FIN201
Chapters 3 & 5
1. A firm generated net income of $724. The depreciation expense was $58 and dividends were paid in the
amount of $72. Accounts payables decreased by $28, accounts receivables increased by $16, inventory
increased by $41, and net fixed assets increased by $28. What was the net cash flow from operating
activity?
Net cash from operating activities = $724 + $58 - $28 - $16 - $41 = $697
2. ABC inc. has cash of $336, accounts receivable of $687, accounts payable of $709, and inventory of
$2,108. What is the value of the quick ratio?
Quick ratio = ($336 + $687) / $709 = 1.44
3. Ali's Hardware has accounts payable of $572, inventory of $3,608, cash of $340, fixed assets of $4,211,
accounts receivable of $418, and long-term debt of $3,750. What is the value of the net working capital to
total assets ratio?
Net working capital to total assets = ($340 + $418 + $3,608 - $572) / ($340 + $418 + $3,608 + $4,211)
= $3,794 / $8,577 = .4295 = 0.44
4. A firm has a debt-equity ratio of 0.46. What is the total debt ratio?
The debt-equity ratio is 0.46. Thus, if total debt is $46, total equity is $100, and total assets are $146.
Total debt ratio = $46 / $146 = 31.5%
5. A firm has total debt of $1,750 and a debt-equity ratio of 0.60. What is the value of the total assets?
Total equity = $1,750 / 0.60 = $2,916.67; Total assets = $1,750 + $2,916.67 = $4,666.67
6. ABC has accounts receivable of $4,730, inventory of $8,083, sales of $39,600, and cost of goods sold of
$21,400. How many days does it take the firm to both sell their inventory and collect the payment on the
sale?
Days in inventory = 365 / ($21,400 / $8,083) = 137.86 days; Days' sales in receivables = 365 /
($39,600 / $4,730) = 43.60 days; Total days in inventory and receivables = 137.86 + 43.60 = 181.46
days
7. Jim's Used Autos has sales of $738,400, total assets of $624,200, and a profit margin of 9.8 percent. The
firm has a total debt ratio of 35 percent. What is the return on equity?
