Accounting: What the Numbers Mean
11th Edition
ISBN: 9781259535314
Author: David Marshall, Wayne William McManus, Daniel Viele
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 3, Problem 3.6ME
Mini-Exercise 3.6
LO 6
Calculate
Required:
Calculate Firm N’s working capital and current ratio.
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q. 19
A frim has net working capital of $509, net fixed assets of $2,336, sales of $7,000 and current liabilities of $900. How many dollars worth of sales are generate from every $1 in total assets?
$3.00
$1.83
$1.53
$2.16
$2.39
Use the following information to answer the questions.
Company X
$ 12,480,000
$ 3,120,000
$
Company Y
$ 28,480,000
$ 7,120,000
512,640
8.50%
Company Z
$ 20,480,000
$ 5,120,000
532,480
10.40%
Sales
Average operating assets
Net operating income
Minimum required rate of return
561,600
8.00%
Required:
1. Compute the return on investment (ROI) for each company using the formula stated in terms of margin and turnover.
2. Compute the residual income (loss) for each company.
3. Each company is presented with an investment opportunity that would yield a 9% rate of return.
a. Assume performance is measured based on ROI. Indicate whether each company will likely accept or reject the investment
opportunity.
b. Assume performance is measured based on residual income. Indicate whether each company will likely accept or reject the
investment opportunity.
Complete this question by entering your answers in the tabs below.
Req 1
Req 2
Reg ЗA
Req 3B
Compute the return on investment (ROI) for each company…
XYZ Company has two divisions, A and B. Information for each division is as follows:
A B
Net earnings for division P 40,000 P 260,000
Asset base for division P100,000 P1,200,000
Target rate of return 15% 18%
Margin 10% 20%
Weighted average cost of capital 12% 12%
What is the operating asset turnover for A?
0.15
0.10
4.00
2.50
Group of answer choices
1
2
3
4
Chapter 3 Solutions
Accounting: What the Numbers Mean
Ch. 3 - Prob. 3.1MECh. 3 - Mini-Exercise 3.2 LO 3 ROI analysis using the...Ch. 3 - Mini-Exercise 3.3 LO 4 Calculate ROE Firm L had...Ch. 3 - Prob. 3.4MECh. 3 - Mini-Exercise 3.5 LO 6 Calculate current...Ch. 3 - Mini-Exercise 3.6 LO 6 Calculate working capital...Ch. 3 - Exercise 3.7 LO 2 Compare investment alternatives...Ch. 3 - Prob. 3.8ECh. 3 - Exercise 3.9 LO 2 Compare investment alternatives...Ch. 3 - Exercise 3.10 LO 2 Compare investment alternatives...
Ch. 3 - Exercise 3.11 LO 3 ROI analysis using the DuPont...Ch. 3 - Prob. 3.12ECh. 3 - Prob. 3.13ECh. 3 - Prob. 3.14ECh. 3 - Exercise 3.15 LO 6 Effect of transactions on...Ch. 3 - Exercise 3.16 LO 6 Effect of transactions on...Ch. 3 - Calculate profitability measures using annual...Ch. 3 - Prob. 3.18PCh. 3 - Problem 3.19 LO 6 Calculate and analyze liquidity...Ch. 3 - Problem 3.20 LO 6 Calculate and analyze liquidity...Ch. 3 - Problem 3.21 LO 3 Applications of ROI using the...Ch. 3 - Prob. 3.22PCh. 3 - Case 3.23 LO 3. 4, 6, 2 Focus company-analysis of...Ch. 3 - Case 3.24 LO 3, 4, 6, 7 Analysis of liquidity' and...
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- Question Content Area A company with working capital of $347,628 and a current ratio of 2.9 pays a $78,793 short-term liability. The amount of working capital immediately after payment is Round your answer to the nearest dollar. a. $451,797 b. $347,628 c. $104,169 d. $555,966arrow_forwardUse the following information to answer the questions. Company X $ 12,480,000 $ 3,120,000 561,600 8.00% Company Y $ 28,480,000 $ 7,120,000 2$ Company Z $ 20,480,000 $ 5,120,000 532,480 Sales Average operating assets Net operating income Minimum required rate of return $ 512,640 8.50% 10.40% Required: 1. Compute the return on investment (ROI) for each company using the formula stated in terms of margin and turnover. 2. Compute the residual income (loss) for each company. 3. Each company is presented with an investment opportunity that would yield a 9% rate of return. a. Assume performance is measured based on ROI. Indicate whether each company will likely accept or reject the investment opportunity. b. Assume performance is measured based on residual income. Indicate whether each company will likely accept or reject the investment opportunity. Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req ЗA Req 3B Each company is presented with an investment…arrow_forwardExercise 3-11 (Algo) ROI analysis using the DuPont model LO 3 Required: a. Firm A has a margin of 13%, sales of $510,000, and ROI of 18%. Calculate the firm's average total assets. b. Firm B has net income of $72,000, turnover of 1.50, and average total assets of $880,000. Calculate the firm's sales, margin, and ROI. c. Firm C has net income of $136,000, turnover of 1.91, and ROI of 23.20%. Calculate the firm's margin, sales, and average total assets. O Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Required A Required B Required C Firm C has net income of $136,000, turnover of 1.91, and ROI of 23.20%. Calculate the firm's margin, sales, and average total assets. (Round "Margin" answer to 1 decimal place and use the rounded answer for the subsequent computations.) Margin 12.1 O % Sales $ 1,119,655 X Average total assets 2$ 586,207 Xarrow_forward
