TUTORIAL SOLUTION
Introduction to Finance
Numerical Exercises
S. No. Problems
1 Given the following data for Gary and Co (Millions of Dollars):
Balance Sheet Dec 31 200X
Cash $45
Accounts Payables $45
Marketable Securities 33
Notes Payables 45
Receivables 66
Other Current liabilities 21
Inventory 159
Total Current liabilities $111
Total Current Assets 303
Long term debt 24
Total liabilities $135
Net Fixed Assets 147
Common Stock 114
Total Assets $450
Retained Earnings 201
Total stockholders’ equity 315
Total liabilities and equity 450
Income Statement Year 200X
Net sales $795
Cost of goods sold 660
Gross profit 135
Selling expenses 73.5
Depreciation 12
EBIT 49.5
Interest expense 4.5
EBT 45
Taxes (40% 18
Net Income 27
Calculate the following ratios:
Ratio Industry Average
Current ratio
Times interest earned
DSO
Inventory Turnover
Sales/Total Assets
Profit margin on sales
Return on Total Assets
Return on Common Equity
2 Given the compressed version of balance sheet and income statement, estimate the amount of external financing needed to increase sales by 20% next year. (use percentage of sales method)
(Dividend payout is 50%)
Balance Sheet (End of the Year)
Assets $2,000 Debt $1000
Equity $1000 & nbsp;
Total $2000 &nbs p; $2000
Income Statement
Sales $1000 &nb sp;
Costs &nb sp;800
Net Income 200
3 A firm has outstanding receivables of $125,000. Its credit terms are net 30. If during the past three months credit sales are $100,000, $105,000, and $60,000, how many days of sales are outstanding as receivables?
4 Given the following data, develop weekly cash budget. Minimum cash required is $50 and the beginning cash balance is $100.
Week 1 Week 2 Week 3
Cash Receipts $1,000 $1,100 $900
Cash Disbursements &nbs p; (850) (1450) (1000)
5 Given the following data:
Days inventory = 103 days, Days receivables = 41 days, and Days payables = 81 days
Calculate the cash conversion cycle and operating cycle.
6 Calculate the cost of trade credit given terms of 3/20 net 60.
7 A firm issues $1,000,000 of commercial paper with a maturity of 60 days and a discount rate of 5%. The paper is sold through a dealer who charges 0.25%. What is the effective cost of issuing the commercial paper?
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