CHAPTER 3 B-17
d. For an on-line service provider such as AOL, using a per call basis for costs would allow for
e. For a hospital such as Holy Cross, revenues and costs expressed on a per bed basis would be
useful.
f. For a college textbook publisher such as McGraw-Hill/Irwin, the leading publisher of finance
11. Reporting the sale of Treasury securities as cash flow from operations is an accounting “trick”, and
as such, should constitute a possible red flag about the companies accounting practices. For most
12. Increasing the payables period increases the cash flow from operations. This could be beneficial for
the company as it may be a cheap form of financing, but it is basically a one time change. The
Solutions to Questions and Problems
NOTE: All end of chapter problems were solved using a spreadsheet. Many problems require multiple
steps. Due to space and readability constraints, when these intermediate steps are included in this
solutions manual, rounding may appear to have occurred. However, the final answer for each problem is
found without rounding during any step in the problem.
Basic
1. Using the formula for NWC, we get:
NWC = CA – CL
CA = CL + NWC = $3,720 + 1,370 = $5,090
2. We need to find net income first. So:
Profit margin = Net income / Sales
Net income = Sales(Profit margin)
Net income = ($29,000,000)(0.08) = $2,320,000
