Question

Below is selected financial data on Peter Parker Insect Control Company.

Net profit margin: 8.6%

COGS $3,700,000

Addition to retained earnings: $115,000

Current ratio: 2.5

Price-earnings ratio: 15.2

Current liabilities: $400,000

Fixed asset turnover: 1.5

Gross margin: 26%

Equity multiplier: 1.75

Common shares:                         650,000

Determine the following (show all calculations):

a. Fixed assets (2 points) - round to nearest $

b. Total assets (2 points) - round to nearest $

c. Total liabilities (2 points) - round to nearest $

d. Return on equity (2 points) - use 2 decimals

e. Share price (2 points) - use 2 decimals

Answer 1

a) Fixed assets turnover = Sales / Fixed Assets

1.5 = 5,000,000 / Fixed Assets

Fixed Assets  = 5000000/1.5 = $3333333

Calculation of sales : Since Gross profit margin is 26% Hence COGS is 74%.

Therefore sales = COGS/COGS Ratio

= 3700000/74% = $5,000,000

b ) Total Assets = Fixed Assets + Current Assets

= 3333333 +1000000

= $4333333

Current Ratio = Current assets / Current Liability

2.5 =Current Assets / 400000

Current Assets = 400000*2.5 = $1000000

c) Total Liability = Total Assets - Equity

= 4333333 - 2476188 = $1857141

Equity multiplier = Total Assets / Equity

1.75 = 4333333/ Equity

Here Equity = 4333333/1.75 = $2476188

d) Return On equity = Net profit / Equity * 100

= 430000/2476188 * 100

= 17.36%

Here Net Profit = Sales * Net Profit margin

= 5000000* 8.6% = $430000

e) Share price = EPS * PE Ratio

= 430000/650000 * 15.2

= $10.055