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Thursday, 9 August 2012

Here and Gone, Inc., has sales of $18.1 million, total assets of $13.1 million, and total debt of $3.9

Here and Gone, Inc., has sales of $18.1 million, total assets of $13.1 million, and total debt of $3.9 million. Assume the profit margin is 9 percent.

Requirement 1:
What is net income? (Do not include the dollar sign ($). Enter your answer in dollars, not millions of dollars (e.g., 1,234,567).)
 
  Net income $  
 
Requirement 2:
What is ROA? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).)
 
  ROA %  

Requirement 3:
What is ROE? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).)
 
  ROE %  
 

Explanation:

SDJ, Inc., has net working capital of $940, current liabilities of $6,700, and inventory of $1,110.

SDJ, Inc., has net working capital of $940, current liabilities of $6,700, and inventory of $1,110.

Requirement 1:
What is the current ratio? (Round your answer to 2 decimal places (e.g., 3.16).)
 
  Current ratio times  

Requirement 2:
What is the quick ratio? (Round your answer to 2 decimal places (e.g., 3.16).)
 
  Quick ratio times  


Explanation:

Prepare a balance sheet given the following information for Alaskan Orange Corp. as of December 31, 2010:

Prepare a balance sheet given the following information for Alaskan Orange Corp. as of December 31, 2010: cash = $195,000; patents and copyrights = $849,000; accounts payable = $294,000; accounts receivable = $255,000; tangible net fixed assets = $5,120,000; inventory = $540,000; notes payable = $187,000; accumulated retained earnings = $4,606,000; long-term debt = $1,230,000. (Do not include the dollar signs ($).)

Balance Sheet
  Cash correct
$
195,000 correct  
  Accounts payable correct
$
294,000 correct  

  Accounts receivable correct

255,000 correct  
  Notes payable correct

187,000 correct  










  Inventory correct

540,000 correct  
  Current liabilities
$
481,000 correct  










  Current assets
$
990,000 correct  
  Long-term debt correct

1,230,000 correct  













  Total liabilities
$
1,711,000 correct  

  Tangible net fixed assets correct
$
5,120,000 correct  




  Intangible net fixed assets correct

849,000 correct  
  Common stock correct

642,000 correct  













  Accumulated retained earnings correct

4,606,000 correct  










  Total assets
$
6,959,000 correct  
  Total liabilities & owners’ equity
$
6,959,000 correct  








Explanation:
Owners’ equity has to be total liabilities & equity minus accumulated retained earnings and total liabilities, so:
 
Owner’s equity = Total liabilities & equity – Accumulated retained earnings – Total liabilities
Owners’ equity = $6,959,000 – 4,606,000 – 1,711,000
Owners’ equity = $642,000


You are given the following information for Sookie’s Cookies Co.: sales = $52,100; costs = $38,700;

You are given the following information for Sookie’s Cookies Co.: sales = $52,100; costs = $38,700; addition to retained earnings = $2,975; dividends paid = $980; interest expense = $1,470; tax rate = 30 percent.
 
Required:
Calculate the depreciation expense. (Do not include the dollar sign ($).)
 
  Depreciation expense  $  


Explanation:
Here we need to work the income statement backward. Starting with net income, we know that net income is:
 
Net income = Dividends + Addition to retained earnings
Net income = $980 + 2,975
Net income = $3,955

Net income is also the taxable income, minus the taxable income times the tax rate, or:

Net income = Taxable income – (Taxable income)(Tax rate)
Net income = Taxable income(1 – Tax rate)

We can rearrange this equation and solve for the taxable income as:

Taxable income = Net income / (1 – Tax rate)
Taxable income = $3,955 / (1 – 0.30)
Taxable income = $5,650
    
EBIT minus interest equals taxable income, so rearranging this relationship, we find:
 
EBIT = Taxable income + Interest
EBIT = $5,650 + 1,470
EBIT = $7,120

Now that we have the EBIT, we know that sales minus costs minus depreciation equals EBIT. Solving this equation for EBIT, we find:

EBIT = Sales – Costs – Depreciation
$7,120 = $52,100 – 38,700 – Depreciation
Depreciation = $6,280

Hammett, Inc., has sales of $19,630, costs of $9,400, depreciation expense of $2,070, and interest

Hammett, Inc., has sales of $19,630, costs of $9,400, depreciation expense of $2,070, and interest expense of $1,560. Assume the tax rate is 30 percent.  
Required:
What is the operating cash flow? (Do not include the dollar sign ($).)
 
  Operating cash flow   $  
 

Explanation:
To calculate the OCF, we first need to construct an income statement. The income statement starts with revenues and subtracts costs to arrive at EBIT. We then subtract out interest to get taxable income, and then subtract taxes to arrive at net income. Doing so, we get:

 Income statement
  Sales $ 19,630  
  Costs   9,400  
  Depreciation  2,070  


  EBIT $ 8,160  
  Interest 1,560  


  Taxable income $ 6,600  
  Taxes (30%) 1,980  


  Net income $ 4,620  






Now we can calculate the OCF, which is:

OCF = EBIT + Depreciation – Taxes
OCF = $8,160 + 2,070 – 1,980
OCF = $8,250

Lifeline, Inc., has sales of $590,000, costs of $268,000, depreciation expense of $68,500, interest

Lifeline, Inc., has sales of $590,000, costs of $268,000, depreciation expense of $68,500, interest expense of $35,500, and a tax rate of 40 percent.

