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Chapter 2: 2BP (page 114)

Philip Morris expects the sales for his clothing company to be \(550,000 next year. Philip notes that net assets (Assets - Liabilities) will remain unchanged. His clothing firm will enjoy a 12 percent return on total sales. He will start the year with \)150,000 in the bank. What will Philip’s ending cash balance be?

Short Answer

Expert verified

The Cash Balance for the end of the year is $216,000

Step by step solution

01

Expected Profit earned

Profitearned=Expectedsales×Rateofreturn=$550,000×12%=$66,000

02

Cash balance at the end of the year

Particulars

Amount (S)

Opening cash balance

$150,000

Add: Profit earned

66,000

Closing Cash Balance

$216,000

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Most popular questions from this chapter

Using the income statement for Times Mirror and Glass Co., compute the following ratios:

The total assets for this company equal \(80,000. Set up the equation for the Du Pont system of ratio analysis, and compute c, d, and e.

d. Total assets turnover ratio.

Times mirror and glass company

Sales

\)126,000

Less: Cost of goods sold

93,000

Gross profit

\(33,000

Less: selling and administrative expenses

11,000

Lease Expenses

4,000

Operating profit*

\)18,000

Less: Interest expenses

3,000

Earning before taxes

\(15,000

Less: Taxes (30%)

4,500

Earning after taxes

\)10,500

*equal income before interest and taxes

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.

Inflation can have significant effects on income statements and balance sheets, and therefore on the calculation of ratios. Discuss the possible impact of inflation on the following ratios, and explain the direction of the impact based on your assumptions. (LO3-5)

c. Fixed asset turnover

What is the difference between accumulated depreciation and depreciation expense? How are they related?

Billy’s Crystal Stores Inc. has assets of $5,960,000 and turns over its assets 1.9 times per year. Return on assets is 8 percent. What is the firm’s profit margin (return on sales)?
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