Financial Management: Solved Questions and Answers

Name1
Name
Professor
Affiliation
Date
Financial management
Question 1
a. Company’s total debt
Notes payables=$160,000
Long term debt=$754,000
Company’s total debt=$160,000+$754,000
Total debt=$914,000
b. total liabilities and equity
$2,900,000
c. Balance of the current assets
Current Assets=$2,900,000-$2,400,000
Current Assets=$500,000
d. Current liabilities
2,900,000-2,204,000
=$696,000
e. Accounts payable and Accruals
=$696,000-$160,000
$536,000
f. Net working capital
Net working capital=current assets- current liabilities
$500,000-696,000
=-$196,000
g. Firm’s Net operational working capital
Net operational working capital $500,000-696000-160000
Net operational working capital=-$36000
h. Monetary difference
The current assets are equal to operational current assets
i. The difference indicates that the firm is highly liquid

Name2
Which of the following actions are most likely to directly increase cash
as shown on a firm’s balance sheet? Select the appropriate assumptions
undelaying the answer
Statements (b) and (d) will decrease the amount of cash on the company’s
balance sheet. Statement (a) will increase cash through the sale of common
stock. Selling stock provides cash through financing activities. Statements (C)
would neither increase or decrease cash for taxes paid in a prior year.
9. Electronic world Inc. paid out $33.8 million in total common dividends
and reported $370.5 million of retained earnings at year end. The prior
year’s retained earnings were $274.2 million. What was the net income?
Assume that all dividends declared were actually paid. Write out your
answer completely
Net income= (Amount paid out in total common dividends+ Reported retained
earnings at year end) - (prior year’s retained earnings)
= ($33,800,000+$370,500,000) – ($274,200,000)
Net income =$130,100,000.00
Question
10. For 2019, Gourmet Kitchen products reported $21 million of sales
and $18 million of operational costs (including depreciation). The
company has $14 million of the total invested capital. It’s after tax cost
of capital is 8% and its federal-plus state income tax rate was 25%.
What was the firm’s economic value added, that is how much value
management added to stockholders’ wealth during 2019.
The net operational income after tax
= (Sales-operational costs) *(1 - income rate of tax)
= ($21,000,000 - $18,000,000) * (1 -25%)
= $3,000,000*75%
= $2,250,000
Economic value added =Net operational income after taxes - (total capital
invested* after tax capital cost)
=2,250,000-($14,000,000*8%)
= $2,250,000-$1,120,000
= $ 1,130,000.00
11. Question
Baxley brothers has a DSO of 16 days, and its annual sales are
$8,030,000. What is its accounts receivable balance? Assume that it
uses a 365 day year.
From the formula DSO= (Accounts receivable/Total credit sales in the
period)*Days in accounting period

Name3
16= (Accounts receivable/$8,030,000)*356
Accounts receivable= (16*8,030,000)/365
Accounts receivable= $352,000.00
12. Question
Kaye’s Kitchenware has a market/ book ratio equal to 1. Its stock price
is $15 per share and it has 4.7 million shares outstanding. The firm’s
total capital is $115 million and it finances with only debt and common
equity. What is its debt to capital ratio?
Given that the firm’s ratio =1, then the total market value for the equity is
equivalent to the book value of equity
Common equity =$15*4,700,000 shares=70,500,000.00
Total capital invested=equity+ debt
115,000,000=debt+70,500,000.00
Debt=115,000,000-70,500,000.00
Debt= 44,500,000.00
Total debt to capital =debt/ (debt+ equity)
44,500,000.00/115,000,000
=39%
Question
13. Henderson’s hardware has a ROA of 11%, a 3% profit margin and an
ROE of 20%. What is its total assets turnover? Do not round
intermediate calculations. What is its equity multiplier? Do not round
intermediate calculations
Through the use of DuPont analysis
ROA=the net profit margin*Asset turnover
0.11=0.03*AT
AT=0.11/0.03
Asset turn over=3.67
By using the Du pont analysis
Return on equity = Return on assets*the equity multiplier
0.20 = 0.11*EM
EM=0.20/0.11
EM=1.82
14 Edelman engines has $20 billion in total assets- of which cash and
equivalents total $110 million. Its balance sheet shows $4 billion in