Finance 3300 Corporate Finance

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FI 3300 - CORPORATION FINANCE Take-Home Problem Set One (THPS-1)

Spring 2016

Directions: This problem set covers chapter 2 (Accounting Review) in the textbook and basic math skills that you

will use throughout this course. Determine or compute an answer for each question/problem. After you have

computed an answer for every question, enter your answers online via the “quiz” function entitled “THPS 1

ANSWER SUBMISSION FORM.” See course calendar for due date and for chat session dates during which I

will answer questions about the THPS and/or provide hints for how to solve certain problems.

This is a take-home, open book, open notes financial statement analysis problem set. Work on this Assignment

is to be yours alone - any discussion of either the questions on the assignment or your answers with anyone

other than your instructor will be considered as cheating and, thus, as a violation of the GSU honor code.

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Financial statement data for Delicious Dishes, Inc. are given below. All figures are in dollars. Use this data to

construct an Income Statement for the year ending December 31, 2015 and use your constructed statement to

answer the following 4 questions.

1. What was gross profit from income statement for the year ending December 31, 2015?

2. What was operating profit (i.e., EBIT) from Delicious Dishes income statement for the year ending December 31, 2015?

3. What was profit before taxes (i.e., EBT) from Delicious Dishes income statement for the year ending December 31, 2015?

4. What was net income from Delicious Dishes income statement for the year ending December 31, 2015?

5. On December 10, 2015, Jennings, Inc. paid out total dividends of $450,000 (this was the only dividend payment made during the year). If Jennings reported Retained earnings of $2,168,000 for 2014 and Retained

earnings of $2,380,000 for 2015, what was Jennings reported net income in 2015?

6. In 2015, Variman, Incorporated had Gross Accounts receivable of $36,200 and management estimated the Allowance for Doubtful accounts to be $2,500. Compute the ratio of Allowance of Doubtful accounts to Net

Accounts receivable for Variman, Inc. for 2015 (that is, compute Allowance/Net Accounts receivable – record

your answer as a percent rounded to one decimal place; for example, record 0.234567 as 23.5%).

Advertising 384,000

Beginning of year inventory 1,243,000

Depreciation 350,000

End of year inventory 1,128,000

General and administrative expenses 1,184,000

Gross sales 28,242,000

Interest expense 150,000

Lease payments 148,000

Management salaries 4,253,000

Purchases 18,243,000

Research and development 324,000

Returns and allowances 564,000

Taxes 925,000

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7. In 2015, the Whaddock Company purchased 1,560,000 units from its supplier at a cost of $250.00 per unit. Whaddock sold 1,525,000 units of its product in 2015 at a price of $330.00 per unit. Whaddock began 2015

with 425,000 units in inventory (inventory is carried at a cost of $250.00 per unit). Using this information,

compute Whaddock’s gross profit for 2015.

8. Referring back to the previous question, compute Whaddock’s 2015 ending inventory balance in dollars (valued at cost per unit of $250.00).

9. In 2015, Timmers, Inc. (a retail clothing company) sold 222,000 units of its product at an average price of $50.00 per unit. The company reported estimated returns and allowances in 2015 of 2.0 percent of gross

revenue. Timmers actually purchased 210,000 units of its product from its manufacturer in 2015 at an average

cost of $30.00 per unit. Timmers began 2015 with 20,000 units of its product in inventory (carried at an

average cost of $30.00 per unit). Operating expenses (excluding depreciation) for Timmers, Inc. in 2015 were

$1,250,000 and depreciation expense was $250,000. Timmers had $4,500,000 in debt outstanding throughout

all of 2015. This debt carried an average interest rate of 8.0 percent. Finally, Timmers’ tax rate was 40 percent.

Timmers’ fiscal year runs from January 1 through December 31. Given this information, compute net income

for Timmers for 2015.

10. Referring back to the previous problem, compute Timmers’ ending inventory balance for 2015 (that is, what did Timmers report as inventory on its December 31, 2015 balance sheet).

Financial data for Jade’s Jeans are given below. All figures are in dollars. Use this data to construct a Balance

Sheet for the company for the year ending December 31, 2015 and use your constructed statement to answer the

following 5 questions (i.e., 11 through 15). NOTE: Not every item in the list below belongs on the balance sheet

– you have to use some given data to determine needed accounts for the balance sheet. However, other than what

is listed and/or can be derived, there are no other accounts on Jade’s balance sheet - use cash as a plug figure to

balance the balance sheet.

11. What did Jade’s Jeans record as Total Current Assets on December 31, 2015 balance sheet?

12. What did Jade’s Jeans record as Total Current Liabilities on December 31, 2015 balance sheet?

13. What did Jade’s Jeans record as Total Assets on December 31, 2015 balance sheet?

Accounts payable 855,000

Accruals 294,600

Accumulated depreciation 12,795,300

Additional paid in capital 18,476,200

Beginning of year inventory 9,476,100

Common stock ($1.50 par value) 16,200,000

Cost of goods sold 71,359,800

Current portion of Long-term debt 2,475,600

Gross accounts receivable 1,875,600

Gross fixed assets 64,185,200

Long-term debt (excluding current portion) 23,148,600

Purchases 75,384,700

Retained earnings 9,017,600

Returns and allowances 12,600

Short-term bank loan 466,000

Cash ???

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14. What was Total Shareholder’s Equity on Jade’s Jeans December 31, 2015 balance sheet?

