My Finance Lab Assignment

Principles of Finance Homework 2-1 1. If the Marifield Steel Fabrication Company earned $500,000 in net income and paid a cash dividend of $300,000 to its stockholders, what are the firm's earnings per share if the firm has 100,000 shores of stock outstanding? $5.00 Earnings per share Net Income/Shares Outstanding $500,000/100,000-$5.00 2. The Caraway Seed Company grows heirloom tomatoes and sells their seeds. The heirloom tomato plants are preferred by many growers for their superior flavor. At the end of the most recent year the firm had current assets of $52,000, net fixed assets of $249,600, current liabilities of $30,500, and long-term debt of $98,600. A. Calculate Caraway's stockholder's equity. $172,500 Current assets long-term fixed assets total assety 352.000+$249.500-$301.600 Current liabilition long-term debt owner's aquity ewrent liabilities & owner's equity $30,500+98,600-$129,100 $301,600-129,100-5172,500 B. What is the firm's net working capital? $21,500 Net working capital current assets-current liabilities $52.000-30.500-$21.500 C. If Caraway's current liabilities consist of $21,400 in AP and $9,100 in short-term debt (notes payable), what is the firm's net working capital? The firm's net working capital will not change, Le., net working capital = $21,500, 3. Google, Inc. is one of the most successful Internet firms, and it experience very rapid growth in revenues from 2011 through 2014. The cash flow statements for Google, Inc. spanning the period are found here (see data table). Answer the following questions using the information found in these statements: A. Is Google generating positive cash flow from its operations? Google has generated positive cash flow from its operations during the years 2011, 2012, 2013, and 2014, B. How much did Google invest in new capital expenditures over the period? $24,889 million Capital experalltarea (310,933) (7,303) + (3,221)+(3,432)-824,889 C. Describe Google's sources of financing in the financial markets over the period. Google's main source of financing in the financial markets over the period was the issuance of debt for the amount of S1.604 million. Issuance of debt (316) (304) 1,361763 51,604 D. Based solely on the cash flow statements for 2011 through 2014, write a brief narrative that describes the major activities of Google's management team over the period. Google's management team has been investing heavily in capital expenditures and financing them with the issuance of debt and internally generated funds, 4. The S&H Construction Company expects to have total sales next year totaling $15,000,000. In addition, the firm pays taxes at 35% and will owe $281,000 in interest expense. Based on last year's operations the firm's management predicts that its cost of goods sold will be 59% of sales and operating expenses will total 35%. What is your estimate of the firm's net income (after taxes) for the coming year? Pro-Forma Income Statement Sales COGS $15,000,000 (8.850.000) (13,000.000x59%-$8,850,000) Gross Profit $6,150,000 Operating Expenses (5,250,000) Net Operating Income $900,000 Interest Expense (281,000) Earnings Before Taxes $619,000 Taxes (216,650) Net Income $402.350 (15,000,000 x 35%-$5,250.000) (519,000 x 3556-5216,650) 5. The King Carpet Company has $2,800,000 in cash and a total of $11,500,000 in current assets. The firm's current liabilities equal $6,190,000 such that the firm's current ratio equals 1.9. The company's managers want to reduce the firm's cash holdings down to $1,160,000 by paying $553,000 in cash to expand the firm's truck fleet and using $1,087,000 in cash to retire a short-term note. If they carry this plan through, what will happen to the firm's current ratio? The new current ratio is 2.1. (round to one decimal place) Current ratio current assets decrease an cush/current liabilities-decresse in short-1218 notes 11,500,000-1,160,000/6,190,000-1,160,000 10,340,000/5,030,000 2.1 6. The liabilities and owners' equity for Campbell Industries is found here (see data table). A. What percentage of the firm's assets does the firm finance using debt (liabilities)? The fraction of the firm's assets that the firm finances using debt is 26%. Debi Ratio Total liabilnies/ Total assets 721,000 1,116,000/7,068,000 1,837,000/7,068,000 0.259-26% B. If Campbell were to purchase a new warehouse for $1.4 million and finance it entirely with long-term debt, what would be the firm's new debt ratio? The new debt ratio will be 38%. Debt Ratio Total liabilities (inel, new debt)/Total sett fine, now warehouse) 721,000+ (1,116,000+1,400,000)/7,068,000+1,400,000 721,000+ 2.516,000/8,458,000 3,237,000/8,468,000 0.382-38% 7. The Karson Transport Company has net operating income of $506,000 and pays interest expense of $201,000. The company plans to borrow 51.07 million on which the firm will pay 11% interest. The borrowed money will be used to finance an investment that is expected to increase the firm's net operating income by $409,000 a year. A. What is Karson's times interest eamed ratio before the loan is taken out and the investment is made? The times interest earned ratio is 2.52 times. Times interest earned Operating income (or EBIT)/ Interest income 506,000/201,000 2.517-2.52 B. What effect will the loan and the investment have on the firm's times interest eamed ratio? The new times interest earned ratio is 2.87 times. Net operating income 3506.000 409,000-$915,000 Interest expense $201,000 1,070,000 x 11% $318,700 915,000/318,700 2.871-2.87 8. In 2016, the Allen Corporation had sales of 568 million, total assets of $43 million, and total liabilities of $22 million. The interest rate on the company's debt is 