Contemporary Engineering Economics, 6th edition
SOLUTIONS
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Contemporary Engineering
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Economics, 6th edition
AP
Authors: Chan S Park
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◊ ALL CHAPTERS
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MEDCONNOISSEUR
, Chapter 2: Accounting and Financial Decision Making
Financial Statement
2.1
(a)
• Current assets = $150,000 + $200,000 + $150,000 + $50,000 + $30,000 =
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$580,000
• Current liabilities = $50,000 + $100,000 + $80,000 = $230,000
•
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Working capital = $580,000 - $230,000 = $350,000
• Shareholder’s equity = $100,000 + $150,000 + $150,000 + $70,000 =
$470,000
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(b) EPS = $500,000/10,000 = $50 per share
(c) Par value = $15; capital surplus = $150,000;
Market price = $15 + $15 = $30 per share
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2.2
(a) Working capital = Current assets – Current liabilities;
Working capital requirements = Changes in current assets (except Cash) –
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Changes in current liabilities
WC req. = (+$100,000 - $20,000) – (+$30,000 - $40,000) = $90,000
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(b) Taxable income = $1,500,000 - $650,000 - $150,000 - $20,000 = $680,000
(c) Net income = $680,000 - $272,000 = $408,000
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(d) Net cash flow:
A. Operating activities = net income + depreciation – W.C. required =
$408,000 + $200,000 - $90,000 = $518,000
B. Investing activities = equipment purchase = ($400,000)
C. Financing activities = borrowed funds = $200,000
D. Net cash flow = $518,000 - $400,000 + $200,000 = $318,000
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, 2.3
(a)
168
ROE A = = 21%
800
240
=
ROE B = 60%
400
168 + 20(1 − 0.4)
ROA A = = 18%
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1,000
240 + 160(1 − 0.4)
ROA B = = 16.8%
2,000
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(b) Because company has higher income but less equity than that of company A.
No, it is just one criterion, so we cannot say that. Further investigation must
be conducted.
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(c)
408
ROE=
merge = 34%
1200
Merge and Acquisition situation between companies A and B.
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2.4
(a) Debt ratio = $83,451,000/$207,000,000 = 40.31%
(b) Time-interest-earned ratio: N/A
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(c) Current ratio = $73,286,000/$43,658,000 = 1.68 times
(d) Quick ratio = ($73,286,000 - $1,764,000)/$43,658,000 = 1.64 times
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(e) Inventory-turnover ratio = $170,910,000/[($1,764,000 + $791,000)/2]
=133.78 times
(f) DSO = ($24,094,000)/($170,910,000/365) = 51.46 days
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(g) Total-assets-turnover ratio = $170,910,000/$207,000,000 = 0.83 times
(h) Profit margin on sales = $37,037,000/$170,910,000 = 21.67%
$37, 037, 000 + $0
=
(i) Return on Total assets = 19.34%
($207, 000, 000 + $176, 064, 000) / 2
© 2016 Pearson Education, Inc., Hoboken, NJ. All rights reserved.
This publication is protected by Copyright and written permission should be obtained from the publisher prior to any prohibited reproduction, storage in a retrieval syste
or transmission in any form or by any means, electronic, mechanical, photocopying, recording, or likewise.
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, (j) Return on Common equity
$37, 037, 000
= 30.64%
($123,549, 000 + $118, 210, 000) / 2
(k) Price-earnings ratio = $68.11/ ($37,037,000,000/6,030,000,000) = $11.08
(Note: The average total number of outstanding shares in year 2013:
6.03B)
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(l) Book value per share = ($123,549,000 – 0)/6,030,000= $20.49
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2.5
(a) Debt ratio = $34,102,000/$92,358,000 = 36.92%
(b) Time-interest-earned ratio = $50,155,000/$0 = N/A
(c) Current ratio = $32,084,000/$13,568,000 = 2.36 times
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(d) Quick ratio = ($32,084,000 - $4,172,000)/$ 13,568,000= 2.06 times
$170,910, 000
= 38.38 times
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(e) Inventory-turnover ratio =
($4,172, 000 + $4, 734, 000) / 2
(f) DSO = ($6,176,000)/($170,910,000/365) = 13.19 days
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(g) Total-assets-turnover ratio = $170,910,000/$92,358,000 = 1.85 times
(h) Profit margin on sales = $37,037,000/$170,910,000 = 21.67%
$37,037,000 + $0
= 41.92%
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(i) Return on total assets =
($92,358,000 + $84,351,000) / 2
$37, 037, 000
(j) Return on common equity = = 67.67%
($58, 256, 000 + $51, 203, 000) / 2
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(k) Price-earnings ratio = $25.50/($37,037,000/4,980,000) = $3.43
(Note: The average total outstanding number of shares in year 2013 was
4,980M)
(l) Book value per share = $58,256,000/4,980,000 = $11.70
© 2016 Pearson Education, Inc., Hoboken, NJ. All rights reserved.
This publication is protected by Copyright and written permission should be obtained from the publisher prior to any prohibited reproduction, storage in a retrieval syste
or transmission in any form or by any means, electronic, mechanical, photocopying, recording, or likewise.
For information regarding permission(s) write to: Rights and Permissions Department, Pearson Education, Inc., Hoboken, NJ 07030.
