Question: What types of information do common-size

> For the company in the previous problem, what is the sustainable growth rate?

> After Chris completed the ratio analysis for S&S Air (see Chapter 3), Mark and Todd approached him about planning for next year’s sales. The company had historically used little planning for investment needs. As a result, the compan

> Testaburger, Inc., uses no external financing and maintains a positive retention ratio. When sales grow by 15 percent, the firm has a negative projected EFN. What does this tell you about the firm’s internal growth rate? How about the sustainable growth

> The firm actually priced its product to be about 20 percent less than that of competitors, even though the Grandmother calendar was more detailed. In retrospect, was this a wise choice?

> What are some of the actions that a small company like The Grandmother Calendar Company can take if it finds itself in a situation in which growth in sales outstrips production capacity and available financial resources? What other options (besides expan

> If Roten Rooters, Inc., has an equity multiplier of 2.80, total asset turnover of 1.15, and a profit margin of 5.5 percent, what is its ROE?

> Ortiz Lumber Yard has a current accounts receivable balance of $431,287. Credit sales for the year just ended were $3,943,709. What is the receivables turnover? The days’ sales in receivables? How long did it take on average for credit customers to pay o

> Suppose you were the financial manager of a not-for-profit business (a not-for-profit hospital, perhaps). What kinds of goals do you think would be appropriate?

> For the year just ended, Ypsilanti Yak Yogurt shows an increase in its net fixed assets account of $835. The company took $148 in depreciation expense for the year. How much did the company spend on new fixed assets? Is this a source or use of cash?

> Braam Fire Prevention Corp. has a profit margin of 6.80 percent, total asset turnover of 1.95, and ROE of 18.27 percent. What is this firm’s debt–equity ratio?

> Organic Chicken Company has a debt–equity ratio of .65. Return on assets is 8.5 percent, and total equity is $540,000. What is the equity multiplier? Return on equity? Net income? Just Dew It Corporation reports the following balance sh

> Tortoise, Inc., had a cost of goods sold of $28,834. At the end of the year, the accounts payable balance was $6,105. How long on average did it take the company to pay off its suppliers during the year? What might a large value for this ratio imply?

> Based only on the following information for Bennington Corp., did cash go up or down? By how much? Classify each event as a source or use of cash. Decrease in inventory ………………………….$375 Decrease in accounts payable …………………190 Increase in notes payable ……

> Bach Corp. had additions to retained earnings for the year just ended of $430,000. The firm paid out $175,000 in cash dividends, and it has ending total equity of $5.3 million. If the company currently has 210,000 shares of common stock outstanding, what

> Crystal Lake, Inc., has a total debt ratio of .63. What is its debt–equity ratio? What is its equity multiplier?

> The Blue Moon Corporation has ending inventory of $407,534, and cost of goods sold for the year just ended was $4,105,612. What is the inventory turnover? The days’ sales in inventory? How long on average did a unit of inventory sit on the shelf before i

> Wakers, Inc., has sales of $29 million, total assets of $17.5 million, and total debt of $6.3 million. If the profit margin is 8 percent, what is net income? What is ROA? What is ROE?

> SDJ, Inc., has net working capital of $1,370, current liabilities of $3,720, and inventory of $1,950. What is the current ratio? What is the quick ratio?

> What does it mean when we say the New York Stock Exchange is an auction market? How are auction markets different from dealer markets? What kind of market is NASDAQ?

