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1. Based on the following data, what is the amount of working capital?

Accounts payable $ 30,000


Accounts receivable 65,000
Accrued liabilities 7,000
Cash 20,000
Intangible assets 40,000
Inventory 72,000
Long-term investments 100,000
Long-term liabilities 75,000
Marketable securities 36,000
Notes payable (short-term) 20,000
Property, plant, and equipment 625,000
Prepaid expenses 2,000

Ans: 138,000

2. Based on the following data, what is the quick ratio, rounded to one decimal point?

Accounts payable $ 30,000


Accounts receivable 65,000
Accrued liabilities 7,000
Cash 20,000
Intangible assets 40,000
Inventory 72,000
Long-term investments 100,000
Long-term liabilities 75,000
Marketable securities 36,000
Notes payable (short-term) 20,000
Property, plant, and equipment 625,000
Prepaid expenses 2,000

ANS: 2.1

3. A company with working capital of $400,000 and a current ratio of 2.5 pays a $75,000 short-term
liability. The amount of working capital immediately after payment is

ANS: 400,000

4. Based on the following data for the current year, what is the accounts receivable turnover?

Net sales on account during year $ 400,000


Cost of merchandise sold during year 300,000
Accounts receivable, beginning of year 45,000
Accounts receivable, end of year 35,000
Inventory, beginning of year 90,000
Inventory, end of year 110,000

ANS: 10

5. Balance sheet and income statement data indicate the following:


Bonds payable, 10% (issued 1988 due 2012) $1,000,000
Preferred 5% stock, $100 par (no change during year) 300,000
Common stock, $50 par (no change during year) 2,000,000
Income before income tax for year 350,000
Income tax for year 80,000
Common dividends paid 50,000
Preferred dividends paid 15,000

ANS: 4.5

6. Dean Brothers Inc. recently reported net income of $1,500,000. The company has 300,000 shares
of common stock, and it currently trades at $60 a share. The company continues to expand and
anticipates that one year from now its net income will be $2,500,000. Over the next year the
company also anticipates issuing an additional 100,000 shares of stock, so that one year from now the
company will have 400,000 shares of common stock. Assuming the company’s price/earnings ratio
remains at its current level, what will be the company’s stock price one year from now?

ANS: 75

7. A firm has total assets of $1,000,000 and a debt ratio of 30 percent. Currently, it has sales of
$2,500,000, total fixed costs of $1,000,000, and EBIT of $50,000. If the firm’s before-tax cost of
debt is 10 percent and the firm’s tax rate is 40 percent, what is the firm’s ROE?

ANS: 1.7%

8. Selected information from the accounting records of the Blackwood Co. is as follows:
Net A/R at December 31, 2000 $ 900,000
Net A/R at December 31, 2001 $1,000,000
Accounts receivable turnover 5 to 1
Inventories at December 31, 2000 $1,100,000
Inventories at December 31, 2001 $1,200,000
Inventory turnover 4 to 1
What was the gross margin for 2001?

ANS: 150,000

9. Victoria Enterprises has $1.6 million of accounts receivable on its balance sheet. The company’s
DSO is 40 (based on a 360-day year), its current assets are $2.5 million, and its current ratio is 1.5.
The company plans to reduce its DSO from 40 to the industry average of 30 without causing a decline
in sales. The resulting decrease in accounts receivable will free up cash that will be used to reduce
current liabilities. If the company succeeds in its plan, what will Victoria’s new current ratio be?

ANS: 1.66

10. The following were reflected from the records of War Freak Company:
Earnings before interest and taxes P1,250,000
Interest expense 250,000
Preferred dividends 200,000
Payout ratio 40%
Shares outstanding throughout 2003
Preferred 20,000
Common 35,000
Income tax ratio 40%
Price earnings ratio 5 times
The dividend yield ratio is:

ANS: 0.08

*Note: Dividend Yield = Dividends Per Share (to common Shareholders) / Price per Share

The dividend pay-out ratio is the pay out to common share holder only. The preferred
shareholders’ dividends will be deducted first from the net income to determine the pay-out to
Common Share holder. Example:

Net Income 500,000


Dividends to Preferred Shareholder 100,000
Net income to Common Shareholder 400,000
Pay-out Ratio 30%
Dividends to Common Shareholders 120,000
No. of Common Share 100,000
Dividend per share 1.20

11. Alumbat Corporation has $800,000 of debt outstanding, and it pays an interest rate of 10 percent
annually on its bank loan. Alumbat’s annual sales are $3,200,000, its average tax rate is 40 percent,
and its net profit margin on sales is 6 percent. If the company does not maintain a TIE ratio of at least
4 times, its bank will refuse to renew its loan, and bankruptcy will result. What is Alumbat’s current
TIE ratio?
ANS: 5.0
12. Over the years, O'Brien Corporation's stockholders have provided $20,000,000 of capital, when they
purchased new issues of stock and allowed management to retain some of the firm's earnings. The firm now
has 1,000,000 shares of common stock outstanding, and it sells at a price of $38.50 per share. How much
value has O'Brien's management added to stockholder wealth over the years, i.e., what is O'Brien's MVA?

ANS: 18,500,000

13. For 2014, Bargain Basement Stores reported $11,500 of sales and $5,000 of operating costs (including
depreciation). The company has $20,500 of total invested capital, the weighted average cost of that capital
(the WACC) was 10%, and the federal-plus-state income tax rate was 40%. What was the firm's Economic
Value Added (EVA), i.e., how much value did management add to stockholders' wealth during 2014?

ANS: 1,850

Use the Following information to answer questions 3 – 6.


You have just obtained financial information for the past 2 years for Sebring Corporation.

SEBRING CORPORATION: INCOME STATEMENTS FOR YEAR ENDING DECEMBER 31


(MILLIONS OF PESOS)

2019 2018
Sales P3,600.0 P3,000.0
Operating costs (excluding depreciation and amortization) 3,060.0 2,550.0
EBITDA P 540.0 P 450.0
Depreciation and amortization 90.0 75.0
Earnings before interest and taxes P 450.0 P 375.0
Interest 65.0 60.0
Earnings before taxes P 385.0 P 315.0
Taxes (40%) 154.0 126.0
Net income available to common stockholders P 231.0 P 189.0
Common dividends P 181.5 P 13.2

SEBRING CORPORATION: BALANCE SHEETS FOR YEAR ENDING DECEMBER 31


(MILLIONS OF PESOS)

2019 2018
Assets:
Cash and marketable securities P 36.0 P 30.0
Accounts receivable 540.0 450.0
Inventories 540.0 600.0
Total current assets P1,116.0 P1,080.0
Net plant and equipment 900.0 750.0
Total assets P2,016.0 P1,830.0

Liabilities and equity:


Accounts payable P 324.0 P 270.0
Notes payable 201.0 155.0
Accruals 216.0 180.0
Total current liabilities P 741.0 P 605.0
Long-term bonds 450.0 450.0
Total debt P1,191.0 P1,055.0
Common stock (50 million shares) 150.0 150.0
Retained earnings 675.0 625.0
Total common equity P 825.0 P 775.0
Total liabilities and equity P2,016.0 P1,830.0

3. What is Sebring’s net operating profit after taxes (NOPAT) for 2019? ANS: 270million
4. What is Sebring’s net operating working capital for 2019? ANS: 576million
5. What is Sebring’s amount of total investor-supplied operating capital for 2019? ANS: 1.476billion
6. What is Sebring’s free cash flow for 2019? ANS: 174million