# Liberty University BUSI 530 Homework 2

Waqas Ahmed
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 Construct a balance sheet for Sophie’s Sofas given the following data. (Be sure to list the assets and liabilities in order of their liquidity.)

 Cash balances = \$ 14,500 Inventory of sofas = \$ 245,000 Store and property = \$ 145,000 Accounts receivable = \$ 26,500 Accounts payable = \$ 21,500 Long-term debt = \$ 215,000

Using Table 3.7, calculate the marginal and average tax rates for a single taxpayer with the following incomes: (Do not round intermediate calculations. Round "Average tax rate" to 2 decimal places.)

The year-end 2010 balance sheet of Brandex Inc. listed common stock and other paid-in capital at \$2,500,000 and retained earnings at \$4,800,000. The next year, retained earnings were listed at \$5,100,000. The firm’s net income in 2011 was \$1,040,000. There were no stock repurchases during the year. What were the dividends paid by the firm in 2011?

You have set up your tax preparation firm as an incorporated business. You took \$76,000 from the firm as your salary. The firm’s taxable income for the year (net of your salary) was \$18,000. Assume you pay personal taxes as an unmarried taxpayer. Use the tax rates presented in Table 3-5 and Table 3-7.

How much taxes must be paid to the federal government, including both your personal taxes and the firm’s taxes?

By how much will you reduce the total tax bill by reducing your salary to \$56,000, thereby leaving the firm with taxable income of \$38,000?

 The founder of Alchemy Products, Inc., discovered a way to turn lead into gold and patented this new technology. He then formed a corporation and invested \$600,000 in setting up a production plant. He believes that he could sell his patent for \$25 million.

a.

What are the book value and market value of the firm? (Enter your answers in dollars not in millions.)

b.

If there are 1 million shares of stock in the new corporation, what would be the price per share and the book value per share? (Round your answers to 2 decimal places.)

 Sheryl’s Shipping had sales last year of \$19,500. The cost of goods sold was \$8,400, general and administrative expenses were \$2,900, interest expenses were \$2,400, and depreciation was \$2,900. The firm’s tax rate is 30%.

a.

What are earnings before interest and taxes?

b.

What is net income?

 What is cash flow from operations?
 Ponzi Products produced 98 chain letter kits this quarter, resulting in a total cash outlay of \$12 per unit. It will sell 49 of the kits next quarter at a price of \$13, and the other 49 kits in two quarters at a price of \$14. It takes a full quarter for it to collect its bills from its customers. (Ignore possible sales in earlier or later quarters and assume all positive cash flow is distributed as expenses or earnings to shareholders.)

a.

Prepare an income statement for Ponzi for today and for each of the next three quarters. Ignore taxes.(Leave no cells blank - be certain to enter "0" wherever required.)

 b. What are the cash flows for the company today and in each of the next three quarters? (Leave no cells blank - be certain to enter "0" wherever required. Negative amounts should be indicated by a minus sign.)

 c. What is Ponzi’s net working capital in each quarter? (Leave no cells blank - be certain to enter "0" wherever required.)
 During the last year of operations, accounts receivable increased by \$10,500, accounts payable increased by \$5,500, and inventories decreased by \$2,500. What is the total impact of these changes on the difference between profits and cash flow? (Input the amount as a positive value.)

 Butterfly Tractors had \$22.50 million in sales last year. Cost of goods sold was \$9.70 million, depreciation expense was \$3.70 million, interest payment on outstanding debt was \$2.70 million, and the firm’s tax rate was 30%.

 a. What was the firm’s net income and net cash flow? (Enter your answers in millions rounded to 2 decimal places.)

b.