> What is Tobin’s Q for Smolira Golf? What assumptions are you making about the book value of debt and the market value of debt? What about the book value of assets and the market value of assets? Are these assumptions realistic? Why or w

> Smolira Golf Corp. has 25,000 shares of common stock outstanding, and the market price for a share of stock at the end of 2009 was $43. What is the price–earnings ratio? What are the dividends per share? What is the market-to-book ratio

> Prepare the 2009 statement of cash flows for Smolira Golf Corp. SMOLIRA GOLF 2008 and 2009 Balance Sheets Assets Liabilities and Owners' Equity 2008 2009 2008 2009 Current assets Current liabilities Cash $21,860 $ 22,050 Accounts payable $ 19,320 $

> Construct the Du Pont identity for Smolira Golf Corp. SMOLIRA GOLF 2008 and 2009 Balance Sheets Assets Liabilities and Owners' Equity 2008 2009 2008 2009 Current assets Current liabilities Cash $21,860 $ 22,050 Accounts payable $ 19,320 $ 22,850 Acco

> Find the following financial ratios for Smolira Golf Corp. (use year-end figures rather than average values where appropriate): Short-term solvency ratios: a. Current ratio ________________ b. Quick ratio

> Prince Albert Canning PLC had a net loss of £13,482 on sales of £138,793 (both in thousands of pounds). What was the company’s profit margin? Does the fact that these figures are quoted in a foreign currency make any difference? Why? In dollars, sales we

> Holliman Corp. has current liabilities of $365,000, a quick ratio of .85, inventory turnover of 5.8, and a current ratio of 1.4. What is the cost of goods sold for the company?

> Sherwood Inc.’s net income for the most recent year was $13,168. The tax rate was 34 percent. The firm paid $3,605 in total interest expense and deducted $2,382 in depreciation expense. What was the cash coverage ratio for the year?

> Firm A and firm B have debt–total asset ratios of 35% and 30% and returns on total assets of 12% and 11%, respectively. Which firm has a greater return on equity?

> In response to complaints about high prices, a grocery chain runs the following advertising campaign: “If you pay your child $3 to go buy $50 worth of groceries, then your child makes twice as much on the trip as we do.” You’ve collected the following in

> You’ve probably noticed coverage in the financial press of an initial public offering (IPO) of a company’s securities. Is an IPO a primary market transaction or a secondary market transaction?

> The Ashwood Company has a long-term debt ratio of .45 and a current ratio of 1.25. Current liabilities are $875, sales are $5,780, profit margin is 9.5 percent, and ROE is 18.5 percent. What is the amount of the firm’s net fixed assets?

> A company has net income of $218,000, a profit margin of 8.70 percent, and an accounts receivable balance of $132,850. Assuming 70 percent of sales are on credit, what is the company’s days’ sales in receivables?

> Y3K, Inc., has sales of $5,276, total assets of $3,105, and a debt–equity ratio of 1.40. If its return on equity is 15 percent, what is its net income?

> Based on the balance sheets given for Just Dew It, calculate the following financial ratios for each year: a. Current ratio. b. Quick ratio. c. Cash ratio. d. NWC to total assets ratio. e. Debt–equity ratio and equity multiplier. f. Tot

> For each account on this company’s balance sheet, show the change in the account during 2009 and note whether this change was a source or use of cash. Do your numbers add up and make sense? Explain your answer for total assets as compar

> Prepare the 2009 combined common-size, common–base year balance sheet for Just Dew It. JUST DEW IT CORPORATION 2008 and 2009 Balance Sheets Assets Liabilities and Owners' Equity 2008 2009 2008 2009 Current assets Current liabilities

> Prepare the 2008 and 2009 common-size balance sheets for Just Dew It. JUST DEW IT CORPORATION 2008 and 2009 Balance Sheets Assets Liabilities and Owners' Equity 2008 2009 2008 2009 Current assets Current liabilities Cash $ 8,436 $ 10,157 Accounts pay

> Chris Guthrie was recently hired by S&S Air, Inc., to assist the company with its financial planning and to evaluate the company’s performance. Chris graduated from college five years ago with a finance degree. He has been employed

> In recent years, Dixie Co. has greatly increased its current ratio. At the same time, the quick ratio has fallen. What has happened? Has the liquidity of the company improved?

