BUSI 320 Homework 1 Financial Analysis Assignment solutions complete answers

BUSI 320 Homework 1 Financial Analysis Assignment solutions complete answers

 

Question 1
Given the following information, prepare an income statement for the Dental Drilling Company.
 

Question 2
Stein Books Inc. sold 2,300 finance textbooks for $200 each to High Tuition University in 20X1. These books cost $170 to produce. Stein Books spent $12,100 (selling expense) to convince the university to buy its books.
 

Depreciation expense for the year was $15,700. In addition, Stein Books borrowed $104,000 on January 1, 20X1, on which the company paid 19 percent interest. Both the interest and principal of the loan were paid on December 31, 20X1. The publishing firm’s tax rate is 30 percent.

 

Prepare an income statement for Stein Books.

 

Question 3
Indicate whether the item is on the balance sheet or the income statement. If it is on the balance sheet, designate which category. (If there is no category, select "None" from the drop down menu.)
 

Question 4
Elite Trailer Parks has an operating profit of $285,000. Interest expense for the year was $30,500; preferred dividends paid were $28,900; and common dividends paid were $36,800. The tax was $68,500. The firm has 21,600 shares of common stock outstanding.  
 

a. Calculate the earnings per share and the common dividends per share for Elite Trailer Parks. (Round your answers to 2 decimal places.)  

 

b. What was the increase in retained earnings for the year?  

 

Question 5
Botox Facial Care had earnings after taxes of $292,000 in 20X1 with 200,000 shares of stock outstanding. The stock price was $45.80. In 20X2, earnings after taxes increased to $320,000 with the same 200,000 shares outstanding. The stock price was $74.00.
 

a. Compute earnings per share and the P/E ratio for 20X1. (The P/E ratio equals the stock price divided by earnings per share.) (Do not round intermediate calculations. Round your final answers to 2 decimal places.)

 

b. Compute earnings per share and the P/E ratio for 20X2. (Do not round intermediate calculations. Round your final answers to 2 decimal places.)

 

c. Why did the P/E ratio change? (Do not round intemediate calculations. Input your answers as percents rounded to 2 decimal places.)

 

Question 6
The Rogers Corporation has a gross profit of $716,000 and $283,000 in depreciation expense. The Evans Corporation also has $716,000 in gross profit, with $47,000 in depreciation expense. Selling and administrative expense is $221,000 for each company.  
 

a. Given that the tax rate is 40 percent, compute the cash flow for both companies.

 

b. Calculate the difference in cash flow between the two firms.

 

Question 7
The Holtzman Corporation has assets of $444,000, current liabilities of $51,000, and long-term liabilities of $71,000. There is $35,500 in preferred stock outstanding; 20,000 shares of common stock have been issued.  
 

a. Compute book value (net worth) per share. (Round your answer to 2 decimal places.)

 

b. If there is $25,700 in earnings available to common stockholders, and Holtzman’s stock has a P/E of 19 times earnings per share, what is the current price of the stock? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) 

 

c. What is the ratio of market value per share to book value per share? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

 

Question 8
Refer to the following financial statements for Crosby Corporation:   
 

a. Prepare a statement of cash flows for the Crosby Corporation: (Amounts to be deducted should be indicated with parentheses or a minus sign.)

 

b. Compute the book value per common share for both 20X1 and 20X2 for the Crosby Corporation. (Round your answers to 2 decimals places.)

 

c. If the market value of a share of common stock is 3.3 times book value for 20X1, what is the firm’s P/E ratio for 20X2 vs. 20X1? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

 

Question 9
Low Carb Diet Supplement Inc. has two divisions. Division A has a profit of $178,000 on sales of $2,680,000. Division B is able to make only $32,600 on sales of $386,000.
 

a. Compute the profit margins (return on sales) for each division. (Input your answers as a percent rounded to 2 decimal places.)

 

b. Based on the profit margins (returns on sales), which division is superior?

 

Question 10
Database Systems is considering expansion into a new product line. Assets to support expansion will cost $360,000. It is estimated that Database can generate $1,670,000 in annual sales, with an 4 percent profit margin.
 

