Question

Question 2:14 points) The following table summarizes some of key financial data for Copeland Corporation (unit: thousand dollars except ratio figures): (a) Determine the accounts receivables. (b) Determine the amount of current liabilities. (c) Calculate the amount of long-term debt. (d) Calculate the return on common equity. Item Value Cash and marketable securities Fixed assets Sales Net income Inventory Current ratio Average collection period Long-term debt $10.000 $90,000 $200,000 $15,000 $150,000 4.20 91.25 days $200,000

Answer 1

a) Given:

Average collection Period, DSO = 91.25 days ; Sales = $ 200,000

Now,

DSO = AR / (Sales/ 365)

Putting values

Account Receivable, AR = 91.25 *( 200,000/365)

Hence, AR = $ 50,000

b) Given,

Cash = 10,000 ; Inventory = 150,000 ; Current Ratio = 4.20

Now,

Current Liability = Current Assets/ Current Ratio

Or,

Current Liability = ( Cash + Inventory + AR )/ Current Ratio

Putting values,

Current Liability = (10,000 + 150,000 + 50,000)/ 4.20

Hence,

Current Liability = $ 50,000

c) Given,

Fixed Asset = $ 90,000 ; Equity = $ 200,000 ;

Note that ,

(Long term debt is already provided in the table but that should be common equity)

Total Asset = Cash + Inventory + AR +FA

Total Asset = 10,000 + 150,000 + 50,000 + 90000 = $ 300,000

As we know,

Total Asset = Total liability = Current Liability + Long term debt + Equity

Putting Values

300,000 = 50,000 + LTD + 200,000

Hence,

Long term debt, LTD = $ 50,000

d) Given, Net income = $15,000

Now,

Return on Equity = Net Income/ Equity

Putting values,

ROE = 15,000/ 200,000

Hence,

Return on Equity, ROE = 0.075 or 7.5 %