> Specialized ratios are sometimes used in specific industries. For example, the so-called book-to-bill ratio is closely watched for semiconductor manufacturers. A ratio of .93 indicates that for every $100 worth of chips shipped over some period, only $93

> In early 2003, Doc and Lyn McGee formed the McGee Cake Company. The company produced a full line of cakes, and its specialties included chess cake, lemon pound cake, and doubleiced, double-chocolate cake. The couple formed the company as an outside inter

> Explain what it means for a firm to have a current ratio equal to .50. Would the firm be better off if the current ratio were 1.50? What if it were 15.0? Explain your answers.

> What effect would the following actions have on a firm’s current ratio? Assume that net working capital is positive. a. Inventory is purchased. b. A supplier is paid. c. A short-term bank loan is repaid. d. A long-term debt is paid off early. e. A custo

> Suppose a company lengthens the time it takes to pay suppliers. How would this affect the statement of cash flows? How sustainable is the change in cash flows from this practice?

> In recent years, several manufacturing companies have reported the cash flow from the sale of Treasury securities in the cash from operations section of the statement of cash flows. What is the problem with this practice? Is there any situation in which

> There are many ways of using standardized financial information beyond those discussed in this chapter. The usual goal is to put firms on an equal footing for comparison purposes. For example, for auto manufacturers, it is common to express sales, costs,

> So-called same-store sales are a very important measure for companies as diverse as McDonald’s and Sears. As the name suggests, examining same-store sales means comparing revenues from the same stores or restaurants at two different points in time. Why m

> Why is the Du Pont identity a valuable tool for analyzing the performance of a firm? Discuss the types of information it reveals compared to ROE considered by itself.

> Explain what peer group analysis is. As a financial manager, how could you use the results of peer group analysis to evaluate the performance of your firm? How is a peer group different from an aspirant group?

> Fully explain the kind of information the following financial ratios provide about a firm: a. Quick ratio. b. Cash ratio. c. Total asset turnover. d. Equity multiplier. e. Long-term debt ratio. f. Times interest earned ratio. g. Profit margin. h. Return

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

> In Problem 6, what is the average tax rate? What is the marginal tax rate? Problem 6 The Renata Co. had $236,000 in 2009 taxable income. Using the rates from Table 2.3 in the chapter, calculate the company’s 2009 income taxes.

> The Renata Co. had $236,000 in 2009 taxable income. Using the rates from Table 2.3 in the chapter, calculate the company’s 2009 income taxes. Taxable Income Тах Rate 2$ 0- 50,000 15% 50,001- 75,000 25 75,001- 100,000 34 100,001- 335

> Suppose the firm in Problem 3 had 85,000 shares of common stock outstanding. What is the earnings per share, or EPS, figure? What is the dividends per share figure?

> Suppose the firm in Problem 2 paid out $73,000 in cash dividends. What is the addition to retained earnings? Information from Problem 2 Papa Roach Exterminators, Inc., has sales of $586,000, costs of $247,000, depreciation expense of $43,000, interest ex

> The 2008 balance sheet of Maria’s Tennis Shop, Inc., showed long-term debt of $2.6 million, and the 2009 balance sheet showed long-term debt of $2.9 million. The 2009 income statement showed an interest expense of $170,000. What was the firm’s cash flow

> The 2008 balance sheet of Saddle Creek, Inc., showed current assets of $2,100 and current liabilities of $1,380. The 2009 balance sheet showed current assets of $2,250 and current liabilities of $1,710. What was the company’s 2009 change in net working c

> Earnhardt Driving School’s 2008 balance sheet showed net fixed assets of $3.4 million, and the 2009 balance sheet showed net fixed assets of $4.2 million. The company’s 2009 income statement showed a depreciation expense of $385,000. What was net capital

> Given the information for Maria’s Tennis Shop, Inc., in Problems 11 and 12, suppose you also know that the firm’s net capital spending for 2009 was $940,000, and that the firm reduced its net working capital investment by $85,000. What was the firm’s 200

> The 2008 balance sheet of Maria’s Tennis Shop, Inc., showed $740,000 in the common stock account and $5.2 million in the additional paid-in surplus account. The 2009 balance sheet showed $815,000 and $5.5 million in the same two accounts, respectively. I

> So Long, Inc., has sales of $27,500, costs of $13,280, depreciation expense of $2,300, and interest expense of $1,105. If the tax rate is 35 percent, what is the operating cash flow, or OCF?

