FIN 534 Homework Set 1 Week 2 - 75496

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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 8:

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

 

 Balance Sheet

2012

2013

Cash

$9,000

$7,282

Short-term investments

48,600

20,000

Accounts receivable

351,200

632,160

Inventories

715,200

1,287,360

Total current assets

$1,124,000

$1,946,802

Gross fixed assets

491,000

1,202,950

Less: Accumulated depreciation

146,200

263,160

Net fixed assets

$344,800

$939,790

Total assets

$1,468,800

$2,886,592

Liabilities and Equity

Accounts payable

$145,600

$324,000

Notes payable

200,000

720,000

Accruals

136,000

284,960

Total current liabilities

$481,600

$1,328,960

Long-term debt

323,432

1,000,000

Common stock (100,000 shares)

460,000

460,000

Retained earnings

203,768

97,632

Total equity

$663,768

$557,632

Total liabilities and equity

$1,468,800

$2,886,592

 

Income Statements

2012

2013

Sales

$3,432,000

$5,834,400

Cost of goods sold except depr.

2,864,000

4,980,000

Depreciation and amortization

18,900

116,960

Other expenses

340,000

720,000

Total operating costs

$3,222,900

$5,816,960

EBIT

$209,100

$17,440

Interest expense

62,500

176,000

EBT

$146,600

($158,560)

Taxes (40%)

58,640

-63,424

Net income

$87,960

($95,136)

Other Data

2012

2013

Stock price

$8.50

$6.00

Shares outstanding

100,000

100,000

EPS

$0.88

($0.95)

DPS

$0.22

0.11

Tax rate

40%

40%

Book value per share

$6.64

$5.58

Lease payments

$40,000

$40,000

 

 

Ratio Analysis

2012

2013

Current

2.3

1.5

Quick

0.8

0.5

Inventory turnover

4

4

Days sales outstanding

37.3

39.6

Fixed assets turnover

10

6.2

Total assets turnover

2.3

2

Debt ratio

35.60%

59.60%

Liabilities-to-assets ratio

54.80%

80.70%

TIE

3.3

0.1

EBITDA coverage

2.6

0.8

Profit margin

2.60%

−1.6%

Basic earning power

14.20%

0.60%

ROA

6.00%

−3.3%

ROE

13.30%

−17.1%

Price/Earnings (P/E)

9.7

−6.3

Price/Cash flow

8

27.5

Market/Book

1.3

1.1

 

 

1. What is the free cash flow for 2013?

 

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 2013 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. Calculate the 2013 inventory turnover, days sales outstanding (DSO), fixed assets turnover, and total assets turnover.

 

5. Calculate the 2013 debt ratio, liabilities-to-assets ratio, times-interest-earned, and EBITDA coverage ratios. What can you conclude from these ratios?

 

6. Calculate the