*100)/ Investment)* 1/ No. of years

= ((1000*100)/1500)/3

= 100000/4500

= 22.2222222222%

Answer 2: Calculation of various ratio:

Preparation of Balance Sheet

Liabilities & Equity	Amount	Assets	Amount
Notes Payable	301.00	Cash	407.00
Long Term Debt	1,680.00	Inventory	579.00
Accounts Payable	393.00	Accounts Receivable	265.00
Shareholder's Equity (Balancing Figure)	5,018.00	Net Fixed Assets	6,141.00

Total	7,392.00	Total	7,392.00

Calculation of Ratios:

a. Quick Ratio= Quick Assets/ Current Liabilites

Quick Assets excludes inventory.

Therefore Quick Assets = Cash + Accounts Receivable

=407+265

= $ 672

Current Liabilites= Notes Payable +Accounts Payable

=301+393

= $ 694

Quick Ratio= 672/694

= 0.9683

b. Total Debt to Equity Ratio= Total Debt / Equity

Total Debt= Long Term Debt + Current Liabilities

= 1680+694

= $ 2374

Equity = $ 5018

Total Debt to Equity Ratio= 2374/5018

= 0.4731

c. Total Working Capital: Working Capital is of two types:

Gross Working Capital (Total Working Capital): It means only the total of current assets

Net Working Capital = Current Assets - Current Liabilites

Current Assets= Cash+ Inventory + Accounts Receivable

= 407+579+265

=$ 1251

Total Working Capital = $ 1251

Net Working Capital = 1251-694

=$557

jeff jeffy answered 2 years ago

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