What would happen to net income and cash flow if depreciation were increased by \$2.70 million? (Input all amounts as positive values. Enter your answers in millions rounded to 2 decimal places.)

 d. What would be the impact on net income and cash flow if the firm’s interest expense were \$2.70 million higher. (Input all amounts as positive values. Enter your answers in millions rounded to 2 decimal places.)
 Candy Canes, Inc., spends \$145,000 to buy sugar and peppermint in April. It produces its candy and sells it to distributors in May for \$200,000, but it does not receive payment until June. For each month, find the firm’s sales, net income, and net cash flow. (Leave no cells blank - be certain to enter "0" wherever required. Negative amounts should be indicated by a minus sign. Omit the "\$" sign in your responses.)
 The table below contains data on Fincorp, Inc., the balance sheet items correspond to values at year-end of 2010 and 2011, while the income statement items correspond to revenues or expenses during the year ending in either 2010 or 2011. All values are in thousands of dollars.

 2010 2011 Revenue \$3,800 \$3,900 Cost of goods sold 1,500 1,600 Depreciation 480 500 Inventories 360 470 Administrative expenses 480 530 Interest expense 130 130 Federal and state taxes* 380 400 Accounts payable 360 470 Accounts receivable 472 570 Net fixed assets† 4,800 5,580 Long-term debt 1,800 2,200 Notes payable 1,060 720 Dividends paid 370 370 Cash and marketable securities 780 280

 * Taxes are paid in their entirety in the year that the tax obligation is incurred. † Net fixed assets are fixed assets net of accumulated depreciation since the asset was installed.

 Suppose that Fincorp has 500,000 shares outstanding. What were earnings per share? (Round your answers to 2 decimal places.)

 The table below contains data on Fincorp, Inc., the balance sheet items correspond to values at year-end of 2010 and 2011, while the income statement items correspond to revenues or expenses during the year ending in either 2010 or 2011. All values are in thousands of dollars.

 2010 2011 Revenue \$3,400 \$3,500 Cost of goods sold 1,300 1,400 Depreciation 440 460 Inventories 380 510 Administrative expenses 440 490 Interest expense 90 90 Federal and state taxes* 340 360 Accounts payable 380 510 Accounts receivable 496 610 Net fixed assets† 4,400 5,140 Long-term debt 1,400 1,800 Notes payable 1,080 760 Dividends paid 290 290 Cash and marketable securities 740 240

 * Taxes are paid in their entirety in the year that the tax obligation is incurred. † Net fixed assets are fixed assets net of accumulated depreciation since the asset was installed.

 What was the firm’s average tax bracket for each year? (Round your answers to 2 decimal places.)

 Here are simplified financial statements of Phone Corporation from a recent year:

 INCOME STATEMENT(Figures in millions of dollars) Net sales 13,200 Cost of goods sold 4,110 Other expenses 4,072 Depreciation 2,548 Earnings before interest and taxes (EBIT) 2,470 Interest expense 690 Income before tax 1,780 Taxes (at 35%) 623 Net income 1,157 Dividends 866

 BALANCE SHEET(Figures in millions of dollars) End of Year Start of Year Assets Cash and marketable securities 90 159 Receivables 2,432 2,510 Inventories 192 243 Other current assets 872 937 Total current assets 3,586 3,849 Net property, plant, and equipment 19,983 19,925 Other long-term assets 4,226 3,780 Total assets 27,795 27,554 Liabilities and shareholders’ equity Payables 2,574 3,050 Short-term debt 1,424 1,578 Other current liabilities 816 792 Total current liabilities 4,814 5,420 Long-term debt and leases 6,769 6,654 Other long-term liabilities 6,188 6,159 Shareholders’ equity 10,024 9,321 Total liabilities and shareholders’ equity 27,795 27,554

 Calculate the following financial ratios: (Use 365 days in a year. Do not round intermediate calculations. Round your answers to 2 decimal places.)
 Here are simplified financial statements of Phone Corporation from a recent year:

 INCOME STATEMENT(Figures in millions of dollars) Net sales 13,000 Cost of goods sold 3,960 Other expenses 4,037 Depreciation 2,458 Earnings before interest and taxes (EBIT) 2,545 Interest expense 675 Income before tax 1,870 Taxes (at 30%) 561 Net income 1,309 Dividends 856

