BUSI320 Corp Finance HW Assignment C1
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busi320_connect_hw1.docx|
Frantic Fast Foods had earnings after taxes of $1,200,000 in the year 2012 with 322,000 shares outstanding. On January 1, 2013, the firm issued 30,000 new shares. Because of the proceeds from these new shares and other operating improvements, earnings after taxes increased by 24 percent. |
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a. |
Compute earnings per share for the year 2012. (Round your answer to 2 decimal places.) |
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Earnings per share |
$ |
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b. |
Compute earnings per share for the year 2013. (Round your answer to 2 decimal places.) |
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Earnings per share |
$ |
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Hillary Swank Clothiers had sales of $406,000 and cost of goods sold of $306,000. |
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a. |
What is the gross profit margin (ratio of gross profit to sales)? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) |
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Gross profit margin |
% |
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b. |
If the average firm in the clothing industry had a gross profit of 20 percent, how is the firm doing? |
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The firm is . |
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A-Rod Fishing Supplies had sales of $2,460,000 and cost of goods sold of $1,610,000. Selling and administrative expenses represented 12 percent of sales. Depreciation was 8 percent of the total assets of $4,730,000. |
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What was the firm’s operating profit? |
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Operating profit |
$ |
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Given the following information, prepare in good form an income statement for the Dental Drilling Company. (Input all amounts as positive values.) |
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|
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Selling and administrative expense |
$ |
108,000 |
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Depreciation expense |
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73,000 |
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Sales |
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551,000 |
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Interest expense |
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48,000 |
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Cost of goods sold |
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180,000 |
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Taxes |
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53,000 |
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Dental Drilling Company |
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Income Statement |
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$ n/r |
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$ n/r |
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Given the following information, prepare in good form an income statement for Jonas Brothers Cough Drops. (Input all amounts as positive values.) |
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Selling and administrative expense |
$ |
251,000 |
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Depreciation expense |
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196,000 |
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Sales |
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1,640,000 |
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Interest expense |
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121,000 |
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Cost of goods sold |
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549,000 |
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Taxes |
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165,000 |
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Jonas Brothers Cough Drops |
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Income Statement |
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n/r |
$ n/r |
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n/r |
n/r |
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$ n/r |
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Stein Books Inc. sold 1,500 finance textbooks for $225 each to High Tuition University in 2013. These books cost $190 to produce. Stein Books spent $12,300 (selling expense) to convince the university to buy its books. |
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Depreciation expense for the year was $15,300. In addition, Stein Books borrowed $101,000 on January 1, 2013, on which the company paid 14 percent interest. Both the interest and principal of the loan were paid on December 31, 2013. The publishing firm’s tax rate is 30 percent. |
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Prepare an income statement for Stein Books. (Input all amounts as positive values.) |
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Stein Books Inc. |
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Income Statement |
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For the Year Ending December 31, 2013 |
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n/r |
$ n/r |
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n/r |
n/r |
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n/r |
$ n/r |
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n/r |
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$ n/r |
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n/r |
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$ n/r |
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n/r |
n/r |
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n/r |
$ n/r |
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Arrange the following items in proper balance sheet presentation: (Be sure to list the assets and liabilities in order of their liquidity. Input all amounts as positive values.) |