> In a large corporation, what are the two distinct groups that report to the chief financial officer? Which group is the focus of corporate finance?

> Klingon Widgets, Inc., purchased new cloaking machinery three years ago for $7 million. The machinery can be sold to the Romulans today for $4.9 million. Klingon’s current balance sheet shows net fixed assets of $3.7 million, current liabilities of $1.1

> Papa Roach Exterminators, Inc., has sales of $586,000, costs of $247,000, depreciation expense of $43,000, interest expense of $32,000, and a tax rate of 35 percent. What is the net income for this firm?

> What are the three types of financial management decisions? For each type of decision, give an example of a business transaction that would be relevant.

> In the previous problem, suppose the required return on the project is 12 percent. What is the project’s NPV?

> In the previous problem, suppose you drive the truck x miles per year. How many miles would you have to drive the car before upgrading the car would be the better choice?

> Alson Enterprises needs someone to supply it with 185,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you’ve decided to bid on the contract. It will cost you $940,000 to install the equipment necess

> You are evaluating two different silicon wafer milling machines. The Techron I costs $290,000, has a three-year life, and has pretax operating costs of $67,000 per year. The Techron II costs $510,000, has a five-year life, and has pretax operating costs

> A five-year project has an initial fixed asset investment of $270,000, an initial NWC investment of $25,000, and an annual OCF of −$42,000. The fixed asset is fully depreciated over the life of the project and has no salvage value. If the required return

> In the previous problem, suppose your required return on the project is 20 percent and your pretax cost savings are $300,000 per year. Will you accept the project? What if the pretax cost savings are $240,000 per year? At what level of pretax cost saving

> Penguin Pucks, Inc., has current assets of $5,100, net fixed assets of $23,800, current liabilities of $4,300, and long-term debt of $7,400. What is the value of the shareholders’ equity account for this firm? How much is net working capital?

> Your firm is contemplating the purchase of a new $720,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $75,000 at the end of that time. You will save $260,000 before tax

> Dog Up! Franks is looking at a new sausage system with an installed cost of $560,000. This cost will be depreciated straight-line to zero over the project’s five-year life, at the end of which the sausage system can be scrapped for $85,000. The sausage s

> In the previous problem, suppose the fixed asset actually falls into the three-year MACRS class. All the other facts are the same. What is the project’s year 1 net cash flow now? Year 2? Year 3? What is the new NPV?

> In the previous problem, suppose the project requires an initial investment in net working capital of $300,000, and the fixed asset will have a market value of $210,000 at the end of the project. What is the project’s year 0 net cash flow? Year 1? Year 2

> Summer Tyme, Inc., is considering a new three year expansion project that requires an initial fixed asset investment of $3.9 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be wort

> An asset used in a four-year project falls in the five-year MACRS class for tax purposes. The asset has an acquisition cost of $7,900,000 and will be sold for $1,400,000 at the end of the project. If the tax rate is 35 percent, what is the aftertax salva

> Consider an asset that costs $548,000 and is depreciated straight-line to zero over its eight-year tax life. The asset is to be used in a five-year project; at the end of the project, the asset can be sold for $105,000. If the relevant tax rate is 35 per

> A piece of newly purchased industrial equipment costs $1,080,000 and is classified as seven-year property under MACRS. Calculate the annual depreciation allowances and end-of-the-year book values for this equipment.

