Debt Management Ratios Trina\'s Trikes, Inc, reported a debt-to-equity ratio of

Question

Debt Management Ratios Trina's Trikes, Inc, reported a debt-to-equity ratio of 2 times at the end of 2011. If the firm's total debt at year-end was $10 million, how much equity does Trina's Trikes have? $2 million $5 million $10 million $20 million Statement of Retained Use the following information to find dividends paid to common stockholders during 2008. Balance of Retained Earnings, December 31, 2007 $52m. Plus: Net Income for 2008 Less: Cash Dividends Paid Preferred Stock $7m. Common Stock 10m. Total Cash Dividends Paid 17m. Balance of Retained Earnings, December 31, 2008 $56m. $3 million $4 million $10 million $17 million Isaac realizes that he charged too much on his credit card and has racked up $5,000 in debt. If he can pay $225 each month and the card charges 17.55% APR (compound monthly), how long will it take him to pay off the credit card? 19.14 months 21.27 months 22.62 months 27.07 months Asset Management Ratios Rachets R Us Corp. reported sales for 2011 of $200, 000. Rachets R Us listed $25,000 of inventory on its balance sheet. Using a 365-day year, how many days did Rachets R Us's inventory stay on the premises? How many times per year did Rachets R Us's inventory turn over? 0.125 days, 8 times, respectively 0.125 days, 5 times, respectively 45.625 days, 8 times, respectively 45.625 days, 5 times respectively

Explanation / Answer

1.

Debt equity ratio = Debt/Equity = 2 times

Equity = Debt / 2times = $10 million/2 = $5 million

Hence, answer is 2) $5 million    

2.

Answer is 3) $10 million

3.

Monthly interest rate = 17.55%/12 = 1.4625%

$5,000 = present value of monthly payments

present value of annuity of $1 = {1 - (1+r)-n}/r

$5,000 = $225*(1-1.014625-n)/0.014625

(1-1.014625-n) = 0.325

1.014625-n = 1-0.325 = 0.675

1.014625n = 1/0.675 = 1.481481

nlog1.014625 = log1.481481

n*0.006306 = 0.1707

n = 0.1707/0.006306 = 27.07

Hence answer is 4)27.07 months

4.

Days inventory outstanding = (Inventory/Sales)*365 days = ($25,000/$200,000)*365 days = 45.625 days

Inventory turnover ratio = Sales/Inventory = $200,000/$25000 = 8 times

Hence answer is 3) 45.625 days, 8 times

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