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Accumulated depreciation |
$ |
334,000 |
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Retained earnings |
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50,000 |
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Cash |
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19,000 |
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Bonds payable |
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230,000 |
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Accounts receivable |
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57,000 |
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Plant and equipment—original cost |
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750,000 |
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Accounts payable |
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40,000 |
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Allowance for bad debts |
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12,000 |
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Common stock, $1 par, 100,000 shares outstanding |
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100,000 |
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Inventory |
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73,000 |
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Preferred stock, $55 par, 1,000 shares outstanding |
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55,000 |
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Marketable securities |
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24,000 |
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Investments |
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23,000 |
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Notes payable |
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36,000 |
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Capital paid in excess of par (common stock) |
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89,000 |
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Balance Sheet |
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Assets |
Liabilities and Stockholders’ Equity |
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Current Assets: |
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Current Liabilities: |
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$ n/r |
n/r |
$ n/r |
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n/r |
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n/r |
n/r |
n/r |
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n/r |
$ n/r |
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n/r |
n/r |
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Total current liabilities |
$ n/r |
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Long-term liabilities |
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Net accounts receivable |
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n/r |
n/r |
n/r |
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n/r |
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n/r |
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Total current assets |
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$ n/r |
Total liabilities |
$ n/r |
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Other Assets: |
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Stockholders’ Equity: |
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n/r |
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n/r |
n/r |
$ |
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Fixed assets: |
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n/r |
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n/r |
$ n/r |
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n/r |
n/r |
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n/r |
n/r |
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n/r |
n/r |
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Net plant and equipment |
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n/r |
Total stockholders’ equity |
$ n/r |
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Total assets |
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$ n/r |
Total liabilities and stockholders’ equity |
$ n/r |
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Elite Trailer Parks has an operating profit of $264,000. Interest expense for the year was $30,500; preferred dividends paid were $29,100; and common dividends paid were $37,900. The tax was $65,400. The firm has 25,400 shares of common stock outstanding. |
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a. |
Calculate the earnings per share and the common dividends per share for Elite Trailer Parks. (Round your answers to 2 decimal places.) |
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Earnings per share |
$ |
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Common dividends per share |
$ |
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b. |
What was the increase in retained earnings for the year? |
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Increase in retained earnings |
$ |
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Quantum Technology had $652,000 of retained earnings on December 31, 2013. The company paid common dividends of $31,700 in 2013 and had retained earnings of $549,000 on December 31, 2012. |
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a. |
How much did Quantum Technology earn during 2013? |
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Earnings available to common stockholders |
$ |
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b. |
What would earnings per share be if 42,100 shares of common stock were outstanding? (Round your answer to 2 decimal places.) |
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Earnings per share |
$ |
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Botox Facial Care had earnings after taxes of $282,000 in 2012 with 200,000 shares of stock outstanding. The stock price was $48.80. In 2013, earnings after taxes increased to $386,000 with the same 200,000 shares outstanding. The stock price was $59.00. |
