1) Compute the debt/equity ratio and debt ratio for the firm with overall debt of $700,000 and equity of $300,000?

2) Firm with sales of $500,000 has average inventory of $200,000. Industry average for inventory turnover is four times a year. Find out the reduction in inventory if this firm small to attain turnover comparable to industry average?

3) Two firms have sales of $1 million each. Other financial information is given:

                                 Firm A        Firm B
EBT                        $150,000     $150,000
Interest Expense         20,000      75,000
Income Tax                50,000      30,000
Equity                      300,000    100,000

Determine the operating profit margin and net profit margins for these two firms? Compute their return on equity? Describe why they are different? If total assets are similar for each firm, what can you conclude about their particular uses of debt financing?