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Financial Accounting Essay

960 words - 4 pages

Homework 2
1. ABC earned a net profit margin of 6.7% last year and had an equity multiplier of 3.5. If its total assets are $97 million and its sales are 171 million, what is the firm's return on equity?
Enter your answer in percentages rounded off to two decimal points.
Answer:
Net profit margin = Net profit / sales
Sales = 171 million
Net profit margin = 6.7%
Net profit = 171 * 6.7% = 11.46 million
Equity multiplier = Total assets/ shareholders equity
3.5 = 97 / shareholders’ equity
Equity = 97/3.5 = 27.71
Return on Equity = Net profit /Equity
= 11.46/27.72 = 41.34%

2. ABC's balance sheet indicates a book value of shareholders' equity of ...view middle of the document...

35
Return on Equity = Net profit / Equity
24% = 10.35/ Equity
Equity = 10.35/24% = 43.13
Debt = Total Assets – Equity
= 106 – 43.13 = 62.87
Debt Ratio = Total Debt / Total Assets
= 62.87/106
= 59.31%
5. ABC, Inc., has a market-to-book ratio of 3, net income of $84,265, a book value per share of $21.4, and 56,858 shares of stock outstanding. What is the price-earnings ratio?
Enter your answer rounded off to two decimal points.
Answer:
Market- to – book ratio = Market price / Book value
3 = Market price /21.4
Market price = 3* 21.4 = 64.2 per share
EPS = net income / shares
= 84,265/56,858 = 1.48
Price – earnings ratio = market price / EPS
= 64.2/1.48 = 43.38

6. XYZ earned a net profit margin of 6.1% last year and had an equity multiplier of 2.4. If its total assets are $83 million and its sales are 168 million, what is the firm's debt ratio?
Enter your answer in percentages rounded off to two decimal points.
Answer:
Net profit margin = Net profit / sales
6.1% = Net profit / 168
Net profit = 168 * 6.1% = 10.25
Equity multiplier = Total assets/ shareholders equity
2.4 = 83 / shareholders’ equity
Equity = 83/2.4 = 34.58
Debt = Total Assets – Equity
= 83 – 34.58 = 48.42
Debt Ratio = Total Debt / Total Assets
= 48.42/ 83
=58.34%

7. ABC's balance sheet indicates a book value of shareholders' equity of $851,637. The firm's earning per share are $3.4 and the price-earnings ratio is 12.34. If there are 54,693 shares outstanding, what is the book value per share?
Enter your answer rounded off to two decimal points.
Hint: Market value per share is same as market price per share
Answer:
Book value per share = Book value of shareholder’s equity / shares
...

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