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a. |
Compute earnings per share and the P/E ratio for 2012. (The P/E ratio equals the stock price divided by earnings per share.) (Do not round intermediate calculations. Round your final answers to 2 decimal places.) |
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Earnings per share |
$ |
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P/E ratio |
times |
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b. |
Compute earnings per share and the P/E ratio for 2013. (Do not round intermediate calculations. Round your final answers to 2 decimal places.) |
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Earnings per share |
$ |
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P/E ratio |
times |
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c. |
Why did the P/E ratio change? (Do not round intemediate calculations. Input your answers as percents rounded to 2 decimal places.) |
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The stock price n/r |
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The Rogers Corporation has a gross profit of $760,000 and $306,000 in depreciation expense. The Evans Corporation also has $760,000 in gross profit, with $42,000 in depreciation expense. Selling and administrative expense is $230,000 for each company. |
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a. |
Given that the tax rate is 40 percent, compute the cash flow for both companies. |
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Rogers |
Evans |
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Cash flow |
$ n/r |
$ n/r |
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b. |
Calculate the difference in cash flow between the two firms. |
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Difference in cash flow |
$ n/r |
rev: 02_20_2014_QC_44768
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Nova Electrics anticipated cash flow from operating activities of $16 million in 2011. It will need to spend $8.5 million on capital investments in order to remain competitive within the industry. Common stock dividends are projected at $.65 million and preferred stock dividends at $.20 million. |
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a. |
What is the firm’s projected free cash flow for the year 2011? (Enter your answer in millions of dollars rounded to 2 decimal places.) |
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Free cash flow |
$ n/r |
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b. |
What does the concept of free cash flow represent? |
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n/r |
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The Holtzman Corporation has assets of $397,000, current liabilities of $87,000, and long-term liabilities of $72,000. There is $36,500 in preferred stock outstanding; 20,000 shares of common stock have been issued. |
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a. |
Compute book value (net worth) per share. (Do not round intermediate calculations. Round your final answer to 2 decimal places.) |
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Book value per share |
$ n/r |
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b. |
If there is $25,900 in earnings available to common stockholders, and Holtzman’s stock has a P/E of 16 times earnings per share, what is the current price of the stock? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) |
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Current price |
$ n/r |
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c. |
What is the ratio of market value per share to book value per share? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) |
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Market value to book value |
n/r |
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Amigo Software Inc. has total assets of $820,000, current liabilities of $181,000, and long-term liabilities of $210,000. There is $90,000 in preferred stock outstanding. Thirty thousand shares of common stock have been issued. |
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a. |
Compute book value (net worth) per share. (Round your answer to 2 decimal places.) |
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Book value per share |
$ n/r |
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b. |
If there is $52,800 in earnings available to common stockholders and the firm’s stock has a P/E of 26 times earnings per share, what is the current price of the stock? (Do not round intermediate calculations. Round you final answer to 2 decimal places.) |
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Current price |
$ n/r |
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c. |
What is the ratio of market value per share to book value per share? (Do not round intermediate calculations. Round you final answer to 2 decimal places.) |
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Market value to book value |
n/r |
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For December 31, 2012, the balance sheet of Baxter Corporation was as follows: |
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Current Assets |
|
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Liabilities |
|
|
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Cash |
$ |
28,000 |
Accounts payable |
$ |
30,000 |
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Accounts receivable |
|
33,000 |
Notes payable |
|
38,000 |
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Inventory |
|
43,000 |
Bonds payable |
|
68,000 |
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Prepaid expenses |
|
13,800 |
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|
|
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Fixed Assets |
|
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Stockholders’ Equity |
|
|
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Gross plant and equipment |
$ |
268,000 |
Preferred stock |
$ |
38,000 |
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Less: Accumulated depreciation |