5.6%, and its tax rate is 35%. The operating profit margin is 13%. A. Compute the firm's 2016 net operating income and net income. The firm's 2016 net operating income is 58.84 million. Proft margin x sales 13% x 68-8884 million The firm's 2016 net income is $4.95 million, Operating Income 8.84 123 Interest Expense (habilities x interest rate) Earnings before tercer 7.61 2.00 Taxes (earnings before taxes & tax rate) Net Income 4.95 B. Calculate the firm's operating return on assets and return on equity. (Hint: you can assume that interest must be paid on all of the firm's liabilities.) The operating return on assets is 20.55%. ROA-Operating income/total assets 8.84/43 0.20558-20.55% The return on equity is 23.57%. Return on Eepaty Net income/Assets-liabilities 4.95/43-22 4.95/21 0.23557 23.57% 9. Last year the P.M. Postem Corporation had sales of $421,000, with a cost of goods sold of $113,000. The firm's operating expenses were 5127,000, and its increase in retained earnings was $81,570. There are currently 22,000 shares of common stock outstanding, the firm pays a $1.64 dividend per share, and the firm has no interest-bearing debt. A. Assuming the firm's earnings are taxed at 35%, construct the firm's income statement. Income Statement Revenues 421,000 COGS (113,000) Gross Profit 308,000 Operating Expense (127.000) Net Operating Income 181.000 Interest Expense 0 181,000 Earnings before Taxes (63,350) (earnings before taxes x 35%) Income Taxes $117.650 Net Income B. Compute the firm's operating profit margin. The operating profit margin is 43.0% Operating profit margin Net operating income/salex 181,000/421,000 0.42992-43.096 10. Garwryk, Inc., which is financed with debt and equity, presently has a debt ratio of 85%. What is the firm's equity multiplier? How is the equity multiplier related to the firm's use of debt financing (ie, if the firm increased its use of debt financing would this increase or decrease its equity multiplier)? Explain. The equity multiplier is 6.67, Equity Multiplier-1/1-Debt Ratio 1/1-85% 1/0.15 6.666666667 If the company increases its debt financing it will increase its debt ratio, therefore it will increase its equity multiplier. 11. Triangular Chemicals has total assets of $104 million, a return on equity of 35%, a net profit margin of 4.7%, and an equity multiplier of 2.25. How much are the firm's sales? The company's total sales are $344.2 million. Sules Return on Equity x Total Assets/Net profit margin x Equity nadtiplier Sales 35% x 104 million/ 4,7% x 2.25 Sules-36.4/0.10575 344.2080-3344.2 million 12. The balance sheet for Larry Underwood Motors shows a book value of stockholders equity (book value per share x total shares outstanding) of $1,326,000. Furthermore, the firm's income statement for the year just ended has a net income of $509,000, which is $0.237 per share of common stock outstanding. The price-earnings ratio for firms similar to Underwood Motors is 18.28. A. What price would you expect Underwood Motors shares to sell for? The market price per share is $4.33. Market price per share price earnings ratio a earnings per share 18.28 x $0.237-54.33 B. What is the book value per share for Underwood's shares? The book value per share is $0.62, Shares outstanding net income/earnings par share $509,000/0.217-2147,679 Book value/share 1,326,000/2,147,679 0.6174-$0.62 13. The balance sheet and income statement for the J.P. Robard Mfg. Company are as follows (see data table). Calculate the following ratios: Current Ratio, Times interest earned, Inventory turnover, Total asset turnover, Operating profit margin, Operating return on assets, Debt ratio, Average collection period, Fixed asset turnover, return on equity. A. Current Ratio current assets/current liabilities 3640/1960 1.857-1.86 B. Times Interest Eamed net operating income/interest expense 1710/363-4.7107-4.71 C. Inventory Turnover COGS/inventories 3340/1060 3.1509-3.15 D. Total Asset Tumover sales/total assets fiotal liabilities & avener's equity) 8060/8050-1.00124-1.00 E. Operating Profit Margin net operating income/sales 1710/8060-0.21215-21.2% F. Operating Return on Assets net operating income/total assets (total liabilities & owner's equity) 1710/8050 0.21242-21.2% G. Deb: Ratio total debt/total assets (local debt current Habithies long term debt) 1960-2050/8050 4010/8050-0.4981-49.8% H. Average Collection Period AR/annual credit sales/365 days 2050/8060/365 days 2050/22.08-92,844-92.8 days 1. Fixed Asset Tumover-sales/net plant and equipment (net fixed assets) 8060/4410-1.8276-1.83 1. Return on Equity net income/common equity (owner's equity) 808/4040-0.2-20.0% Using the browser's print will lead to an undesirable print-out. Use the Print item from the "Question Help" menu to get a better print-out. Data Table (US$ millions) 12/31/2014 12/31/2013 12/31/2012 12/31/2011 Nat income $14,429 $12.850 $10,731 $9,769 3.513 2.781 1.904 1,362 Depreciation Amortization 1,405 1.178 970 475 Deferred taxes (147) (478) (280) 354 Noncash items 2,702 2245 2.297 1,952 Changes in working capital 313 (36) 945 601 $22.215 $18.541 $18.561 $14,513 Cast from operating activities $(10,933) $(7,303) $(3,221) $(3,432) Capital expenditures (10,061) (6,343) (0,827) (15,540) Cash from investing activities. Other invasting cash fiew items $(20.084) $(13,646) $(13,048) (10,081) Interest and financing cash flow itans $(1,450) $(122) $(90) $88 Total cash dividends paid 0 0 0 0 Issuanca (retirament) of stock 2 0 50 0 issuance (retrament of debt (19) (504) 1,361 763 $(1,464) $820) $1,321 5051 Cash from financing activities. $4,007 54.630 3(3,687) Foreign exchange effects $(440) $(2) 52 $30 Net change in cash $(002) in nvier problem #3 Done