Name: Kenisha Manicksingh

Student ID: 2022071

Chapter 3 Review Solutions

1. Cash Ratio = 2.5 = (Cash + Cash Equivalent) / CL

Cash = (2.5 x 700) – 500 = 1,250

2. Current Ratio = CA / CL = 1.2

Quick Ratio = (CA – Inventory) / CL = 0.75
1.2CL – Inventory = 0.75CL
0.45CL = Inventory = 280x0.45 = 126

3. NWC Ratio = NWC / TA = (CA-CL) / TA

= (200+50+200 – 250) / 200 + 50 + 200 + 450 = 0.22

4. Times interest earned = EBIT/Interest

= (3,300 - 2,310 - 330) / 420 = 1.57

5. TIE = EBIT/Interest
EBIT = 4,700 – 1,650 – 700 = 2,350; Interest = 2,350/10 = 235
Net Income = (2,350 – 235) x (1-0.34) = 1395.90

6. Total Debt Ratio = (TA-TE)/TA

TA - TE = 0.40 x 1,000 = 400
TE = 1,000 – 400 = 600

7. D/E = 0.6
TD = 450K
E = 750K
Total Asset = TD + TE = 1,200K

8. AR = 5K
Day sales in AR = 36.5
Receivable Turnover = 365 / 36.5 = 10
Sales = AR x Receivable Turnover = 50K

9. NWC Turnover = Sales / NWC = 20

CA = TE+TL – FA = 320 + 280 - 400 = 200
Sales = [200 - (280 - 155)] x 20 = 1,500

10. ROE = ROA x A / E

0.05 = 0.08 x A / 500
A = 312.50
11. ROE = NI / E
E = 150
0.15 = NI / 150
NI = 22.5

12. Price / Earning = 8

Earning = 25 / 8 = 3.125 per share
NI = 3.125 x 1M = 3.125M