836 Words Mar 26th, 2011 4 Pages
Problems (Page 112) 3-1 to 3.7,

3-1 Greene Sisters has a DSO of 20 days. The company’s average daily sales are \$20,000.
What is the level of its accounts receivable? Assume there are 365 days in a year.

Day Sales Outstanding= Receivables / Average Sales per day

AR = 20 X \$20000 = \$400,000

3-2 Vigo vacations has an equity multiplier of 2.5.The company’s assets are financed assets with some combination of long-term debt and common equity. What is the company’s debt ratio?

The equity multiplier is 2.5. This means that for every dollar of equity the company has \$2.5 of assets

Equity Multiplier = 2.5
Therefore Equity Ratio = 1/EM
Equity Ratio = 1/2.5 = 0.40 the formula is:
Debt Ratio + Equity Ratio
What is the firm’s equity multiplier?

A/Asset turn over = ROE/ profit margin
Asset turn over = 10%/ 2% = 5

B/ ROE = (Profit margin) (Total assets turnover) (Equity multiplier)

Equity multiplier = ROE/ profit margin X asset turn over

Equity multiplier = 15 % / 5x 2 % = 1.5

3-7 Ace Industries has current assets equal to \$3 million. The company’s current ratio is 1.5, and its quick ratio is 1.0.

What is the firm’s level of current liabilities? What is the firm’s level of inventories?