|
53,600 |
Common stock |
|
73,000 |
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|
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Paid-in capital |
|
43,000 |
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Net plant and equipment |
|
214,400 |
Retained earnings |
|
42,200 |
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Total assets |
$ |
332,200 |
Total liabilities and stockholders’ equity |
$ |
332,200 |
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Sales for 2013 were $310,000, and the cost of goods sold was 55 percent of sales. Selling and administrative expense was $31,000. Depreciation expense was 11 percent of plant and equipment (gross) at the beginning of the year. Interest expense for the notes payable was 9 percent, while the interest rate on the bonds payable was 15 percent. This interest expense is based on December 31, 2012 balances. The tax rate averaged 35 percent. |
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$3,800 in preferred stock dividends were paid and $6,150 in dividends were paid to common stockholders. There were 10,000 shares of common stock outstanding. |
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During 2013, the cash balance and prepaid expenses balances were unchanged. Accounts receivable and inventory increased by 9 percent. A new machine was purchased on December 31, 2013, at a cost of $53,000. |
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Accounts payable increased by 30 percent. Notes payable increased by $7,800 and bonds payable decreased by $19,000, both at the end of the year. The preferred stock, common stock, and capital paid in excess of par accounts did not change. |
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a. |
Prepare an income statement for 2013. (Round EPS answer to 2 decimal places. Input all amounts as positive values.) |
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BAXTER CORPORATION 2013 Income Statement |
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n/r |
$ n/r |
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n/r |
n/r |
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n/r |
$ n/r |
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n/r |
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n/r |
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n/r |
$ n/r |
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n/r |
n/r |
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n/r |
$ n/r |
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n/r |
n/r |
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n/r |
$ n/r |
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n/r |
n/r |
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Earnings available to common stockholders |
$ n/r |
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Shares outstanding |
n/r |
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Earnings per share |
$ n/r |
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b. |
Prepare a statement of retained earnings for 2013. (Input all amounts as positive values.) |
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BAXTER CORPORATION 2013 Income Statement |
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n/r |
$ n/r |
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Add: n/r |
n/r |
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Less: n/r |
n/r |
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n/r |
$ n/r |
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c. |
Prepare a balance sheet as of December 31, 2013. (Be sure to list the assets and liabilities in order of their liquidity. Input all amounts as positive values.) |
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BAXTER CORPORATION 2013 Balance Sheet |
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Current Assets |
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Liabilities |
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n/r |
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$ n/r |
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n/r |
$ n/r |
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n/r |
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n/r |
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n/r |
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n/r |
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n/r |
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n/r |
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n/r |
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n/r |
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Total current assets |
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$ n/r |
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Total liabilities |
$ n/r |
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Fixed Assets |
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Stockholders' Equity |
|||
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n/r |
$ n/r |
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n/r |
$ |
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n/r |
n/r |
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n/r |
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n/r |
n/r |
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Net plant and equipment |
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n/r |
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n/r |
n/r |
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Total stockholders' equity |
$ n/r |
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Total assets |
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$ n/r |
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Total liabilities and stockholders' equity |
$ n/r |
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Refer to the following financial statements for Crosby Corporation: |
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CROSBY CORPORATION Income Statement For the Year Ended December 31, 2011 |
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Sales |
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$ |
3,650,000 |
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Cost of goods sold |
