1.

Following information is given for a firm:

Net income 500,000

Income tax expense 150,000
Interest expense 90,000
Stockholders’ equity at the beg of the yr 2,000,000
Stockholders’ equity at the end of the yr 2,400,000

Based on the information above, calculate:

a) Times interest earned 8.22

Operating Income = EBIT = 500,000+150,000+90,000=740,000
Times Interest Earned = Operating Income/Interest Expense
=740,000/90,000 = 8.22
b) Return on stockholders’ equity %22.72
ROE = Net Income/Average Stockholders’ Equity
= 500,000/2,200,000 = 22.73%

2. At the end of the year, the following data is recorded for a given firm:

Cash 15,000
Accounts receivable 40,000
Inventory 95,000
Prepaid Insurance 7,000
Long-term Assets 300,000
Accounts Payable 40,000
Notes Payable due in 10 months 27,500
Wages Payable 5,500
Long Term Liabilities 75,000
Stockholders’ Equity 180,000

Based on the information above, calculate the following:

a) Current ratio 2.15

Current Assets = 15,000+40,000+95,000+7,000 = 157,000
Current Liabilities = 40,000+27,500+5,500 = 73,000
Current Ratio = Current Assets/Current Liabilities
=157,000/73,000 = 2.15
b) Quick ratio 0.75
Quick Ratio = (15,000+40,000)/73,000 = 0.75

3. An analysis of Nx Corp. Income statement indicates that Net Income corresponds

to 7.2% of Total Sales. Given that Asset Turnover ratio of Nx Corp. is 1.25 and Total
Debt ratio is 33%, calculate ROE for Nx Corp. 13.4%
ROE = Net Income/Equity = (Net Income/Sales)x(Sales/Assets)x(Assets/Equity)
= (7.2%).(1.25).(100/67)=13.4%

4. Depeche Fashion Inc. (DF Inc.) realized $785,000 worth of sales. Gross profit
margin for DF Inc. is calculated as 26%. End of the year balance sheet states
that DF Inc. has inventory worth $140,000 and accounts receivable worth
$252,000. On average, how many days pass for the company to sell its
inventory and collect its accounts receivable? 205 days
Inventory Turnover = (785,000x0.74)/140,000 = 4.15
Days of Sales in Inventory = 365/4.15 = 87.9
Accounts Receivable = 785,000/252,000 = 3.11
Average Collection Period = 365/3.11 = 117.4
87.9+117.4 = 205.3 days

5. P/E ratio of Muse Inc. is 5.2. Number of shares outstanding is 320,000 and
Muse Inc. ‘s stocks are priced at $6.85. Income statement reveals that tax rate
of the company is 24%, interest expense and depreciation expense are equal
to $25,200 and $34,750, respectively. Compute the P/EBITDA ratio for Muse
Inc. 3.57
$6.85/Earnings per share = 5.2 => EPS = $1.32 => Net Income = ($1.32).(320,000) =
$422,400
EBT = $422,400/0.76 = $555,789
EBIT=$555,789+$25,200 = $580,989
EBITDA = $580,989+$34,750 = $615,739
EBITDA per share = $615,739/320,000 = $1.92
P/EBITDA = $6.85/$1.92 = 3.57