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Chapter 2: 18BP (page 81)
A firm has sales of \(3 million, and 10 percent of the sales are for cash. The year-end accounts receivable balance is \)285,000. What is the average collection period? (Use a 360-day year.)
The average collection period of the firm is 38 days.
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Stilley Corporation had earnings after taxes of \(436,000 in 20X2 with 200,000 shares outstanding. The stock price was \)42.00. In 20X3, earnings after taxes declined to \(206,000 with the same 200,000 shares outstanding. The stock price declined to \)27.80.
a. Compute earnings per share and the P/E ratio for 20X2.
b. Compute earnings per share and the P/E ratio for 20X3.
c. Give a general explanation of why the P/E changed. You might want to
consult the text to explain this surprising result.
Easter Egg and Poultry Company has \(2,000,000 in assets and \)1,400,000 of debt. It reports net income of $200,000.
a. What is the firm’s return on assets?
Prepare an income statement for Franklin Kite Co. Take your calculations all the way to computing earnings per share.
Sales | $900,000 |
Shares outstanding | 50,000 |
Cost of goods sold | 400,000 |
Interest expenses | 40,000 |
Selling and administration expenses | 60,000 |
Depreciation expenses | 20,000 |
Preferred stock dividend | 80,000 |
Taxes | 50,000 |
Assume the following data for Cable Corporation and Multi-Media Inc.
Capable corporation | Muli-media inc | |
Net income | \(31,200 | \)140,000 |
Sales | 317,000 | 2,700,000 |
Total assets | 402,000 | 965,000 |
Total debts | 163,000 | 542,000 |
Stockholder’s equity | 239,000 | 423,000 |
c. Discuss the factors from part b that added or detracted from one firm
having a higher return on stockholders’ equity than the other firm as
computed in part a.
Explain how the Du Pont system of analysis breaks down return on assets. Also explain how it breaks down return on stockholders’ equity
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