FIN 534 – Homework Set #1

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FIN 534 – Homework Set #1
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Directions: Answer the following questions on a separate document. Explain how you reached the answer or show your work if a mathematical calculation is needed, or both. Submit your assignment using the assignment link in the course shell. This homework assignment is worth 100 points.
Use the following information for Questions 1 through 4:
Assume that you recently graduated and have just reported to work as an investment advisor at the one of the firms on Wall Street. You have been presented and asked to review the following Income Statement and Balance Sheets of one of the firm’s clients. Your boss has developed the following set of questions you must answer.
Income Statements and Balance Sheet
Balance Sheet
2012
2013
2014
Cash
$9,000
$7,282
$14,000
Short-term investments
48,600
20,000
71,632
Accounts receivable
351,200
632,160
878,000
Inventories
715,200
1,287,360
1,716,480
Total current assets
$1,124,000
$1,946,802
$2,680,112
Gross fixed assets
491,000
1,202,950
1,220,000
Less: Accumulated depreciation
146,200
263,160
383,160
Net fixed assets
$344,800
$939,790
$836,840
Total assets
$1,468,800
$2,886,592
$3,516,952
Liabilities and Equity
Accounts payable
$145,600
$324,000 $359,800
Notes payable
200,000
720,000 300,000
Accruals
136,000
284,960 380,000
Total current liabilities
$481,600
$1,328,960 $1,039,800
Long-term debt
323,432
1,000,000 500,000
Common stock (100,000 shares)
460,000
460,000 1,680,936
Retained earnings
203,768
97,632 296,216
Total equity
$663,768
$557,632 $1,977,152
Total liabilities and equity
$1,468,800
$2,886,592 $3,516,952
FIN 534 – Homework Set #1
© 2015 Strayer University. All Rights Reserved. This document contains Strayer University Confidential and Proprietary information
and may not be copied, further distributed, or otherwise disclosed in whole or in part, without the expressed written permission of
Strayer University.
FIN 534 Homework Set #1 1156 (5-19-2015) Page 2 of 3
Income Statements
2012
2013
2014
Sales
$3,432,000
$5,834,400 $7,035,600
Cost of goods sold except depr.
2,864,000
4,980,000 5,800,000
Depreciation and amortization
18,900
116,960 120,000
Other expenses
340,000
720,000 612,960
Total operating costs
$3,222,900
$5,816,960 $6,532,960
EBIT
$209,100
$17,440 $502,640
Interest expense
62,500
176,000 80,000
EBT
$146,600
($158,560) $422,640
Taxes (40%)
58,640
-63,424 169,056
Net income
$87,960
($95,136) $253,584
Other Data
2012
2013
2014
Stock price
$8.50
$6.00
$12.17
Shares outstanding
100,000
100,000
250,000
EPS
$0.88
($0.95)
$1.104
DPS
$0.22
0.11
0.22
Tax rate
40%
40%
40%
Book value per share
$6.64
$5.58
$7.909
Lease payments
$40,000
$40,000
$40,000
FIN 534 – Homework Set #1
© 2015 Strayer University. All Rights Reserved. This document contains Strayer University Confidential and Proprietary information
and may not be copied, further distributed, or otherwise disclosed in whole or in part, without the expressed written permission of
Strayer University.
FIN 534 Homework Set #1 1156 (5-19-2015) Page 3 of 3
Ratio Analysis
2012
2013
Industry Average
Current
2.3
1.5
2.7
Quick
0.8
0.5
1.0
Inventory turnover
4
4
6.1
Days sales outstanding
37.3
39.6
32.0
Fixed assets turnover
10
6.2
7.0
Total assets turnover
2.3
2
2.5
Debt ratio
35.60%
59.60%
32.0%
Liabilities-to-assets ratio
54.80%
80.70%
50.0%
TIE
3.3
0.1
6.2
EBITDA coverage
2.6
0.8
8.0
Profit margin
2.60%
−1.6%
3.6%
Basic earning power
14.20%
0.60%
17.8%
ROA
6.00%
−3.3%
9.0%
ROE
13.30%
−17.1%
17.9%
Price/Earnings (P/E)
9.7
−6.3
16.2
Price/Cash flow
8
27.5
7.6
Market/Book
1.3
1.1
2.9
1. What is the free cash flow for 2014?
2. Suppose Congress changed the tax laws so that Berndt’s depreciation expenses doubled. No changes in operations occurred. What would happen to reported profit and to net cash flow?
3. Calculate the 2014 current and quick ratios based on the projected balance sheet and income statement data. What can you say about the company’s liquidity position in 2013?
4. Use the extended DuPont equation to provide a summary and overview of company’s financial condition as projected for 2014. What are the firm’s major strengths and weaknesses?

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