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Chapter 2 of Cfin

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CFIN3 - Chapter 2 Homework Solutions: 2-2 (1) Current liabilities = $270,000

(2) Inventories = $432,000 (3) Current assets = Cash + Marketable securities + Accounts receivable + Inventories $810,000 = $120,000 + Accounts receivable + $432,000 Accounts receivable = $258,000 (4) CGS = $2,160,000 (5) CGS = 0.86 (Sales)

(6)

2-3 TIE = EBIT/INT, so find EBIT and INT Interest = $500,000 x 0.1 = $50,000 Net income = $2,000,000 x 0.05 = $100,000 Taxable income (EBT) = $100,000/(1 - T) = $100,000/0.8 = $125,000 EBIT = $125,000 + $50,000 = $175,000 TIE = $175,000/$50,000 = 3.5 x

2-6 a. NI = (Sales – Operating costs – Interest expense)(1-T) $650,000 = (Sales - $1,500,000 - $300,000 – 0)(1 – 0.35)

b. Net cash flow = $650,000 + $300,000 = $950,000

2-9 TA = $500,000 ROA = 6.0% ROE = 8.0% a. ROA = NI/TA =NI/$500,000 = 0.06, thus NI = 0.06($500,000) = $30,000 b. ROE = NI/CE = $30,000/CE = 0.08, thus CE = $30,000/0.08 = $375,000

2-11 Debt ratio = 60% = TL/TA Total assets turnover = 1.8x = Sales/TA

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