Corporate Finance
Student1976
corporate_finance_test_2.docxCorporate Finance
Test 2
1. A corporation with 800,000 shares of common stock outstanding earned $1.6 million in operating income (EBIT) during 2012. It also paid $1.2 million in interest and $200,000 in taxes in 2012. (a) Calculate its degree of financial leverage. (b) Use 2012's DFL to forecast 2013 EPS if pro forma EBIT for 2012 is $3.6 million. (assume interest paid and shares of common outstanding remain unchanged) Show your work and explain your calculations.
2. Given the following information (see table below) find: (a) accounts receivable; (b) marketable securities; (c) fixed assets; (d) long term debt. Note: current assets are made up of cash, marketable securities, accounts receivable, and inventory. Show your work.
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credit sales |
$7,200,000 |
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cash |
$300,000 |
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inventory |
$2,150,000 |
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current liabilites |
$1,400,000 |
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asset turnover |
1.2 |
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currrent ratio |
2.5 |
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debt to assets |
40% |
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receivables turnover |
8 |
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3. Analyze the information below. Forecast April's labor cost. Show your work and discuss your results. Sales projections or March, April, May, and June are 4,000; 10,000; 8,000; and 6,000 units respectively. Ending inventory for each month is maintained at 1.5 times next month's unit sales forecast. Labor costs $42 per hour. 10 labor hours are required to manufacture one unit of product. 8,000 units of product were actually manufactured in February.
4. Solar Corporation earned a 4% profit margin on sales of $30 billion, turned over its assets 6 times, had a current ratio of 3.4, an EPS of $4.25, and a return on equity of 15%. Calculate Solar's return on assets. Analyze your results.
