Essentials of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
9th Edition
ISBN: 9781259277214
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Chapter 3, Problem 8CTCR
Summary Introduction
To think critically about: The intent of book-to-bill ratio and the reason for watching it closely.
Introduction:
The book-to-bill ratio is the ratio of fresh order to the sales that are completed in the semiconductor firm, which is considered as an economic sign for the total trends on the technology side.
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According to the producer price index database maintained by the Bureau of Labor Statistics, the average cost of computer equipment fell 3.8 percent between January and December 2016. Let’s see whether these changes are reflected in the income statement of Computer Tycoon Inc. for the year ended December 31, 2016.
2016
2015
Sales Revenue
$
120,000
$
150,000
Cost of Goods Sold
70,000
79,500
Gross Profit
50,000
70,500
Selling, General, and Administrative Expenses
38,000
41,000
Interest Expense
700
575
Income before Income Tax Expense
11,300
28,925
Income Tax Expense
2,500
7,000
Net Income
$
8,800
$
21,925
Required:
Compute the gross profit percentage for each year. Assuming that the change from 2015 to 2016 is the beginning of a sustained trend, is Computer Tycoon likely to earn more or less gross profit from each dollar of sales in 2017?
Compute the net profit margin…
EMC Corporation manufactures large-scale, high-performance computer systems. In a recent annual report, the balance sheet included the following information ($ in millions):
2015
2014
Current assets:
Receivables, less allowances of $90 in 2015 and $72 in 2014
$
3,977
$
4,413
In addition, the income statement reported sales revenue of $24,704 ($ in millions) for the current year. All sales are made on a credit basis. The statement of cash flows indicates that cash collected from customers during the current year was $25,737 ($ in millions). Note that there could have been significant recoveries of accounts receivable previously written off. Required:1. Compute the following ($ in millions):
The net amount of bad debts written off or reinstated by EMC during 2015.
The amount of bad debt expense or reduction of bad debt expense that EMC included in its income statement for 2015.
2. Suppose that EMC had used the direct write-off method to account for bad…
Umbrella is a silicon chip producer. Your preliminary analysis for the company’s year-to-date financial statements ending 31, December 2020 revealed the following:
1. A/R turnover is at 5.8 times. The average for the past 2 years was at 5.7 times.
2. A/P turnover is at 5.9 times. The average for the past 2 years was at 5.8 times.
3. Inventory turnover is at 13 times. The average for the past 2 years was at 12.1 times.
4. Quick ratio is at .75. You noted that there were no significant changes to this ratio since the previous years. You also noted that the quick assets are tied up either in cash or in account receivable. There are no investments in marketable securities.
5. Cash flow analysis for the year-to-date revealed that the company had a net cash increase since the last period by .5 million US dollars. Your further analysis that this increase was a result of the company selling one of its segments which is not related to its main line of business. Meanwhile net operating cash flow…
Chapter 3 Solutions
Essentials of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 3.1 - Why is it often necessary to standardize financial...Ch. 3.1 - Prob. 3.1BCQCh. 3.2 - What are the five groups of ratios? Give two or...Ch. 3.2 - Turnover ratios all have one of two figures as...Ch. 3.2 - Profitability ratios all have the same figure in...Ch. 3.2 - Given the total debt ratio, what other two ratios...Ch. 3.3 - Return on assets, or ROA, can be expressed as the...Ch. 3.3 - Return on equity, or ROE, can be expressed as the...Ch. 3.4 - What does a firms internal growth rate tell us?Ch. 3.4 - What does a firms sustainable growth rate tell us?
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