BUSI 323
HOMEWORK: ANALYZING FINANCIAL POSITION ASSIGNMENT INSTRUCTIONS
OVERVIEW
The homework assignment will contain a variety of short answer and essay questions focusing
on various theories/topics., assessing students’ recollection, understanding, and analysis of the
material covered.
INSTRUCTIONS
Chapters 10–13
1. What three pieces of information are needed to convert nominal dollars to constant
dollars?
First year dollar value,consumer price index for the first year, and consumer price index
for the second year
2. For restating financial statements to convert to constant dollars, what index is required by
the Financial Accounting Standards Board?
Consumer price index
3. The HC method, which uses unadjusted historical costs, does not consider depreciation
expenses, purchasing power, and unrealized gains in replacement value. Despite these
weaknesses as a financial reporting method, the HC method is used more frequently for
accounting purposes than other methods, such as the HC-GPL, CV, and CV-GPL
methods. Why is this so?
Conservative accounting approach, depreciation consideration, impairment assessment
are all reasons why it is still used and considered worth the trouble of its limitations.
4. What are two major methods of asset valuation?
Cost method and market value method.
5. Inflation was 8% during the most recent year and your organization's investment in land
rose 12%. If the beginning appraised land value was $1,000,000, what increase in
specific prices over general price level would be reported, stated in year-end dollars?
$40,000
6. You purchased an MRI scanner two years ago for $2.0 million. The MRI has a 5-year
depreciable life with no salvage value. If that same MRI now costs $3.0 million, what
would be the difference between replacement cost depreciation and historical cost
depreciation?
$1,000,000
7. What are the four critical questions that must be answered for dashboard reporting?
What is most important to the firm’s success? What are the critical drivers that influence
performance attainment? What are the most relevant measures that reflect critical driver
relationships? What relevant benchmarking data are available to assess performance?
8. What should be a firm's primary long-term financial objective?
Equity growth
9. What is/are the primary determinant(s) of firm value?
Profit, investment, cost of capitol
10. Listed below are the financial ratios for Calvin Community Clinic. Calvin improved its
overall financial condition from 2008 to 2009. Identify these areas of improvement and
attempt to explain how this improvement came about.
Days in accounts receivable: the days are reduced and that will increase working capital
and save costs of financing receiveables. Operating margin increases and this helps with
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BUSI 323
growth and future planning. Debt service coverage increases and this helps boost the
confidence of dent holders and makes it easier for the company to arrange finance.
11. Listed below are the balance sheet and statement of operations for Wynn Memorial
Nursing Home for 2008 and 2009. Compute the following ratios:
1. Current Ratio 1.98
2. Acid-test Ratio 0.20
3. Days in Accounts Receivable 67.19
4. Average Payment Period 56.13
5. Long-term Debt to Net Assets Ratio 0.62
6. Total Asset Turnover Ratio 1.02
7. Fixed Asset Turnover Ratio 2.20
8. Return on Total Assets 0.04
9. Operating Margin 0.02
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Balance
Sheet
for
Wynn
Memorial
Nursing
Hom
&
‘Wynn
Memorial
Nursing
Home
Balance
Sheet
(in
000)
For
the
Years
Ending
December
31,2009
and
2008
2009
2008
Current
Assets:
‘Cash
and
Cash
Equivalents
so
$80
Net
Patient
Receivables
298 23S
Prepaid
Experses 30 20
Tofal
Current
Assate
ws es
Pant,
Property.
&
Eauipment
Gress
Plant,
Roperty,
&
Equipment
360 200
(ess
Accumulated
Deprection)
(70)
__(50)
Net
Plant,
Property,
&
Equipment
280 250
Construction
in
Progress
203
o
Total
Assets
sea
_su15
Current
Liabitties:
‘Accounts
Payable
so
st90
Selaries
Payable
75
50
Tofal
Currant
Liabilities
95
340
Long-Term
Liabilities:
Bonds
Paysbk:
100
20
Total
Long-Term
Liabilities
700
20
NetAssete
492355
Exhibit
4-19a
Statement
of
Operations
for
Wynn
Memorial
Nursing
Home:
Wynn
Memorial
Nursing
Home
Statement
of
Operations
(in
000)
For
the
Years
Ended
December
24,
2009
and
2008
zoos 2008
Revenues:
Net
Patient
Service
Revenue
si4o0 $1200
(Other
Revenue
‘200 ‘200
Tolal
Revenues 7eo0
7.400
Expenses.
Nursing
Services
1am
4.150
Adminis tative Services
110
100
Depreciation
20 18
General
Serves
50
25
Total
Expenses
ET
(Operating
Income 100 100
Exoass
of
Revenues
over
Expenses
100
100
Increasein
Net Assets
sioo
__s100
BUSI 323
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BUSI 323
12. A nursing home projects asset growth at 10% per year over the next 10 years. If it wishes
to reduce its reliance on debt financing, what rate of equity growth over the 10-year
period will be desired?
Greater than 10% per year
13. Your firm reduces its days in receivables from 87 to 67, which generates $3.4 million of
new investment funds. Why does growth rate in equity increase?
investment income increases
14. Your firm has $45.0 million invested in accounts receivable, which is 90 days of net
revenues. If this value could be reduced to 50 days, what annual increase in income
would your firm realize if the increase in cash could be invested at 7.5%?
About $5.7 million increase
15. Revenues increased by 30% in your firm during the past year while total assets increased
only 5% and Equity Financing Ratios remained constant at 50.0%. Return on Equity
remained constant at 12.0%. Why didn't Return on Equity increase?
Total margins dropped
16. Your firm's strategic plan calls for a net increase in total assets of $100 million during the
next five years, which represents an annual compounded growth rate of 15%. Equity
growth is also projected to be 15% per year. Assume that the firm's Total Asset Turnover
will average 1.0 in each of the five years and Equity Financing percentages will remain
constant at 50%. The firm projects Reported Income Index values to be 0.85 each year.
What is the required Total Margin that will make this plan financially feasible?
6.38% is the required total margin
17. Program A has a profit of $5,000 and an investment of $100,000, while program B has a
profit of $10,000 and an investment of $220,000. Which program has the better ROI?
Program A
Answer the questions above and submit the Microsoft Word document to Canvas.
Note: Your assignment will be checked for originality via the Turnitin plagiarism tool.
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