Assume that you are considering purchasing stock as an investment. You have narrowed the choice to DVR.com

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Assume that you are considering purchasing stock as an investment. You have narrowed the choice to DVR.com and Express Shops and have assembled the following data.
Selected income statement data for the current year:

Assume that you are considering purchasing stock as an investment. 153672

Selected balance sheet and market price data at end of current year:

Assume that you are considering purchasing stock as an investment. 153672

Selected balance sheet data at beginning of current year:

Assume that you are considering purchasing stock as an investment. 153672

Your strategy is to invest in companies that have low price/earnings ratios but appear to be in good shape financially. Assume that you have analyzed all other factors and that your decision depends on the results of ratio analysis.
Requirements
1. Compute the following ratios for both companies for the current year and decide which company's stock better fits your investment strategy.
a. Acid-test ratio
b. Inventory turnover
c. Days sales in average receivables
d. Debt ratio
e. Times-interest-earned ratio
f. Return on common stockholders equity
g. Earnings per share of common stock
h. Price/earnings ratio
2. Compute each company€™s economic-value-added (EVA) measure and determine whether the companies EVA s confirm or alter your investment decision. Each company€™s cost of capital is10%.

Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...
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Financial accounting

ISBN: 978-0136108863

8th Edition

Authors: Walter T. Harrison, Charles T. Horngren, William Bill Thomas

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