 BALANCE SHEET(Figures in millions of dollars) End of Year Start of Year Assets Cash and marketable securities 87 156 Receivables 2,282 2,450 Inventories 177 228 Other current assets 857 922 Total current assets 3,403 3,756 Net property, plant, and equipment 19,953 19,895 Other long-term assets 4,196 3,750 Total assets 27,552 27,401 Liabilities and shareholders’ equity Payables 2,544 3,020 Short-term debt 1,409 1,563 Other current liabilities 801 777 Total current liabilities 4,754 5,360 Long-term debt and leases 7,516 7,191 Other long-term liabilities 6,158 6,129 Shareholders’ equity 9,124 8,721 Total liabilities and shareholders’ equity 27,552 27,401

 Phone Corp.’s stock price was \$82 at the end of the year. There were 203 million shares outstanding.

 a. What was the company’s market capitalization and market value added? (Enter your answers in billions rounded to 2 decimal places.)
 Consider the following information:

 Davis  Chili’s Bagwell Company Return on equity (ROE) 15.50% 10.40% Plowback ratio 0.48 0.83 Sustainable growth 7.00% 8.20%

 a. What would the sustainable growth rate be if Davis Chili’s plowback ratio rose to the same value as Bagwell Company? (Round your answer to 2 decimal places.)
 What would the sustainable growth rate be if Davis Chili’s return on equity were only 14.5%? (Round your answer to 2 decimal places.)
 Chik’s Chickens has average accounts receivable of \$5,533. Sales for the year were \$9,000. What is its average collection period? (Use 365 days in a year. Do not round intermediate calculations. Round your answer to 2 decimal places.)
 Salad Daze maintains an inventory of produce worth \$540. Its total bill for produce over the course of the year was \$78,000. How old on average is the lettuce it serves its customers? (Use 365 days in a year. Do not round intermediate calculations. Round your answer to 2 decimal places.)
 Assume a firm’s inventory level of \$14,000 represents 38 days' sales. What is the inventory turnover ratio?(Use 365 days in a year. Do not round intermediate calculations. Round your answer to 2 decimal places.)

Lever Age pays a(n) 8% rate of interest on \$10.3 million of outstanding debt with face value \$10.3 million. The firm’s EBIT was \$1.3 million.

What is times interest earned? (Round your answer to 2 decimal places.)

If depreciation is \$230,000, what is cash coverage? (Round your answer to 2 decimal places.)

If the firm must retire \$330,000 of debt for the sinking fund each year, what is its “fixed-payment cash-coverage ratio” (the ratio of cash flow to interest plus other fixed debt payments)? (Round your answer to 2 decimal places.)

 Keller Cosmetics maintains an operating profit margin of 4.1% and asset turnover ratio of 2.1.

 a. What is its ROA? (Round your answer to 2 decimal places.)
 If its debt-equity ratio is 1, its interest payments and taxes are each \$7,100, and EBIT is \$21,900, what is its ROE? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
 Torrid Romance Publishers has total receivables of \$3,180, which represents 20 days’ sales. Total assets are \$77,380. The firm’s operating profit margin is 6.2%. Find the firm’s asset turnover ratio and ROA. (Use 365 days in a year. Do not round intermediate calculations. Round your answers to 2 decimal places.)
 A firm has a long-term debt-equity ratio of 0.5. Shareholders’ equity is \$1.07 million. Current assets are \$256,500, and the current ratio is 1.9. The only current liabilities are notes payable. What is the total debt ratio? (Round your answer to 2 decimal places.)
 A firm has a debt-to-equity ratio of 0.69 and a market-to-book ratio of 3.0. What is the ratio of the book value of debt to the market value of equity? (Round your answer to 2 decimal places.)
 In the past year, TVG had revenues of \$3.06 million, cost of goods sold of \$2.56 million, and depreciation expense of \$156,560. The firm has a single issue of debt outstanding with book value of \$1.06 million on which it pays an interest rate of 8%. What is the firm’s times interest earned ratio? (Round your answer to 2 decimal places.)
• 7 years ago
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