Finance Homework Chapter 04 - Essay Example

EMBA 503, Financial Management Homework Assignment: Chapter Four YOUR FULL YOUR INSTITUION OR SCHOOL   Homework Assignment: Chapter FourProblem 9: M/B and share price – You are given the following information: Stockholder’s equity = $3.75B; price/earnings ratio = 3.5; common shares outstanding = 50MM; and market/book ratio = 1.9. Calculate the price of a share of the company’s common stock.Book Value per Share = Common Equity/Shares Outstanding = $3.75B/50MM = $ 75.00Market/Book Ratio = 1.

9Market Price = BV*M/B = $142.50Problem 10: Ratio Calculations – Assume you are given the following relationships for the Brauer Corp.: Sales/total assets = 1.5X; ROA = 3%; ROE = 5%. Calculate Brauer’s profit margin and debt ratio.Profit Margin:ROA = Profit Margin*(Sales/total assets) = [.03 = x*(1.5)] = Profit Margin = .03/1.5 = .02 = 2%Debt Ratio:ROE = ROA*Equity Multiplier = [.05 = .03*x] = Equity Multiplier = .05/.03 = 1.66Debt Ratio = 1-(1/Equity Multiplier) = 1-(1/1.66) = .40 = 40%Problem 19: Current Ratio – The Petry Company has $1,312,500 in current assets and $525,000 in current liabilities.

Its initial inventory level is $375,000, and it will raise funds as additional notes payable and use them to increase inventory. How much can its short-term debt (notes payable) increase without pushing its current ratio below 2.0?Current ratio before debt: CR = Current assets/Current liabilities = $1,312,500/$525,000 = 2.5Short-term debt cap for CR of