财务管理课后答案第三章docx.docx

1、财务管理课后答案第三章docxChapter 3Discussion Questions3-1. If we divide users of ratios into short-term lenders, long-term lenders, andstockholders, in which ratios would each group be most interested, and for what reasons?Short-term lenders-Iiquidity ratios because their concern is with the firms ability to

2、pay short-term obligations as they come due.Long-term lenders-leverage ratios because they are concerned with the relationship of debt to total assets- They also will examine profitability to insure that interest payments can be madeStockholders-profitability ratios, with secondary consideration giv

3、en to debt utilization, liquidity, and other ratios. Since stockholders are the ultimate owners of the firm, they are primarily concerned with profits or the return on their investment.3-2. Explain how the Du Pont system of analysis breaks down return on assets. Alsoexplain how it breaks down return

4、 on stockholders equity.The Du Pont system of analysis breaks out the return on assets between the profit margin and asset turnover.Return on Assets 二 Profit Margin x Asset TurnoverNet income Net income Sales = x Total assets Sales Total assetsIn this fashion, we can assess the joint impact of profi

5、tability and asset turnover on the overall return on assets. This is a particularly useful analysis because we can determine the source of strength and weakness for a given firm. For example, a company in the capital goods industry may have a high profit margin and a low asset turnover, while a food

6、 processing firm may suffer from low profit margins, but enjoy a rapid turnover of assets.The modified form of the Du Pont formula shows:“ Return on assets (investment)Return on equity = r-. 丄 ； M ) (1-Debt/Assets)This indicates that return on stockholders equity may be influenced by return on asset

7、s, the debt-to-assets ratio or a combination of both. Analysts or investors should be particularly sensitive to a high return on stockholders9 equity that is influenced by large amounts of debt.3-3.If the accounts receivable turnover ratio is decreasing, what will be happening to the average collect

8、ion period?If the accounts receivable turnover ratio is decreasing, accounts receivable will be on the books for a longer period of time. This means the average collection period will be increasing.3-4.What advantage does the fixed charge coverage ratio offer over simply using times interest earned?

9、The fixed charge coverage ratio measures the finrTs ability to meet all fixed obligations rather than interest payments alone, on the assumption that failure to meet any financial obligation will endanger the position of the firm.3-5.Is there any validity in rule-of-thumb ratios for all corporations

10、, for example, a current ratio of 2 to 1 or debt to assets of 50 percent?No rule-of-thumb ratio is valid for all corporations- There is simply too much difference between industries or time periods in which ratios are computed. Nevertheless, rules-of-thumb ratios do offer some initial insight into t

11、he operations of the firm, and when used with caution by the analyst can provide information.3-6.Why is trend analysis helpful in analyzing ratios?Trend analysis allows us to compare the present with the past and evaluate our progress through time. A profit margin of 5 percent may be particularly im

12、pressive if it has been running only 3 percent in the last ten years. Trend analysis must also be compared to industry patterns of change.3-7.Inflation can have significant effects on income statements and balance sheets, and therefore on the calculation of ratios. Discuss the possible impact of inf

13、lation on the following ratios, and explain the direction of the impact based on your assumptions.a.Return on investment.b.Inventory turnoverc.Fixed asset turnover.d.Debt-to-assets ratio.r Net incomea.Return on investment = Total assetsInflation may cause net income to be overstated and total assets

14、 to be understated causing an artificially high ratio that is misleading.S ales b Inventory turnover = InventoryIn flation may cause sales to be overstated. If the firm uses FIFO accounting, inventory will also reflect inflation-influenced dollars and the net effect will be nil.If the firm uses LIFO

15、 accounting, inventory will be stated in old dollars and too high a ratio could be reported.Fixed assets will be understated relative to their replacement cost and to sales and too high a ratio could be reported.3-8.Since both are based on historical costs, no major inflationary impact will take pla

16、ce in the ratio.What effect will disinflation following a highly inflationary period have on the reported income of the firm?Disinflation tends to lower reported earnings as inflation-induced income is squeezed out of the firm5s income statement. This is particularly true for firms in highly cyclica

17、l industries where prices tend to rise and fall quickly.Why might disinflation prove to be favorable to financial assets?Because it is possible that prior inflationary pressures will no longer seriously impair the purchasing power of the dollar, lessening inflation also means that the required retur

18、n that investors demand on financial assets will be going down, and with this lower demanded return, future earnings or interest should receive a higher current evaluation.3-10.Comparisons of income can be very difficult for two companies even though they sell the same products in equal volume. Why?