> A proposed new project has projected sales of $108,000, costs of $51,000, and depreciation of $6,800. The tax rate is 35 percent. Calculate operating cash flow using the four different approaches described in the chapter and verify that the answer is the

> Consider the following income statement: Sales…………………………… m,……$824,500 Costs……………………………….….538,900 Depreciation……………..………….126,500 EBIT………………………………………….?….. Taxes (34%)……………………………..…?….. Net income…………………………………?….. Fill in the missing numbers and then

> A proposed new investment has projected sales of $830,000. Variable costs are 60 percent of sales, and fixed costs are $181,000; depreciation is $77,000. Prepare a pro forma income statement assuming a tax rate of 35 percent. What is the projected net in

> Winnebagel Corp. currently sells 30,000 motor homes per year at $53,000 each, and 12,000 luxury motor coaches per year at $91,000 each. The company wants to introduce a new portable camper to fill out its product line; it hopes to sell 19,000 of these ca

> Parker & Stone, Inc., is looking at setting up a new manufacturing plant in South Park to produce garden tools. The company bought some land six years ago for $6 million in anticipation of using it as a warehouse and distribution site, but the company ha

> Suppose we are thinking about replacing an old computer with a new one. The old one cost us $650,000; the new one will cost $780,000. The new machine will be depreciated straight-line to zero over its five year life. It will probably be worth about $150,

> Your company has been approached to bid on a contract to sell 17,500 voice recognition (VR) computer keyboards a year for four years. Due to technological improvements, beyond that time they will be outdated and no sales will be possible. The equipment n

> A proposed cost-saving device has an installed cost of $610,000. The device will be used in a five-year project but is classified as three-year MACRS property for tax purposes. The required initial net working capital investment is $55,000, the marginal

> Aguilera Acoustics, Inc. (AAI), projects unit sales for a new seven-octave voice emulation implant as follows: Year …………………………..Unit Sales 1………………………………….………… 93,000 2……………………………………………105,000 3……………………………………………128,000 4……………………………………………134,000 5……………………

> You have been hired as a consultant for Pristine Urban-Tech Zither, Inc. (PUTZ), manufacturers of fi ne zithers. The market for zithers is growing quickly. The company bought some land three years ago for $1.4 million in anticipation of using it as a tox

> Your small remodeling business has two work vehicles. One is a small passenger car used for job-site visits and for other general business purposes. The other is a heavy truck used to haul equipment. The car gets 25 miles per gallon (mpg). The truck gets

> Draw up an income statement and balance sheet for this company for 2008 and 2009. 2008 2009 Sales $ 7,233 $ 8,085 Depreciation 1,038 1,085 Cost of goods sold 2,487 2,942 Other expenses 591 515 Interest 485 579 Cash 3,792 4,041 Accounts receivable 5,0

> The debate regarding CFLs versus incandescent bulbs (see Problems 25–27) has even more wrinkles. In no particular order: 1. Incandescent bulbs generate a lot more heat than CFLs. 2. CFL prices will probably decline relative to incandescent bulbs. 3. CF

> The previous two problems suggest that using CFLs is a good idea from a purely financial perspective unless you live in an area where power is relatively inexpensive, but there is another wrinkle. Suppose you have a residence with a lot of incandescent b

> The previous problem suggests that using CFLs instead of incandescent bulbs is a no-brainer. However, electricity costs actually vary quite a bit depending on location and user type (you can get information on your rates from your local power company). A

> Compact fluorescent lamps (CFLs) have become more popular in recent years, but do they make financial sense? Suppose a typical 60-watt incandescent light bulb costs $.50 and lasts 1,000 hours. A 15-watt CFL, which provides the same light, costs $3.50 and

> Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $2,900,000 and will last for six years. Variable costs are 35 percent of sales, and fixed costs are $170,000 per year. Machine B costs $5,100,00

> In the previous problem, suppose you were going to use a three-year MACRS depreciation schedule for your manufacturing equipment, and you could keep working capital investments down to only $25,000 per year. How would this new information affect your cal

> Consider a project to supply 100 million postage stamps per year to the U.S. Postal Service for the next five years. You have an idle parcel of land available that cost $2,400,000 five years ago; if the land were sold today, it would net you $2,700,000 a

> Suppose in the previous problem that DISC always needs a conveyor belt system; when one wears out, it must be replaced. Which project should the firm choose now?