What would net income and return on assets (investment) be for the year? (Input your return on assets answer as a percent rounded to 2 decimal places.)

 

Question 11
Using the Du Pont method, evaluate the effects of the following relationships for the Butters Corporation.  
a. Butters Corporation has a profit margin of 6 percent and its return on assets (investment) is 14 percent.  What is its assets turnover? (Round your answer to 2 decimal places.)
 

b. If the Butters Corporation has a debt-to-total-assets ratio of 50.00 percent, what would the firm’s return on equity be? (Input your answer as a percent rounded to 2 decimal places.)

 

c. What would happen to return on equity if the debt-to-total-assets ratio decreased to 45.00 percent? (Input your answer as a percent rounded to 2 decimal places.)

 

Question 12
Jerry Rice and Grain Stores has $4,880,000 in yearly sales. The firm earns 3 percent on each dollar of sales and turns over its assets 2.8 times per year. It has $196,000 in current liabilities and $359,000 in long-term liabilities.   
 

a. What is its return on stockholders’ equity? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

 

b. If the asset base remains the same as computed in part a, but total asset turnover goes up to 3.40, what will be the new return on stockholders’ equity? Assume that the profit margin stays the same as do current and long-term liabilities. (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

 

Question 13
Assume the following data for Cable Corporation and Multi-Media Inc.   
 

a-1. Compute return on stockholders’ equity for both firms. (Input your answers as a percent rounded to 2 decimal places.)

 

a-2. Which firm has the higher return?   

 

b. Compute the following additional ratios for both firms. (Input your Net income/Sales, Net income/Total assets and Debt/Total asset answers as a percent rounded to 2 decimal places. Round your Sales/Total assets answers to 2 decimal places.)

 

Question 14
The balance sheet for Stud Clothiers is shown next. Sales for the year were $3,510,000, with 75 percent of sales sold on credit.
 

Compute the following ratios: (Use a 360-day year. Do not round intermediate calculations. Round your answers to 2 decimal places. Input your debt-to-total assets answer as a percent rounded to 2 decimal places.)

 

Question 15
Using the income statement for Times Mirror and Glass Co., compute the following ratios:
 

a. Compute the interest coverage ratio. (Round your answer to 2 decimal places.)

 

b. Compute the fixed charge coverage ratio. (Round your answer to 2 decimal places.)

 

The total assets for this company equal $171,000. Set up the equation for the Du Pont system of ratio analysis.  

 

c. Compute the profit margin ratio. (Input your answer as a percent rounded to 2 decimal places.)

 

d. Compute the total asset turnover ratio. (Round your answer to 2 decimal places.)

 

e. Compute the return on assets (investment). (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

 

Question 16
Quantum Moving Company has the following data. Industry information also is shown.
 

a. Calculate the company's data in terms of: (Input your answers as a percent rounded to 1 decimal place.)

 

b. As an industry analyst comparing the firm to the industry, are you likely to praise or criticize the firm in terms of:

 

Question 17
The Canton Corporation shows the following income statement. The firm uses FIFO inventory accounting.   
 

a. Assume in 20X2 the same 15,600-unit volume is maintained, but that the sales price increases by 10 percent. Because of FIFO inventory policy, old inventory will still be charged off at $7.00 per unit. Also assume selling and administrative expense will be 6 percent of sales and depreciation will be unchanged. The tax rate is 30 percent. Compute aftertax income for 20X2. (Do not round intermediate calculations. Round your answer to the nearest whole number.)

 

b. In part a, by what percent did aftertax income increase as a result of a 10 percent increase in the sales price? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

 

c. Now assume that in 20X3 the volume remains constant at 15,600 units, but the sales price decreases by 15 percent from its year 20X2 level. Also, because of FIFO inventory policy, cost of goods sold reflects the inflationary conditions of the prior year and is $7.50 per unit. Further, assume selling and administrative expense will be 6 percent of sales and depreciation will be unchanged. The tax rate is 30 percent. Compute the aftertax income. (Round the sales price per unit to 2 decimal places but do not round any other intermediate calculations. Round your final answer to the nearest whole dollar amount.)