|
|
2,230,000 |
|
|
|
|
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Gross profit |
|
$ |
1,420,000 |
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Selling and administrative expense |
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|
654,000 |
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Depreciation expense |
|
|
273,000 |
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|
|
|
|
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Operating income |
|
$ |
493,000 |
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Interest expense |
|
|
85,300 |
|
|
|
|
|
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Earnings before taxes |
|
$ |
407,700 |
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Taxes |
|
|
186,000 |
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|
|
|
|
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Earnings after taxes |
|
$ |
221,700 |
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Preferred stock dividends |
|
|
10,000 |
|
|
|
|
|
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Earnings available to common stockholders |
|
$ |
211,700 |
|
|
|
|
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Shares outstanding |
|
|
150,000 |
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Earnings per share |
|
$ |
1.41 |
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Statement of Retained Earnings For the Year Ended December 31, 2011 |
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Retained earnings, balance, January 1, 2011 |
$ |
1,370,100 |
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Add: Earnings available to common stockholders, 2011 |
|
211,700 |
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Deduct: Cash dividends declared and paid in 2011 |
|
141,000 |
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Retained earnings, balance, December 31, 2011 |
$ |
1,440,800 |
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Comparative Balance Sheets For 2010 and 2011 |
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Year-End 2010 |
Year-End 2011 |
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Assets |
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|
|
|
|
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Current assets: |
|
|
|
|
|
|
|
|
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Cash |
|
|
$ |
137,000 |
|
|
$ |
107,100 |
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Accounts receivable (net) |
|
|
|
541,000 |
|
|
|
571,000 |
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Inventory |
|
|
|
697,000 |
|
|
|
717,000 |
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Prepaid expenses |
|
|
|
65,600 |
|
|
|
32,800 |
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|
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|
|
|
|
|
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Total current assets |
|
|
$ |
1,440,600 |
|
|
$ |
1,427,900 |
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Investments (long-term securities) |
|
|
|
95,800 |
|
|
|
89,000 |
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Gross plant and equipment |
$ |
2,770,000 |
|
|
$ |
3,420,000 |
|
|
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Less: Accumulated depreciation |
|
1,220,000 |
|
|
|
1,493,000 |
|
|
|
|
|
|
|
|
|
|
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Net plant and equipment |
|
|
|
1,550,000 |
|
|
|
1,927,000 |
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|
|
|
|
|
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|
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Total assets |
|
|
$ |
3,086,400 |
|
|
$ |
3,443,900 |
|
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|
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Liabilities and Stockholders’ Equity |
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|
|
|
|
|
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Current liabilities: |
|
|
|
|
|
|
|
|
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Accounts payable |
|
|
$ |
369,000 |
|
|
$ |
616,000 |
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Notes payable |
|
|
|
501,000 |
|
|
|
501,000 |
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Accrued expenses |
|
|
|
73,300 |
|
|
|
51,100 |
|
|
|
|
|
|
|
|
|
|
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Total current liabilities |
|
|
$ |
943,300 |
|
|
$ |
1,168,100 |
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Long-term liabilities: |
|
|
|
|
|
|
|
|
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Bonds payable, 2011 |
|
|
|
183,000 |
|
|
|
245,000 |
|
|
|
|
|
|
|
|
|
|
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Total liabilities |
|
|
$ |
1,126,300 |
|
|
$ |
1,413,100 |
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Stockholders’ equity: |
|
|
|
|
|
|
|
|
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Preferred stock, $100 par value |
|
|
$ |
90,000 |
|
|
$ |
90,000 |
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Common stock, $1 par value |
|
|
|
150,000 |
|
|
|
150,000 |
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Capital paid in excess of par |
|
|
|
350,000 |
|
|
|
350,000 |
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Retained earnings |
|
|
|
1,370,100 |
|
|
|
1,440,800 |
|
|
|
|
|
|
|
|
|
|
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Total stockholders’ equity |
|
|
$ |
1,960,100 |
|
|
$ |
2,030,800 |
|
|
|
|
|
|
|
|
|
|
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Total liabilities and stockholders’ equity |
|
|
$ |
3,086,400 |
|
|
$ |
3,443,900 |
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a. |
Prepare a statement of cash flows for the Crosby Corporation: (Amounts to be deducted should be indicated with a minus sign.) |
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CROSBY CORPORATION Statement of Cash Flows For the Year Ended December 31, 2011 |
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Cash flows from operating activities: |
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n/r |
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$ n/r |
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Adjustments to determine cash flow from operating activities: |