Required:
What is the net income for this firm? (Do not include the dollar sign ($).)

  Net income $  
 

Explanation:
The income statement starts with revenues and subtracts costs to arrive at EBIT. We then subtract out interest to get taxable income, and then subtract taxes to arrive at net income. Doing so, we get:
 
 Income statement
  Sales $ 590,000  
  Costs 268,000  
  Depreciation 68,500  


  EBIT $ 253,500  
  Interest 35,500  


  Taxable income $ 218,000  
  Taxes 87,200  


  Net income $ 130,800  

Arredondo, Inc., has current assets of $2,360, net fixed assets of $11,200, current liabilities of $1,445,

Arredondo, Inc., has current assets of $2,360, net fixed assets of $11,200, current liabilities of $1,445, and long-term debt of $4,170.

Requirement 1:
What is the value of the shareholders’ equity account for this firm? (Do not include the dollar sign ($).)
 
  Shareholder's equity  $   

Requirement 2:
How much is net working capital? (Do not include the dollar sign ($).)
 
  Net working capital  $   
 

Explanation:
 The balance sheet for the company will look like this:
 
Balance sheet
  Current assets $ 2,360     Current liabilities $ 1,445  
  Net fixed assets 11,200     Long-term debt 4,170  
  Owner's equity 7,945  




  Total assets $ 13,560     Total liabilities & Equity $ 13,560  










The owner's equity is a plug variable. We know that total assets must equal total liabilities & owner's equity. Total liabilities and equity is the sum of all debt and equity, so if we subtract debt from total liabilities and owner's equity, the remainder must be the equity balance, so:
 
 Owner’s equity = Total liabilities & equity – Current liabilities – Long-term debt
 Owner’s equity = $13,560 – 1,445 – 4,170
 Owner’s equity = $7,945
 
 Net working capital is current assets minus current liabilities, so:
 
 NWC = Current assets – Current liabilities
 NWC = $2,360 – 1,445
 NWC = $915

What goal should always motivate the actions of the firm’s financial manager?

What goal should always motivate the actions of the firm’s financial manager?

Current market value (share price) of the equity correct

Who owns a corporation? Describe the process whereby the owners control the firm’s management.

Who owns a corporation? Describe the process whereby the owners control the firm’s management. What is the main reason that an agency relationship exists in the corporate form of organization? In this context, what kinds of problems can arise?

In the corporate form of ownership, the shareholders correct are the owners of the firm. The shareholders correct elect the directors correct of the corporation, who in turn appoint the firm's management correct. This separation of ownership from control in the corporate form of organization is what causes agency problems to exist. Management may act in its own or someone else's best interests, rather than those of the shareholders correct. If such events occur, they may contradict the goal of maximizing the share price of the equity of the firm.

You’ve probably noticed coverage in the financial press of an initial public offering (IPO) of a

You’ve probably noticed coverage in the financial press of an initial public offering (IPO) of a company’s securities. Web search company Google is a relatively recent example. Is an IPO a primary market transaction or a secondary-market transaction?

A primary market transaction correct

What is the primary disadvantage of the corporate form of organization?

Requirement 1:
What is the primary disadvantage of the corporate form of organization?

The double taxation to shareholders of distributed earnings and dividends correct

Requirement 2:
What are some of the advantages of corporate organization?

Limited liability correct
Ease of transferability correct
Ability to raise capital correct
Unlimited life correct

What benefits are there to these types of business organization as opposed to the corporate form?

What benefits are there to these types of business organization as opposed to the corporate form?

Simpler correct
Less regulation correct
The owners are also the managers correct
Sometimes
Personal tax rates are better than corporate tax rates correct

What are the four primary disadvantages to the sole proprietorship and partnership forms of business organization?

What are the four primary disadvantages to the sole proprietorship and partnership forms of business organization?


Unlimited liability correct
Limited life correct
Difficulty in transferring ownership correct
Hard to raise capital funds correct

What are the four primary disadvantages to the sole proprietorship and partnership forms of business organization?

What are the four primary disadvantages to the sole proprietorship and partnership forms of business organization?


Unlimited liability correct
Limited life correct
Difficulty in transferring ownership correct
Hard to raise capital funds correct

Below are examples of business transactions. Choose the type of financial management decision that is relevant to each.

Below are examples of business transactions. Choose the type of financial management decision that is relevant to each.

  Deciding whether to expand a manufacturing plant   Capital budgeting correct
  Deciding whether to issue new equity and use the proceeds
  to retire outstanding debt
  Capital structure correct
  Modifying the firm's credit collection policy with its customers   Working capital management correct