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--------------------------------- STRAYER. UN I V t R S I J Y FIN 534 - Homework Set #1

Directions: Answer the following questions on a separate document. Explain how you reached the answer or show your work if a mathematical calculation is needed, or both. Submit your assignment using the assignment link in the course shell. This homework assignment is worth 100 points.

Use the following information for Questions 1 through 4: Assume that you recently graduated and have just reported to work as an investment advisor at the one of the firms on Wall Street. You have been presented and asked to review the following Income Statement and Balance Sheets of one of the firm's clients. Your boss has developed the following set of questions you must answer.

Income Statements and Balance Sheet

i

I

Balance Sheet

Cash

Short-term investments

Accounts receivable

Inventories

Total current assets

Gross fixed assets

Less: Accumulated depreciation

Net fixed assets

Total assets

Liabilities and Equity

Accounts payable

Notes payable

Accruals

Total current liabilities

Long-term debt

Common stock (100,000 shares)

Retained earnings

Total equity

Total liabilities and equity

2012 2013

$9,000 $7,282

48,600 20,000

351,200 632,160

715,200 1,287,360

$1,124,000 $1,946,802

491,000 1,202,950

146,200 i 263,160

$344,800 $939,790

$1,468,800 $2,886,592

I I

$145,600 $324,000

200,000 720,000

136,000 284,960

$481,600 $1,328,960

323,432 . 1,000,000

460,000 i460,000

97,632

$663,768

203,768

$557,632

$1,468,800 $2,886,592

2014

$14,000

71,632 :

878,000 I 1,716,480 i

$2,680,112

1,220,000

383,160

$836,840

$3,516,952

$359,800

300,000

380,000

$1,039,800

500,000

1,680,936

296,216

$1,977,152

$3,516,952

© 2015 Strayer University. All Rights Reserved. This document contains Strayer University Confidential and Proprietary information and may not be copied, further distributed, or otherwise disclosed in whole or in part, without the expressed written permission of Strayer University. FIN 534 Homework Set#11156 (5-19-2015) Page 1 of3

I

STRAYER. U H I V E R SIT y FIN 534 - Homework Set #1

Income Statements 2012 2013 2014

Sales $3,432,000 $5,834,400 $7,035,600

. Cost of goods sold except depr. 2,864,000 4,980,000 5,800,000

120,000Depreciation and amortization 18,900 116,960

Other expenses 340,000 720,000 612,960

Total operating costs $3,222,900 $5,816,960 $6,532,960

EBIT $209,100 $17,440 $502,640

Interest expense 62,500 176,000 80,000

EBT $146,600 ($158,560) $422,640

Taxes (40%) 58,640 -63,424 169,056

Net income $87,960 ($95,136) $253,584

Other Data 2012 2013 2014 i

Stock price $8.50 $6.00 $12.17 I I

Shares outstanding 100,000 100,000 250,000 1

EPS $0.88 ($0.95) $1.104

DPS $0.22 0.11 0.22

Tax rate 40% 40% 40%

Book value per share $6.64 $5.58 $7.909

Lease payments $40,000 $40,000 $40,000

.

© 2015 Strayer University. All Rights Reserved. This document contains Strayer University Confidential and Proprietary information and may not be copied, further distributed. or otherwise disclosed in whole or in part. without the expressed written permission of Strayer University. FIN 534 Homework Set #1 1156 (5-19-2015) Page 2 of 3

FIN 534 - Homework Set #1

i

Ratio Analysis

Current

Quick

Inventory turnover

I Days sales outstanding

Fixed assets turnover

Total assets turnover

Debt ratio

Liabilities-to-assets ratio

TIE

! EBITDA coverage

Profit margin

Basic earning power

ROA

ROE

~ice/EarningS (PIE)

PricelCash flow

MarkeUBook

.­

0.8

4

37.3

10

2.3

35.60%

54.80%

3.3

2.6

2.60%

14.20%

9.7

8

1.3

2013

1.5

0.5

4

39.6

6.2

2

59.60%

80.70%

0.1

0.8

-1.6%

0.60%

-3.3%

-17.1%

-6.3

27.5

1.1

Industry Average

2.7

1.0

6.1

32.0

7.0

2.5

32.0%

50.0%

6.2

8.0

3.6%

17.8%

9.0%

17.9%

16.2

7.6

2.9

1. What is the free cash flow for 2014?

2. Suppose Congress changed the tax laws so that Berndt's depreciation expenses doubled. No changes in operations occurred. What would happen to reported profit and to net cash flow?

3. Calculate the 2014 current and quick ratios based on the projected balance sheet and income statement data. What can you say about the company's liquidity position in 2013?

4. Use the extended DuPont equation to provide a summary and overview of company's financial condition as projected for 2014. What are the firm's major strengths and weaknesses?

© 2015 Strayer University. All Rights Reserved. This document contains Strayer University Confidential and Proprietary information and may not be copied, further distributed, or otherwise disclosed in whole or in part. without the expressed written permission of Strayer University. FIN 534 Homework Set #1 1156 (5-19-2015) Page 3 of 3