ACCOUNTS RECEIVABLE
Accounts Receivable = DSO * Average Sales per day
Accounts Receivable = 40.55 days * $ 1,000 millions/365 days = $ 111.10 millions
CURRENT ASSETS
Current Ratio = Current Assets/Current Liabilities
3 = Current Assets/$ 105.50
Current Assets = $ 316.50 millions
TOTAL ASSETS
Total Assets = Current Assets add Fixed Assets
Total Assets = $ 316.50 millions add $ 283.50 millions = $ 600 millions
ROA
Net Income= $50
Total Assets= $600
ROA = Net income/Total assets
ROA= 50/600
ROA= 8.33%
Common Equity
ROE= Net Income/ Common Equity
12%= $50/ Common Equity
Common Equity= $416.6 million
Quick Ratio
Quick Ratio = (Cash + A/c Reaceivables)/current Liabilities
Quick Ratio = (100+ 111.10)/105.5
Quick Ratio= 2%
In Part a, you should have found that Kaiser's account recievable (A/R)=111.1
million. If Kaiser could reduce its DSO from 40.55 days to 30.4 days while holding
other things constant, how much cash would it generate? If this cash were used to buy back common stock (at book value), thus reducing common equity, how would this affect (1) the ROE, (2) the ROA, and (3) the total debt/total capital ratio?
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