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n/r |
$ |
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n/r |
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n/r |
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n/r |
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n/r |
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n/r |
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Total adjustments |
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n/r |
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Net cash flows from operating activities |
|
$ n/r |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
n/r |
$ |
|
|
|
|
n/r |
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from investing activities |
|
n/r |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
n/r |
$ |
|
|
|
|
n/r |
|
|
|
|
|
n/r |
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from financing activities |
|
n/r |
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash flows |
|
$ n/r |
|
|
|
|
|
|
|
|
|
|
|
b. |
Compute the book value per common share for both 2010 and 2011 for the Crosby Corporation.(Round your answers to 2 decimals places.) |
|
Book value |
|
|
2010 |
$ n/r |
|
2011 |
$ n/r |
|
|
|
c. |
If the market value of a share of common stock is 1.7 times book value for 2011, what is the firm’s P/E ratio for 2011? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) |
|
P/E ratio |
n/r |
|
Gates Appliances has a return-on-assets (investment) ratio of 8 percent. |
|
a. |
If the debt-to-total-assets ratio is 40 percent, what is the return on equity? (Input your answer as a percent rounded to 2 decimal places.) |
|
Return on equity |
n/r |
|
b. |
If the firm had no debt, what would the return-on-equity ratio be? (Input your answer as a percent rounded to 2 decimal places.) |
|
Return on equity |
n/r |
|
Using the Du Pont method, evaluate the effects of the following relationships for the Butters Corporation. |
|
a. |
Butters Corporation has a profit margin of 6.5 percent and its return on assets (investment) is 16.25 percent. What is its assets turnover? (Round your answer to 2 decimal places.) |
|
Assets turnover ratio |
n/r |
times |
|
b. |
If the Butters Corporation has a debt-to-total-assets ratio of 70.00 percent, what would the firm’s return on equity be? (Input your answer as a percent rounded to 2 decimal places.) |
|
Return on equity |
n/r |
|
c. |
What would happen to return on equity if the debt-to-total-assets ratio decreased to 60.00 percent?(Input your answer as a percent rounded to 2 decimal places.) |
|
Return on equity |
n/r |
|
Jerry Rice and Grain Stores has $4,270,000 in yearly sales. The firm earns 4 percent on each dollar of sales and turns over its assets 3 times per year. It has $102,000 in current liabilities and $396,000 in long-term liabilities. |
|
a. |
What is its return on stockholders’ equity? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) |
|
Return on stockholders' equity |
n/r |
|
b. |
If the asset base remains the same as computed in part a, but total asset turnover goes up to 3.60, what will be the new return on stockholders’ equity? Assume that the profit margin stays the same as do current and long-term liabilities. (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) |
|
New return on stockholders' equity |
n/r |
|
Assume the following data for Cable Corporation and Multi-Media Inc. |
|
|
Cable Corporation |
Multi-Media Inc. |
||||
|
Net income |
$ |
39,900 |
|
$ |
112,000 |
|
|
Sales |
|
310,000 |
|
|
2,550,000 |
|
|
Total assets |
|
480,000 |
|
|
937,000 |
|
|
Total debt |
|
187,000 |
|
|
538,000 |
|
|
Stockholders' equity |
|
293,000 |
|
|
399,000 |
|
|
|
|
a-1. |
Compute return on stockholders’ equity for both firms. (Input your answers as a percent rounded to 2 decimal places.) |
|
|
Return on Stockholders’ Equity |
|
Cable Corporation |
n/r |
|
Multi-Media, Inc. |
n/r |
|
|
|
a-2. |
Which firm has the higher return? |
|
|
|
|
|
n/r |
|
b. |
Compute the following additional ratios for both firms. (Input your Net income/Sales, Net income/Total assets and Debt/Total asset answers as a percent rounded to 2 decimal places. Round your Sales/Total assets answers to 2 decimal places.) |
|
|
Cable Corporation |
Multi-Media Inc. |
|
Net income/Sales |
n/r |
n/r |
|
Net income/Total assets |
n/r |
n/r |
|
Sales/Total assets |
n/r |
n/r |
|
Debt/Total assets |
n/r |
n/r |
|
|
|
The balance sheet for Stud Clothiers is shown next. Sales for the year were $3,510,000, with 75 percent of sales sold on credit. |
|
STUD CLOTHIERS Balance Sheet 20XX |
|||||
|
Assets |
Liabilities and Equity |
||||
|
Cash |
$ |
39,000 |
Accounts payable |
$ |
297,000 |
|
Accounts receivable |
|
304,000 |
Accrued taxes |
|
128,000 |
|
Inventory |
|
294,000 |
Bonds payable (long-term) |
|
122,000 |
|
Plant and equipment |
|
488,000 |
Common stock |
|
100,000 |
|
|
|
|
|
|
|
|
|
|
|
Paid-in capital |
|
150,000 |
|
|
|
|
Retained earnings |
|
328,000 |
|
|
|
|
|
|
|
|
Total assets |
$ |
1,125,000 |
Total liabilities and equity |
$ |
1,125,000 |
|
|
|
|
|
|
|
|
|
|
Compute the following ratios: (Use a 360-day year. Do not round intermediate calculations. Round your answers to 2 decimal places. Input your debt-to-total assets answer as a percent rounded to 2 decimal places.) |
|
|
|
|
|
|
a. |
Current ratio |
n/r |
times |
|
b. |
Quick ratio |
n/r |
times |
|
c. |
Debt-to-total-assets ratio |
n/r |
% |
|
d. |
Asset turnover |
n/r |
times |
|
e. |
Average collection period |
n/r |
days |
|
|
|
Using the income statement for Times Mirror and Glass Co., compute the following ratios: |
|
TIMES MIRROR AND GLASS Co. Income Statement |
||
|
Sales |
$ |
211,000 |
|
Cost of goods sold |
|
110,000 |
|
|
|
|
|
Gross profit |
$ |
101,000 |
|
Selling and administrative expense |
|
45,300 |
|
Lease expense |
|
10,200 |
|
|
|
|
|
Operating profit* |
$ |
45,500 |
|
Interest expense |
|
12,800 |
|
|
|
|
|
Earnings before taxes |
$ |
32,700 |
|
Taxes (30%) |
|
13,080 |
|
|
|
|
|
Earnings after taxes |
$ |
19,620 |
|
|
|
|
|
*Equals income before interest and taxes. |
|
|
|
|
|
a. |
Compute the interest coverage ratio. (Round your answer to 2 decimal places.) |
|
