Questions and Problems Chapters 2,3 pp45-47

1. Building a balance sheet. Penguin Pucks, Inc., has current assets of $3,000, net xed assets $6,000, current liabilities of $900, and long-term debt of $5,000. What is the value of the shareholders equity account for this rm? How much is net working capital? 2. Building income statements: Papa Roach Exterminators, Inc., has sales of $432,000, costs of $210,000, depreciation expense of $25,000, interest expense of $8,000, and tax rate of 35%. What is the net income for this rm? 3. Dividends and retained earnings. Suppose that the rm in the previous problem paid out $65,000 in cash dividends. What is the addition to retained earnings? 4. Suppose that the rm in the previous problem has 30,000 shares of common stock outstanding. Find earnings per share (EPS) and dividends per share. 5. Market vs. book values. Klingon widgets, Inc., purchased new cloaking machinery three years ago for $5mln. Klington current balance sheet shows net xed asset of 1,600,000, current liabilities of 1,800,000, and NWC of 900,000. If all the current assets were liquidated today the company would receive 2,9mln cash. What is the book value of Klington today? What is the market value? 6. Net Capital spending Andretti Driving school Dec 31, 2002 balance sheet showed net xed asset 3.1mln and the Dec 31, 2003 balance sheet showed 3.5mln. The companys 2003 income statement showed a depreciation expense of 850,000. What is Andrettis net capital spending in 2003? 7. Residual claims itors $2,900. Clappers Clippers, Inc., is obligated to pay its cred-

a. What is the market value of the shareholders equity if assets have a market value of $3,600? b. What if assets equal $2,300? The following problems uses the nancial data below
PHILIPPE CORPORATION Balance Sheet 2002 2003 Assets Current Assets Cash Accounts receivable Inventory Total Fixed Assets Net plant and equipment Total Assets Liabilities and owners equity Current Liabilities Accounts payable Notes payable Total Long-term Debt Owners Equity Common stock Retained earnings Total Total liabilities and owners equity

$ 210 355 507 $1, 072 $6,085 $7, 157

$ 215 310 328 $853 $6,527 $7, 380

$ 207 1,715 $1, 922 $1,987 $1,000 2,248 $3, 248 $7, 157

$ 298 1,427 $1, 725 $2,308 $1,000 2,347 $3, 347 $7, 380

PHILIPPE CORPORATION 2003 Income Statement Sales Cost of goods sold Depreciation EBIT Interest paid Taxable income Taxes (34%) Net income Dividends Addition to retained earnings $4,053 2,780 550 $723 502 $221 75 $146 $47 99

8. Construct the statement of cash ows.

PHILIPPE CORPORATION Statement of cash Flows Operating activities Net income Plus: depreciation increase in accounts payable Less: increase in accounts receivable increase in inventory net cash from operating activity Investment activities xed assets acquisition net cash from investment activity Financing activities decrease in uses payable decrease in long-term debt dividends paid increase in common stocks Net cash from nancing activities Net increase in cash

9. Using the tables, nd the operating cash ow, cash ow to creditors and shareholders.

Chapter 4

pp103-105

1. Pro forma statements. Consider the following simplied nancial statements for the Laerty Ranch Corporation

Income Statement Sales $15,000 Costs 11,000 Net income $ 4,000

Balance Sheet Assets 4,300 Debt Equity Total 4,300 Total

$2,800 1,500 $ 4,300

Laerty Ranch has predicted increase in sales by 10%. Costs and sales vary proportionally with sales, debt and equity dont. Half of the income is paid out as dividends. Prepare the proforma statement and determine the external nancing needed. 2. Calculate internal and sustainable growth rate in the previous problem.

3. Assuming the following ratios are constant, what is the sustainable growth rate?

prot margin capital intensity ratio (= total assets over sales) debt-equity ratio net income dividends

= 9.2% = 0.60 = 0.50 = $23,000 = $14,000

4. A rm wishes to maintain 1 growth rate of 11.5% and a dividend payout ratio of 50%. The ratio of total assets to sales is constant at 0.8, and prot margin is 9%. If the rm wishes also to maintain a constant debt-equity ratio, what must it be?