FIN 534 Homework Assume that you recently graduated Answer

FIN 534 Homework Assume that you recently graduated Answer

FIN 534 Homework Assume that you recently graduated Answer

FIN 534 Homework Assume that you recently graduated Answer


Use the following information for Questions 1 through 8:
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
Cash $9,000 $7,282
Short-term investments 48,600 20,000
Accounts receivable 351,200 632,160
Inventories 715,200 1,287,360
Total current assets $1,124,000 $1,946,802
Gross fixed assets 491,000 1,202,950
Less: Accumulated depreciation 146,200 263,160
Net fixed assets $344,800 $939,790
Total assets $1,468,800 $2,886,592

Liabilities and Equity
Accounts payable $145,600 $324,000
Notes payable 200,000 720,000
Accruals 136,000 284,960
Total current liabilities $481,600 $1,328,960
Long-term debt 323,432 1,000,000
Common stock
(100,000 shares) 460,000 460,000
Retained earnings 203,768 97,632
Total equity $663,768 $557,632
Total liabilities and equity $1,468,800 $2,886,592

FIN 534- 1

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FIN 534- 2

Q1 : What is the free cash flow for 2013?

Q2: 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?

Calculate the 2013 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?

Q4: Calculate the 2013 inventory turnover, days sales outstanding (DSO), fixed assets turnover, and total assets turnover.

Calculate the 2013 debt ratio, liabilities-to assets ratio, times-interest-earned, and EBITDA coverage ratios. What can you conclude from these ratios?

Q6: Calculate the 2013 profit margin, basic earning power (BEP), return on assets (ROA), and return on equity (ROE). What can you say about these ratios?

Q7: Calculate the 2013 price/earnings ratio, price/cash flow ratio, and market/book ratio

Q8 Use the extended DuPont equation to provide a summary and overview of company’s financial condition as projected for 2013. What are the firm’s major strengths and weaknesses?


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FIN 534- 4