# Finance Chapter 3

PROBLEM:01 The formula which breaks down the return on equity into three component parts is referred to as DuPont formula. PROBLEM:02 The Purple Martin has annual sales of \$687,400, total debt of \$210,000, total equity of \$365,000, and a profit margin of 4. 80 percent. What is the return on assets? ROA = net income / total assets ROA = (687400 * 4. 80) / (210000 + 365000) ROA = 5. 74 PROBLEM:03 The Meat Market has \$747,000 in sales. The profit margin is 4. 1 percent and the firm has 7,500 shares of stock outstanding. The market price per share is \$22. What is the price-earnings ratio?

P/E = market value per share / earnings per share P/E = 22 / (747000 * 4. 1 / 7500) P/E = . 0539 PROBLEM:04 Beach Wear has current liabilities of \$350,000, a quick ratio of 1. 65, inventory turnover of 3. 2, and a current ratio of 2. 9. What is the cost of goods sold? CA = current ratio * current liablities CA = 2. 9 * 350000 CA = 1015000 QR = (CA – Inventory) / CL 1. 65 = (1015000 – Inventory) / 350000 Inventory = 437500 Cost of goods sold = IT * T Cost of goods sold = 3. 2 * 4375000 Cost of goods sold = 1400000 PROBLEM:05 Study the comparative balance sheets for Kyprianides Inc. nd Pecchia Company in the year 2011. Notice that both companies have the same amount of assets. However, there are some differences in the way the two companies finance those assets. Fill in the spaces on the balance sheets and then answer the following questions. Kyprianides Inc. Pecchia Co. Current Assets Cash and equivalents200300 Accounts Receivable1,1002,400 Inventory 4,6002,000 Total Current Assets 4,9004,700 Property, Plant and Equipment10,00011,200 Total Assets 15,90015,900 Current Liabilities Accounts Payable 3,0003,200 Current portion of LT debt200400

Total Current Liabilities 3,2003,600 Notes payable 2,0007,000 Total Liabilities 5,20010,600 Common Stock6,0002,000 Additional Paid-in Capital 1,0001,000 Retained Earnings 3,7002,300 Total Stockholders’ Equity10,7005,900 Total Liab & SE15,90015,900 Using the financial data from the balance sheets above, fill in the following chart for both Kyprianides Inc. and Pecchia Co. RatioKyprianides Inc. Pecchia Co. Current Ratio4,900 / 3,200= 1. 534,700 / 3,600= 1. 31 Quick Ratio(4,900 – 4,600) / 3,200= . 094(4,700 – 2,000) / 3,600= . 750 Debt Ratio5,200 / 15,900= . 32710,600 / 15,900= . 667

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