HW 2 Fundamentals of corporate finance

4171 Words Jan 21st, 2015 17 Pages
Score: 120

1.

out of 120 points (100%)

award:

10 out of
10.00
points
Just Dew It Corporation reports the following balance sheet information for 2011 and 2012.
JUST DEW IT CORPORATION
2011 and 2012 Balance Sheets
Assets
2011
Current assets
Cash
Accounts receivable
Inventory
Total

Liabilities and Owners’ Equity
2011

2012

$ 11,000
27,000
75,000

$ 14,250
36,750
96,250

$ 113,000

$147,250

Current liabilities
Accounts payable
Notes payable

2012

$ 54,000
14,800

$ 63,750
20,500

$ 68,800

$ 84,250

Long-term debt
Owners’ equity
Common stock and paid-in surplus
Retained earnings

$ 50,000

$ 40,000

$ 55,000
226,200

$ 55,000
320,750

Total

Net plant and equipment

$287,000

$352,750

Total

$281,200

$375,750

Total assets

$400,000
…show more content…
Quick ratio
Quick ratio 2011
Quick ratio 2012

= (Current assets – Inventory) / Current liabilities
= ($113,000 − 75,000) / $68,800 = 0.55 times
= ($147,250 − 96,250) / $84,250 = 0.61 times

c.

Cash ratio
Cash ratio 2011
Cash ratio 2012

= Cash / Current liabilities
= $11,000 / $68,800 = 0.16 times
= $14,250 / $84,250 = 0.17 times

d.

NWC ratio
NWC ratio 2011
NWC ratio 2012

= NWC / Total assets
= ($113,000 – 68,800) / $400,000 = 11.05%
= ($147,250 − 84,250) / $500,000 = 12.60%

e.

Debt-equity ratio
Debt-equity ratio 2011
Debt-equity ratio 2012

= Total debt / Total equity
= ($68,800 + 50,000) / $281,200 = 0.42 times
= ($84,250 + 40,000) / $375,750 = 0.33 times

Equity multiplier
Equity multiplier 2011
Equity multiplier 2012

= 1 + D/E
= 1 + 0.42 = 1.42
= 1 + 0.33 = 1.33

f.

Total debt ratio
Total debt ratio 2011
Total debt ratio 2012

= (Total assets – Total equity) / Total assets
= ($400,000 − 281,200) / $400,000 = 0.30 times
= ($500,000 − 375,750) / $500,000 = 0.25 times

Long-term debt ratio
Long-term debt ratio 2011
Long-term debt ratio 2012

= Long-term debt / (Long-term debt + Total equity)
= $50,000 / ($50,000 + 281,200) = 0.15 times
= $40,000 / ($40,000 + 375,750) = 0.10 times

2.

award:

10 out of
10.00
points
Isolation Company has a debt–equity ratio of 0.80. Return on assets is 8.0 percent, and total equity is
$532,000.
What is the equity multiplier? (Round your answer to 2 decimal places. (e.g., 32.16))
Equity
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