Problem 1: Jerry Rice and Grain Stores have $4,000,000 in yearly sales. The firms earn 3.5 percent on each dollar of sales and turns over its assets 2.5 times per year. It has $100,000 in current liabilities and $300,000 in long term liabilities.
a. What is its return on stockholders' equity?
b. If the base remains the same as computed in part a, but total asset turnover goes up to3, what will be the new return on stockholders' equity?
Assume that the profit margin stays the same as do current and long term liabilities.
Problem 2: Assume the following data Cable Corporation and Multi-Media, Inc.
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Cable Corporation
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Multi-Media, Inc.
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Net Income
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$30,000
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$100,000
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300,000
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2,000,000
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400,000
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900,000
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150,000
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450,000
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250,000
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450,000
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a. Compute return on stockholders' equity for both firms using ration 3a. Which firm has the higher return?
b. Compute the following additional ration for both firms.
Net income/Sales
Net Income/Total assets
Sales/Total assets
Debt/Total assets
c. Discuss the factor from part b that added or detracted from one firm having a higher return on stockholders' equity than the other firms as computed in part a.
Problem 3: A firm has sales of $1.2 million, and 10 percent of the sales are for cash. The year-end accounts receivable balance is $ 180,000. What is the average collection period? (Use a 360 day year)
Problem 4: The Chamberlain Corporation has an accounts receivables turnover equal to 12 times. If accounts receivables are equal to $90,000, what is the value for average daily credit sales?