Study Problems 1. (Evaluating liquidity) Brasheat Inc. currently has $2,145,000 in current assets and 5858,000 in current liabilities The company's managers want to increase the firm's inventory, which will be financed by a short-term note with the bank. What level of inventories can the firm carry without its current ratio falling below 2.0? 2. (Evaluating profitability) Last year, Davies Inc. had sales of $400,000 with a cost of goods sold of $112.000. The firm's operating expenses were $130,000, and its increase in retained earnings was $58,000. There are currently 22,000 common stock shares outstanding and the firm pays a $1.60 dividend per share a. Assuming the firm's camings are taxed at 34 percent, compute the firm's net income. b. Compute the firm's operating profit margin c. What was the times interest eamed? 3. (Market-value ratios) Garret Industries has a price carnings ratio of 16.29% a. If Garret's camings per share are $1.35, what is the price per share of Garret's stock! 6. Using the price per share you found in part (a), determine the price book ratio if Garret's equity-book value per share is $9.58 4. (Price book) Greene Inc.'s balance sheet shows a stockholders' equity-book value (total common equity) of $750,500. The firm's earnings per share is 3, resulting in a price/carnings ratio of 12.25X. There are 50,00) shares of common stock outstanding. What is the price book ratio? What does this indicate about how shareholders view Chang, Inc.? 5.(Compound valne solving for 7) Assume that $500 to grow to $1.948.00 in 12 years. At what annual rate would the following have to be invested? 6. (Present valve comparison) You are offered S1,000 today, S10,000 in 12 years, or $25,000 in 25 years. Assuming that you can cam 11 percent on your money, which offer should you choose? 7. (Loan amortization) To buy a new house you must borrow $150,000. To do this you take out a $150,000, 30- year, 10 percent mortgage. Your mortgage payments, which are made at the end of each year (one payment cach year), include both principal and 10 percent interest on the declining balance. How large will your annual payments be? 2