Ratios, Scattergraph and Net Present Value Computation
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A corporation has the following balance sheet items for the year ending December 31, 2011:
Cash $15,000
Accounts Receivable 20,000
Inventory 45,000
Prepaid Expenses 10,000
Property Plant and Equipment 80,000
Total Assets $170,000
Accounts Payables 30,000
Long Term Notes Payable 70,000
Stockholders' Equity 70,000
Total Liabilities and Equity $170,000
The income statement for the year ending December 31, 2011 is as follows:
Sales $110,000
Cost of Goods Sold (50,000)
Gross Margin $ 60,000
Selling Expenses (20,000)
Administrative Expenses (10,000)
Interest Expenses ( 5,000)
Net Income $25,000
Calculate the current ratio
5.67
3
2.67
1.7
Calculate the acid test/quick ratio
1
2.67
3
5.67
Calculate the debt to equity ratio
1
1.43
.43
.17
Calculate the profit margin ratio
.23
4.4
.55
1.83
Calculate the times interest earned ratio
6
5
.2
22
A corporation is considering the purchase of a new equipment costing $90,000. The projected after-tax annual net income from the equipment is $3,600, after deducting $30,000 depreciation. Assume that revenue is to be received at each year-end, and the machine has a useful life of three years with zero salvage value. Management requires a 12% return on its investments. What is the net present value of this machine? (use tables on next page)
$60,444
$80,700
$(9,300)
$(88,560)
What is the estimated fixed costs based upon the scattergraph?
$300
$50
$225
$175
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Solution Summary
This solution illustrates how to compute various ratios, the net present value of a project using its net income and depreciation, and the fixed costs based on a scattergraph.
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A corporation has the following balance sheet items for the year ending December 31, 2011:
Cash $15,000
Accounts Receivable 20,000
Inventory 45,000
Prepaid Expenses 10,000
Property Plant and Equipment 80,000
Total Assets $170,000
Accounts Payables 30,000
Long Term Notes Payable 70,000
Stockholders' Equity 70,000
Total Liabilities and Equity $170,000
The income statement for the year ending December 31, 2011 is as follows:
Sales $110,000
Cost of Goods Sold (50,000)
Gross Margin $ 60,000
Selling ...
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