15. Jade’s Jeans Company reported net income for 2015 of $871,800 and the company paid dividends of $0.06 per share in 2015. Given this information (along with the data provided above), compute what Jade’s Jeans

Company reported as retained earnings on its December 31, 2014 balance sheet? (Assume that no additional

shares of stock were issued between December 31, 2014 and December 31, 2015).

16. The year-end 2014 balance sheet for Brad’s Copy, Inc. lists common stock ($1.25 par value) at $7,626,000 capital surplus at $86,543,126 and retained earnings at $218,546,280. On the 2012 year-end balance sheet,

retained earnings is listed as $214,368,900. The firm’s net income in 2014 was $12,050,120. No stock was

issued or repurchased in 2014. What were dividends per share paid by the firm in 2014 (rounded to the nearest

cent)?

17. The Lunder Company has total assets of $21,542,000, current liabilities of $2,547,000, and long-term liabilities of $7,410,000. The firm has 1,000,000 shares of common stock outstanding. Compute the firm’s

book value per share.

18. Referring back to the previous question, if Lunder’s net income equals $1,600,000 and Lunder has a P/E ratio of 15.0 (note that P/E ratio = stock price per share divided by earnings per share), what is the current price of

the stock?

USE THE FOLLOWING INFORMATION TO ANSWER QUESTIONS 19 - 22

The Devlin Corporation, a diversified distribution company, purchases cartons of canned tennis balls from the

Questor Company and markets the balls under the Devlin brand name. Devlin started operations on January 1,

2015. In the table below, Quarter 1 represents the time period from January 1, 2015 to March 31, 2015 and Quarter

2 represents the time period from April 1, 2015 to June 30, 2015. Devlin began operations on January 1, 2015

with no inventory.

Purchases and sales data for Devlin's first two quarters of business are shown below:

Quarter 1 Sales 23,000 cartons at $50 per carton

Purchases January 9,000 cartons at $25

February 10,000 cartons at $30

March 12,000 cartons at $35

Quarter 2 Sales 55,000 cartons at $65 per carton

Purchases April 14,000 cartons at $40

May 16,000 cartons at $45

June 20,000 cartons at $50

19. Calculate the Quarter 2 ending inventories (in dollars) using the LIFO inventory valuation method.

20. Calculate Quarter 2 GROSS PROFIT using the LIFO inventory valuation method.

21. Calculate the Quarter 2 ending inventories (in dollars) using the FIFO inventory valuation method.

22. Calculate Quarter 2 GROSS PROFIT using the FIFO inventory valuation method.

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For each of the algebra problems below, round your answer to 2 decimal places and record your answer on D2L

without (if applicable) a comma. Thus, enter 3.24765 as 3.25 or .18763 as 0.19 or 3,214.842876 as 3214.85.

23. Suppose that A = D + E and that D/A = 0.45. Solve for A/E. 24. Suppose that A = D + E and that D/A = 0.60. Solve for D/E. 25. Suppose that D + E = A, that N/A = .15 and that D/A = 0.75. Solve for N/E. 26. Suppose that S/A = 4.5 and N/S = .08. Solve for N/A. 27. Suppose A – D = E, that N = 20,000, E/A = .75 and N/E = .40. Compute D/A. 28. Assume that S/A = 6.5, D/A = .40, N/E = .75 and A = D + E. Solve for N/S.

29. Given that: 2y + 10x + 18 = 4 and 4x – y + 11 = 0, solve for x. 30. Referring back to the prior problem, what is y? 31. Given that: 4(3g + 104) - 90 = 504 + 6(g - 14), solve for g. 32. Bill can mow his mother's lawn in 40 minutes. His brother Jim can mow it in 65 minutes. How long will it

take them to do it together, if each has his own lawnmower? (Record your answer in minutes rounded to one

decimal place. For example, if the answer you find is 14.2835 minutes, record 14.3).

33. On a particular day, the campus bookstore sold 30 T-shirts. White ones cost $9.95 and yellow ones cost $10.50. Total sales of T-shits were $310.60. How many white shirts were sold?

34. Referring back to the prior problem, how many yellow shirts were sold? 35. If working alone, Marcus can paint a room in 3.15 hours. Working together with Claudia, they can both

paint the room in 2.09 hours. How long would it take Claudia working alone to paint the room?

36. An airplane leaves Louisville for Cleveland at a speed of 475 mph. Twenty minutes later; a plane heading for Louisville leaves Cleveland, which is 350 miles from Louisville at a speed of 500 mph. When they meet,

how far are they from Cleveland?

37. The weight of a bag of bricks plus 20% of its weight is 30 pounds. How much does the bag of bricks weigh, in pounds?

38. A rich merchant had collected many gold coins. He did not want anybody to know about them. One day, his wife asked, "How many gold coins do you have?" After pausing a moment, he replied, "Well! If I divide the

coins into two unequal numbers, then 25 times the difference between the two numbers equals the difference

between the squares of the two numbers." How many gold coins does the rich merchant have?

39. Suppose that you go out and buy 100 lbs. of cucumbers that are 99% water. Unfortunately, you do not observe the rules of caring for your cucumbers so after some time they dehydrate until they are only 98% water. How

much do they then weigh?

40. Ed invests $57,000 in stocks paying 8%. How much additional money should he invest in certificates of deposit paying 3% so that the average return on Ed’s investments is 4%?