- $1,449,185 Sales $130,380 Operating Income Total Assets (investment) $544,102 Target Rate of Return (Cost of 15% Capital) What is return on investment? Input your answer to 1 decimal place. For example if you calculate.1892 enter 18.9.arrow_forwardA company's two divisions report the information below. Sales Income Average assets Electronics $ 81,000 5,670 40,500 Sporting Goods $ 40,000 4,100 25,000 Enter answers in the tabs below. Required 1 Required 2 Required 3 Calculate return on investment for each division. Division Electronics Sporting Goods Return on Investment Numerator Denominator: = Return on Investmentarrow_forwardWorking capital and current ratio Current assets and current liabilities for Brimstone Company follow: 20Y4 20Y3 Current assets $1,529,000 $1,128,750 Current liabilities 695,000 525,000 a. Determine the working capital and current ratio for 20Y4 and 20Y3. Round Current ratio to 2 decimal places. 20Y4 20Y3 Working capital $ $ Current ratio b. Does the change in the current ratio from 20Y3 to 20Y4 indicate a favorable or an unfavorable change?arrow_forwardSelected data from an investment center of IROL Inc. follow:Sales $8,000,000Net book value of assets, beginning 2,500,000Net book value of assets, ending 2,600,000Net operating income 640,000Minimum rate of return 12%Required1. Calculate return on sales (ROS), asset turnover (AT), and return on investment (ROI).2. Calculate residual income (RI).arrow_forwardWorking Capital and Current Ratio Current assets and current liabilities for Konex Properties Company follow: 20Y9 20Υ8 Current assets $2,042,400 $1,759,500 Current liabilities 1,380,000 1,150,000 a. Determine the working capital and current ratio for 20Y9 and 20Y8. If required, round "current ratio" answers to two decimal places. 20Y9 20Υ8 Working capital Current ratio b. Is the change in the current ratio from 20Y8 to 20Y9 favorable or unfavorable? Unfavorablev Feedbock Chock My Work a. Remember that current assets are compared to current liabilities to see if current obligations can be paid off with current resources. This is expressed by a dollar a b. Increases are considered favorable and decreases are considered unfavorable.arrow_forwardProblem 3 THE DU PONT FORMULA AND RETURN ON TOTAL ASSETS. Industry A has thre companies whose income statements and balance sheets are summarized below. Company X Company Y Company Z Sales $500,000 (d) (g) Net income $ 25.000 $30.000 (h) Total assets S100.000 (e) $250.000 Total asset turnover· 0.4 (at) () Profit margin (h) (0.4% Return on total assets (ROA) (i) (c) Requirement: Supply the missing data in the table above. Page 74 f 161arrow_forward20. From the following data calculate: a) P/V Ratio b) Variable cost and c) Profit Rs 80,000 15,000 50,000 Sales Fixed expenses Break even point 000.00 Answer all the question PART-C 21 What are the objectives of management accoun Or b) Distinguish between management accounting a accounting. 22. From the following information calculate the b Total asset/Net worth a. = 3.5 Sales/fixed assets = 6 -arrow_forwardWorking capital and current ratio Current assets and current liabilities for Brimstone Company follow: 20Y4 20Y3 Current assets $1,586,250 $1,210,000 Current liabilities 705,000 550,000 a. Determine the working capital and current ratio for 20Y4 and 20Y3. Round Current ratio to 2 decimal places. 20Y4 20Y3 Working capital s Current ratio b. Does the change in the current ratio from 20Y3 to 20Y4 indicate a favorable or an unfavorable change? Favorable varrow_forwardWorking capital $3,091,000 – $860,000 Current ratio $3,091,000 ÷ $860,000 Quick ratio $1,866,000 ÷ $860,000 Accounts receivable turnover $8,260,000 ÷ [($714,000 + $740,000) ÷ 2] Number of days' sales in receivables [($714,000 + $740,000) ÷ 2] ÷ ($8,260,000 ÷ 365) Inventory turnover $4,100,000 ÷ [($1,072,000 + $1,100,000) ÷ 2] Number of days' sales in inventory [($1,072,000 + $1,100,000) ÷ 2] ÷ ($4,100,000 ÷ 365) Ratio of fixed assets to long-term liabilities $2,690,000 ÷ $1,690,000 Ratio of liabilities to stockholders' equity $2,550,000 ÷ $4,055,000 Times interest earned ($976,800 + $127,000) ÷ $127,000 Balance Sheet Use the following balance sheet form to enter amounts you identify from the computations on the Liquidity and Solvency Measures part. You will identify other amounts for the balance sheet on the Profitability Measures part. If you have a choice of two amounts, assume the first amount in the ratio is for the end of the year. Compute any missing amounts. Balance…arrow_forwardarrow_back_iosSEE MORE QUESTIONSarrow_forward_ios
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