Interest coverage |
n/r |
times |
|
b. |
Compute the fixed charge coverage ratio. (Round your answer to 2 decimal places.) |
|
Fixed charge coverage |
n/r |
times |
|
The total assets for this company equal $250,000. Set up the equation for the Du Pont system of ratio analysis. |
|
c. |
Compute the profit margin ratio. (Input your answer as a percent rounded to 2 decimal places.) |
|
Profit margin |
n/r |
|
d. |
Compute the total asset turnover ratio. (Round your answer to 2 decimal places.) |
|
Total asset turnover |
n/r |
times |
|
e. |
Compute the return on assets (investment). (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) |
|
Return on assets |
n/r |
|
A firm has net income before interest and taxes of $179,000 and interest expense of $29,500. |
|
a. |
What is the times-interest-earned ratio? (Round your answer to 2 decimal places.) |
|
Times-interest earned |
n/r |
times |
|
b. |
If the firm’s lease payments are $44,000, what is the fixed charge coverage? (Round your answer to 2 decimal places.) |
|
Fixed charge coverage |
n/r |
times |
|
Quantum Moving Company has the following data. Industry information also is shown. |
|
Company data
|
Industry Data on |
|||||||||
|
Year |
Net Income |
Total Assets |
Net Income/Total Assets |
|||||||
|
2011 |
$ |
382,000 |
|
$ |
2,885,000 |
|
|
11.8 |
% |
|
|
2012 |
|
419,000 |
|
|
3,269,000 |
|
|
7.7 |
|
|
|
2013 |
|
401,000 |
|
|
3,842,000 |
|
|
4.6 |
|
|
|
|
|
Year |
Debt |
Total Assets |
Industry Data on Debt/Total Assets |
|||||||
|
2011 |
$ |
1,711,000 |
|
$ |
2,885,000 |
|
|
56.6 |
% |
|
|
2012 |
|
1,826,000 |
|
|
3,269,000 |
|
|
45.0 |
|
|
|
2013 |
|
1,944,000 |
|
|
3,842,000 |
|
|
33.0 |
|
|
|
|
|
a. |
Calculate the company's data in terms of: (Input your answers as a percent rounded to 1 decimal place.) |
|
|
2011 |
2012 |
2013 |
|
Net income/Total assets |
n/r |
n/r |
n/r |
|
Debt/Total assets |
n/r |
n/r |
n/r |
|
|
|
b. |
As an industry analyst comparing the firm to the industry, are you likely to praise or criticize the firm in terms of: |
|
|
Praise/Criticize |
|
Net income/Total assets |
n/r |
|
Debt/Total assets |
n/r |
|
|
|
The Canton Corporation shows the following income statement. The firm uses FIFO inventory accounting. |
|
CANTON CORPORATION Income Statement for 2013 |
|||
|
Sales |
$ |
152,100 |
(11,700 units at $13.00) |
|
Cost of goods sold |
|
93,600 |
(11,700 units at $8.00) |
|
|
|
|
|
|
Gross profit |
$ |
58,500 |
|
|
Selling and administrative expense |
|
9,126 |
|
|
Depreciation |
|
19,400 |
|
|
|
|
|
|
|
Operating profit |
$ |
29,974 |
|
|
Taxes (30%) |
|
8,992 |
|
|
|
|
|
|
|
Aftertax income |
$ |
20,982 |
|
|
|
|
|
|
|
|
|
a. |
Assume in 2014 the same 11,700-unit volume is maintained, but that the sales price increases by 10 percent. Because of FIFO inventory policy, old inventory will still be charged off at $8.00 per unit. Also assume selling and administrative expense will be 6 percent of sales and depreciation will be unchanged. The tax rate is 30 percent. Compute aftertax income for 2014. (Do not round intermediate calculations. Round your answer to the nearest whole number.) |
|
Aftertax income |
$ n/r |
|
b. |
In part a, by what percent did aftertax income increase as a result of a 10 percent increase in the sales price? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) |
|
Gain in aftertax income |
n/r |
|
c. |
Now assume that in 2015 the volume remains constant at 11,700 units, but the sales price decreases by 15 percent from its year 2014 level. Also, because of FIFO inventory policy, cost of goods sold reflects the inflationary conditions of the prior year and is $8.50 per unit. Further, assume selling and administrative expense will be 6 percent of sales and depreciation will be unchanged. The tax rate is 30 percent. Compute the aftertax income. (Round the sales price per unit to 2 decimal places but do not round any other intermediate calculations. Round your final answer to the nearest whole dollar amount.) |
|
Aftertax income |
$ n/r |
|
The Griggs Corporation has credit sales of $1,137,650. |
|
|
|
|
|
Total assets turnover |
3.05 |
times |
|
Cash to total assets |
1.70 |
% |
|
Accounts receivable turnover |
10 |
times |
|
Inventory turnover |
10 |
times |
|
Current ratio |
2.46 |
times |
|
Debt to total assets |
30 |
% |
|
|
|
Using the above ratios, complete the balance sheet. (Round your answers to the nearest whole number.) |
|
GRIGGS CORPORATION Balance Sheet 2011 |
|||
|
Assets |
Liabilities and Stockholders' Equity |
||
|
Cash |
$ n/r |
Current debt |
$ n/r |
|
Accounts receivable |
n/r |
Long-term debt |
n/r |
|
Inventory |
n/r |
|
|
|
|
|
|
|
|
Total current assets |
$ n/r |
Total debt |
$ n/r |
|
Fixed assets |
n/r |
Equity |
n/r |
|
|
|
|
|
|
Total assets |
$ n/r |
Total debt and stockholders' equity |
$ n/r |
|
|
|
|
|
|
|
|
Using the financial statements for the Snider Corporation, calculate the 13 basic ratios found in the chapter. |
|
SNIDER CORPORATION Balance Sheet December 31, 2013 |
||||||
|
Assets |
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
Cash |
|
|
|
$ |
54,200 |
|
|
Marketable securities |
|
|
|
|
28,800 |
|
|
Accounts receivable (net) |
|
|
|
|
180,000 |
|
|
Inventory |
|
|
|
|
244,000 |
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
|
$ |
507,000 |
|
|
Investments |
|
|
|
|
60,400 |
|
|
|
|
|
|
|
|
|
|
Plant and equipment. |
$ |
658,000 |
|
|
|
|
|
Less: Accumulated depreciation |
|
255,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net plant and equipment |
|
|
|
|
403,000 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
|
$ |
970,400 |
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity |
|
|
|
|
||
|
Current liabilities: |
|
|
|
|
|
|
|
Accounts payable |
|
|
|
$ |
94,800 |
|
|
Notes payable |
|
|
|
|
78,400 |
|
|
Accrued taxes |
|
|
|
|
14,500 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
|
$ |
187,700 |
|
|
Long-term liabilities: |
|
|
|
|
|
|
|
Bonds payable |
|
|
|
|
159,800 |
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
|
$ |
347,500 |
|
|
Stockholders' equity |
|
|
|
|
|
|
|
Preferred stock, $50 par value |
|
|
|
$ |
100,000 |
|
|
Common stock, $1 par value |
|
|
|
|
80,000 |
|
|
Capital paid in excess of par |
|
|
|
|
190,000 |
|