19、There are many different methods of financial reporting accepted by the accounting profession as promulgated by the Financial Accounting Standards Board. Though the industry has continually tried to provide uniform guidelines and procedures, many options remain open to the reporting firm. Every item

20、 on the income statement and balance sheet must be given careful attention. Two apparently similar firms may show different values for sales, research and development, extraordinary losses, and many other items.Chapter 3Problems1.Griffey Junior Wear, Inc., has $800,000 in assets and $200,000 of debt

21、. It reports net income of $100,000.a.What is the return on assets?b.What is the return on stockholders9 equity?3-1. Solution:Griffey Junior Wear$800,000Stockholders1 equity = total assets 一 total debt=$800,000 $200,000 = $600,000Debt/Ass 如沁四= 25%$800,000Return on equity = 4 (1-.25)2.Hugh Snore Bedd

22、ing, Inc., has assets of $400,000 and turns over its assets 1.5 times per year. Return on assets is 12 percent. What is its profit margin (return on sales)?3-2. Solution:Hugh Snore Bedding, Inc.Sales = Assets x total asset turnover= $400,000x1.5%=$600,000Net income = Assets x Return on assets$48,000

23、 = $400,000x12%Net income = $48,000 / $600,000 = 8% Sales3 One-Size-Fits-All Casket Co/s income statement for 2008 is as follows:Sales $3,000,000Cost of goods sold 2,100,000Gross profit 900,000Selling and administrative expense 450、000Operating profit 450,000Interest expense 75、000Income before taxe

24、s 375,000Taxes (30%) 112,500Income after taxes $262,500a.Compute the profit margin for 2008-b.Assume in 2009, sales increase by 10 percent and cost of goods sold in creases by 25%. The firm is able to keep all other expenses the same. Once again, assume a tax rate of 30 percent on income before taxe

25、s. What are income after taxes and the profit margin for 2009?c.3-3. Solution:One Size-Fits-All Casket Co.a.Profit margin for 2008b.Sales $3,300,000*Cost of goods sold 2,625,000*Gross profit 675,000Selling and administrative expense 450Q00Operating profit 225,000Interest expense 75,000Income before

26、taxes 150,000Taxes (30%) 45,000Income after taxes (2008) $105,000* $3,000,000 x 1.10 = $3,300,000* $2,100,000 x 1.25 = $2,625,000Profit Margin for 2009Net Income _ $105,000 _ 3 冷屮Sales $3,300,000 一 4 Using the Du Pont method, evaluate the effects of the following relationships for the Butters Corpor

27、ation.a.Butters Corporation has a profit margin of 7 percent and its return on assets (investment) is 25.2 percent. What is its assets turnover?b.If the Butters Corporation has a debt-to-total-assets ratio of 50 percent, what would the firm5s return on equity be?c.What would happen to return on equi

28、ty if the debt-to-total-assets ratio decreased to 35 percent?3-4. Solution:Butters Corporationa.Profit margin xTotal asset turnover = Return on asset (investment) 7% x ? =25.2%丁 . 25.2%Total asset turnover = 7%=3.6x(1 - Debt/Asse ts)Return on assets (investment)25.2%(1-0.50)_ 25.2%0.50=50.40%3-14. (

29、Continued)“ . Return on assets (investment)c.Return on equity = (1 - Debt/Asse _ 25.2%一 (1-.35)_ 25.2%0.65= 38.77%5. Assume the following data for Interactive Technology and Silicon Software.InteractiveTechnology (IT)SiliconSoftware (SS)Net income $ 15,000$ 50,000Sales - 150,0001,000,000Total assets

30、 160,000400,000Total debt 60,000240,000Stockholders9 equity . 100,000160,000a.Compute return on stockholders equity for both firms using ratio 3a in the text. Which firm has the higher return?b.Compute the following additional ratios for both firms.Net income/SalesNet income/Total assetsSales/Total

31、assetsDebt/Total assetsc.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.3-5. SolutionInteractive Technology and Silicon SoftwareSilicon Software (SS) has a much higher return on stockholders9 equity than Interactive Technology (IT).3-5. (Continued)b.InteractiveTechnology (IT)Net income _ $15,000 _Sales-$150,000 Net income $15,000 = =9.3 /%SiliconSoftware (SS)$50,00 二 5%$1,000,000 0时 =12.5% $400,000Total assets $160,000c.As previously indicated,