Project #31506 - Week 7

 

Hi, I will include the Excel worksheet and the link to the text I'm using (Ch 28, 29). Thank you

 

Brealey, R. A., Myers, S. C. & Allen, F. (2011). Principles of Corporate Finance, Concise Edition, (2nd ed.). New York, NY: McGraw-Hill Irwin.

 

 

 

 

 

 

Problem 18-2

           
               

Table 18.11 (p. 484 and also provided below) gives abbreviated balance sheets and income statements for Estée Lauder Companies. Calculate the following ratios:

     
     
               

Answers:

           

 

Ratio

Formula (in words)

Calculation

TIP: Interest rate - p. 468

 

a.

Return on assets

T

C

       

 

 

 

 

       

b.

Operating profit margin

T

C

       

 

 

 

 

       

c.

Sales-to-assets ratio

T

C

       

 

 

 

 

       

d,

Inventory turnover

T

C

       

 

 

 

 

       

e.

Debt–equity ratio

T

C

       

 

 

 

 

       

f.

Current ratio

T

C

       

 

 

 

 

       

g.

Quick ratio

T

C

       
               
               
               
 

Table 18.11.jpg

 
           
               
               
               
               
               
               
               
               
               
               
               
               
               
               
               
               
               
               
               
               
               
               
               
               
               
               
               
               
               
               
               
               
               
               
               
               
               
               
               
               
               
               
 

Problem 18-23

                 
                   
                   

Suppose that you wish to use financial ratios to estimate the risk of a company's stock. Which of those that we have described in this chapter are likely to be helpful? Can you think of other accounting measures of risk?

 
 
 
                   
                   

Answer:

                 
                   

T

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
           
               
               
               
               
               

 

 

 

 

 

 

Problem 19-11

             

 

 
                 

 

 
                 

 

 

If a firm pays its bills with a 30-day delay, what fraction of its purchases will be paid in the current quarter? In the following quarter? What if the delay is 60 days?

 

 

 

 

 

 
                 

 

 
                 

 

 

Step 1:

               

 

 
                 

 

 

Worksheet - 30 day delay

     

Worksheet - 60 day delay

 

 
                 

 

 

 

Month of Purchase

Month for Payment

 

   

 

Month of Purchase

Month for Payment

 

 

2012 Qtr. 4

Dec

T

 

   

2012 Qtr. 4

Nov

T

 

 

2013 Qtr.1

Jan

T

 

   

 

Dec

T

 

 

 

Feb

T

 

   

2013 Qtr.1

Jan

T

 

 

 

Mar

T

 

   

 

Feb

T

 

 

2013 Qtr.2

Apr

T

 

   

 

Mar

T

 

 

 

May

T

 

   

2013 Qtr.2

Apr

T

 

 

 

Jun

T

 

   

 

May

T

 

 

2013 Qtr.3

Jul

T

 

   

 

Jun

T

 

 

 

Aug

T

 

   

2013 Qtr.3

Jul

T

 

 

 

Sep

T

 

   

 

Aug

T

 

 

2013 Qtr.4

Oct

T

 

   

 

Sep

T

 

 

 

Nov

T

 

   

2013 Qtr.4

Oct

T

 

 

 

Dec

T

 

   

 

Nov

T

 

 
           

 

Dec

T

 

 
                 

 

 

Step 2:

               

 

 
                 

 

 

Answers:

               

 

 
                 

 

 

30 day delay - Payment made at end of 2013 Qtr1

       

 

 
 

Fraction from last quarter

F

         

 

 
 

Fraction from this quarter

F

         

 

 
 

Fraction for next quarter

F

         

 

 
                 

 

 
                 

 

 

60 day delay - Payment made at end of 2013 Qtr1

       

 

 
 

Fraction from last quarter

F

         

 

 
 

Fraction from this quarter

F

         

 

 
 

Fraction for next quarter

F

         

 

 
                               

 

 

 

 

 

 

Problem 19-17

               
                   
                   

Corporate financial plans are often used as a basis for judging subsequent performance.                                                                                                                                                                What do you think can be learned from such comparisons?                                                          What problems are likely to arise, and how might you cope with these problems?

 
 
 
 
                   
                   

Answer:

                 
                   

 What do you think can be learned from such comparisons?

       

  T                                                               

 
 
 
 
 
 
 
 
 
 
 
                   

What problems are likely to arise, and how might you cope with these problems?

   

T                                                 

 
 
 
 
 
 
 
 
 
 
 
 

 

 

 

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