|
Retained earnings |
|
|
|
|
252,900 |
|
|
|
|
|
|
|
|
|
|
Total stockholders' equity |
|
|
|
$ |
622,900 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity |
|
|
|
$ |
970,400 |
|
|
|
|
|
|
|
|
|
|
|
|
SNIDER CORPORATION Income Statement For the Year Ending December 31, 2013 |
|||
|
Sales (on credit) |
$ |
2,070,000 |
|
|
Cost of goods sold |
|
1,377,000 |
|
|
|
|
|
|
|
Gross profit |
$ |
693,000 |
|
|
Selling and administrative expenses |
|
505,000 |
* |
|
|
|
|
|
|
Operating profit (EBIT) |
$ |
188,000 |
|
|
Interest expense |
|
34,200 |
|
|
|
|
|
|
|
Earnings before taxes (EBT) |
$ |
153,800 |
|
|
Taxes |
|
85,800 |
|
|
|
|
|
|
|
Earnings after taxes (EAT) |
$ |
68,000 |
|
|
|
|
|
|
|
|
|
*Includes $35,800 in lease payments. |
|
Using the above financial statements for the Snider Corporation, calculate the following ratios. |
|
a. |
Profitability ratios. (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) |
|
|
Profitability Ratios |
|
Profit margin |
n/r |
|
Return on assets (investment) |
n/r |
|
Return on equity |
n/r |
|
|
|
b. |
Assets utilization ratios. (Do not round intermediate calculations. Round your answers to 2 decimal places.) |
|
|
Assets Utilization Ratios |
|
|
Receivable turnover |
n/r |
times |
|
Average collection period |
n/r |
days |
|
Inventory turnover |
n/r |
times |
|
Fixed asset turnover |
n/r |
times |
|
Total asset turnover |
n/r |
times |
|
|
|
c. |
Liquidity ratios. (Do not round intermediate calculations. Round your answers to 2 decimal places.) |
|
|
Liquidity Ratios |
|
|
Current ratio |
n/r |
times |
|
Quick ratio |
n/r |
times |
|
|
|
d. |
Debt utilization ratios. (Do not round intermediate calculations. Input your debt to total assets answer as a percent rounded to 2 decimal places. Round your other answers to 2 decimal places.) |
|
|
Debt Utilization Ratios |
|
|
Debt to total assets |
n/r |
% |
|
Times interest earned |
n/r |
times |
|
Fixed charge coverage |
n/r |
times |
|
|
|
Given the financial statements for Jones Corporation and Smith Corporation: |
|
JONES CORPORATION |
|||||||
|
Current Assets |
Liabilities |
||||||
|
Cash |
|
|
$ |
29,400 |
Accounts payable |
$ |
103,000 |
|
Accounts receivable |
|
|
|
88,300 |
Bonds payable (long term) |
|
80,100 |
|
Inventory |
|
|
|
54,500 |
|
|
|
|
Long-Term Assets |
Stockholders' Equity |
||||||
|
Gross fixed assets |
$ |
508,000 |
|
|
Common stock |
$ |
150,000 |
|
Less: Accumulated depreciation |
|
156,800 |
|
|
Paid-in capital |
|
70,000 |
|
|
|
|
|
|
|
|
|
|
Net fixed assets* |
|
|
|
351,200 |
Retained earnings |
|
120,300 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
$ |
523,400 |
Total liabilities and equity |
$ |
523,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Sales (on credit) |
$ |
1,845,000 |
|
Cost of goods sold |
|
757,000 |
|
|
|
|
|
Gross profit |
$ |
1,088,000 |
|
Selling and administrative expense† |
|
325,000 |
|
Depreciation expense |
|
59,400 |
|
|
|
|
|
Operating profit |
$ |
703,600 |
|
Interest expense |
|
16,300 |
|
|
|
|
|
Earnings before taxes |
$ |
687,300 |
|
Tax expense |
|
95,600 |
|
|
|
|
|
Net income |
$ |
591,700 |
|
|
|
|
|
|
|
*Use net fixed assets in computing fixed asset turnover. |
|
†Includes $15,500 in lease payments. |
|
SMITH CORPORATION |
|||||||
|
Current Assets |
Liabilities |
||||||
|
Cash |
|
|
$ |
40,700 |
Accounts payable |
$ |
84,400 |
|
Marketable securities |
|
|
|
15,800 |
Bonds payable (long term) |
|
283,000 |
|
Accounts receivable |
|
|
|
75,900 |
|
|
|
|
Inventory |
|
|
|
75,400 |
|
|
|
|
Long-Term Assets |
Stockholders' Equity |
||||||
|
Gross fixed assets |
$ |
592,000 |
|
|
Common stock |
$ |
75,000 |
|
Less: Accumulated depreciation |
|
251,100 |
|
|
Paid-in capital |
|
30,000 |
|
|
|
|
|
|
|
|
|
|
Net fixed assets* |
|
|
|
340,900 |
Retained earnings |
|
76,300 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
$ |
548,700 |
Total liabilities and equity |
$ |
548,700 |
|
|
|
|
|
|
|
|
|
|
|
|
*Use net fixed assets in computing fixed asset turnover. |
|
SMITH CORPORATION |
||
|
Sales (on credit) |
$ |
1,150,000 |
|
Cost of goods sold |
|
659,000 |
|
|
|
|
|
Gross profit |
$ |
491,000 |
|
Selling and administrative expense† |
|
285,000 |
|
Depreciation expense |
|
57,300 |
|
|
|
|
|
Operating profit |
$ |
148,700 |
|
Interest expense |
|
23,800 |
|
|
|
|
|
Earnings before taxes |
$ |
124,900 |
|
Tax expense |
|
53,600 |
|
|
|
|
|
Net income |
$ |
71,300 |
|
|
|
|
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†Includes $15,500 in lease payments. |
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a. |
Compute the following ratios. (Use a 360-day year. Do not round intermediate calculations. Input your profit margin, return on assets, return on equity, and debt to total assets answers as a percent rounded to 2 decimal places. Round all other answers to 2 decimal places.) |
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Jones Corp. |
Smith Corp. |
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Profit margin |
n/r |
% |
n/r |
% |
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Return on assets (investments) |
n/r |
% |
n/r |
% |
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Return on equity |
n/r |
% |
n/r |
% |
|
Receivable turnover |
n/r |
times |
n/r |
times |
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Average collection period |
n/r |
days |
n/r |
days |
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Inventory turnover |
n/r |
times |
n/r |
times |
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Fixed asset turnover |
n/r |
times |
n/r |
times |
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Total asset turnover |
n/r |
times |
n/r |
times |
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Current ratio |
n/r |
times |
n/r |
times |
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Quick ratio |
n/r |
times |
n/r |
times |
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Debt to total assets |
n/r |
% |
n/r |
% |
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Times interest earned |
n/r |
times |
n/r |
times |
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Fixed charge coverage |
n/r |
times |
n/r |
times |
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