There Are 76 Red Xxxs Each Worth 118 Points You Only Need To Fil
There are 76 red xxx’s – each worth 1.18 points. You only need to fill in where you see red xxx’s (big or small)
CHAPTER 1 THE McGEE CAKE COMPANY
1. The advantages to a LLC are: xxxx The biggest disadvantage is: xxxx
2. .xxxx C-2 CASE SOLUTIONS
3. .xxxx CHAPTER
2 CASH FLOWS AND FINANCIAL STATEMENTS
Below are the financial statements that you are asked to prepare. 1. The income statement for each year will look like this: Income Statement Sales xxxx xxxx Cost of goods sold 163,886 Selling and administrative xxxx xxxx Depreciation 46,282 EBIT $79,110 $90,584 Interest 10,526 EBT $69,054 $79,058 Taxes (use the problem to figure This amount out xxxx xxxx Net income $55,243 $63,246
Dividends(read the case to find out how much this is) xxxx xxxx Addition to retained earnings (this would be whatever the net income is less the dividends paid out) xxxx xxxx 2. The balance sheet for each year will be: Balance Sheet as of Dec. 31, 2010 Cash xxxx Accounts payable xxxx Accounts receivable xxxx Notes payable xxxx Inventory xxxx Current liabilities $60,832 Current assets $72,651 Long-term debt xxxxx Net fixed assets xxxxxx Owners' equity xxxxx Total assets $276,719 Total liab. and equity
$276,719 In the first year, equity is not given. Therefore, we must calculate equity as a plug variable. Since total liabilities and equity is equal to total assets, equity can be calculated as: Equity = $276,719 – 60,832 –103,006 Equity = $112,881 Balance Sheet as of Dec. 31, 2011 Cash xxxx Accounts payable xxxx Accounts receivable xxxx Notes payable xxxx Inventory xxxx Current liabilities $68,121 Current assets
$100,834 Long-term debt xxxx Net fixed assets xxxx Owners' equity Xxxx(see below) Total assets
$349,459 Total liab. and equity $349,459 The owner’s equity for 2011 is the beginning of year owner’s equity, plus the addition to retained earnings, plus the new equity, so: Equity = $112,881 + 31,623 + 20,500 Equity = $165, are completed for you so you can answer the questions 3. Using the OCF equation: ( OCF = EBIT + Depreciation – Taxes The OCF for each year is: OCF2010 = $79,110 + 46,255 – 13,811 OCF2010 = $111,554 OCF2011 = $90,584 + 52,282 – 15,812 OCF2011 = $127,. To calculate the cash flow from assets, we need to find the capital spending and change in net working capital. The capital spending for the year was: Capital spending Ending net fixed assets $248,625 – Beginning net fixed assets 204,068 + Depreciation 52,282 Net capital spending $96,839 And the change in net working capital was:
Change in net working capital Ending NWC $32,713 – Beginning NWC 11,819 Change in NWC $20,894
So, the cash flow from assets was: Cash flow from assets Operating cash flow $127,054 – Net capital spending 96,839 – Change in NWC 20,894 Cash flow from assets $ 9,.
The cash flow to creditors was: Cash flow to creditors Interest paid $11,526 – Net new borrowing 13,328 Cash flow to creditors –$1,.
The cash flow to stockholders was: Cash flow to stockholders Dividends paid $31,623 – Net new equity raised 20,500 Cash flow to stockholders $11,123
Answers to questions 1. xxxx 2. xxxx
CHAPTER 3 RATIOS ANALYSIS AT S&S AIR
1. The calculations for the ratios listed are: Current ratio = (put the numbers here) Current ratio = (put the ratio here) Quick ratio = (put the numbers here) Quick ratio = (put the ratio here) Cash ratio (put the numbers here) Cash ratio = (put the ratio here) Total asset turnover = (put the numbers here) Total asset turnover = (put the ratio here) Inventory turnover = (put the numbers here) Inventory turnover = (put the ratio here) Receivables turnover = (put the numbers here) Receivables turnover = (put the ratio here) Total debt ratio = (put the numbers here) Total debt ratio = (put the ratio here) Debt-equity ratio = (put the numbers here) Debt-equity ratio = (put the ratio here) Equity multiplier = (put the numbers here) Equity multiplier = (put the ratio here) Times interest earned = (put the numbers here) Times interest earned = (put the ratio here) Cash coverage = (put the numbers here) Cash coverage = (put the ratio here) Profit margin = (put the numbers here) Profit margin = (put the ratio here) Return on assets = (put the numbers here) Return on assets = (put the ratio here) Return on equity = (put the numbers here) Return on equity = (put the ratio here) Below is a list of possible reasons it may be good or bad that each ratio is higher or lower than the industry.
Note that the list is not exhaustive, but merely one possible explanation for each ratio. Ratio Good Bad Current ratio Better at managing current accounts. May be having liquidity problems. Quick ratio Better at managing current accounts. May be having liquidity problems.
Cash ratio Better at managing current accounts. May be having liquidity problems. Total asset turnover Better at utilizing assets. Assets may be older and depreciated, requiring extensive investment soon. Inventory turnover Better at inventory management, possibly due to better procedures. Could be
experiencing inventory shortages. Receivables turnover Better at collecting receivables. May have credit terms that are too strict. Decreasing receivables turnover may increase sales. Total debt ratio Less debt than industry median means the company is less likely to experience credit problems. Increasing the amount of debt can increase shareholder returns. Especially notice that it will increase ROE. Debt-equity ratio Less debt than industry median means the company is less likely to experience credit problems. Increasing the amount of debt can increase shareholder returns. Especially notice that it will increase ROE. Equity multiplier Less debt than industry median means the company is less likely to experience credit problems. Increasing the amount of debt can increase shareholder returns. Especially notice that it will increase ROE. TIE Higher quality materials could be increasing costs. The company may have more difficulty meeting interest payments in a downturn. Cash coverage Less debt than industry median means the company is less likely to experience credit problems. Increasing the amount of debt can increase shareholder returns. Especially notice that it will increase ROE. Profit margin The PM is slightly below the industry median. It could be a result of higher quality materials or better manufacturing. Company may be having trouble controlling costs. ROA Company may have newer assets than the industry. Company may have newer assets than the industry. ROE Lower profit margin may be a result of higher quality. Profit margin and EM are lower than industry, which results in the lower ROE.
CHAPTER 4 PLANNING FOR GROWTH AT S&S AIR
1. To calculate the internal growth rate, we first need to find the ROA and the retention ratio, so: ROA = NI / TA ROA = xxx/xxx ROA = .xxx b = Addition to RE / NI b = $1,285,242 / $1,845,242 b = 0.70 Now we can use the internal growth rate equation to get: Internal growth rate = (ROA à— b ) / [1 – (ROA à— b )] Internal growth rate = [0.1062(.70)] / [1 – 0.1062(.70)] Internal growth rate = .0799, or 7.99% To find the sustainable growth rate, we need the ROE, which is: ROE = NI / TE ROE = xxx/xxx ROE = xxxx
Using the retention ratio we previously calculated, the sustainable growth rate is: Sustainable growth rate = (ROE à— b ) / [1 – (ROE à— b )] Sustainable growth rate = [0.1931(.70)] / [1 – 0.1931(.70)] Sustainable growth rate = .1554, or 15.54% The internal growth rate is the growth rate the company can achieve with no outside financing of any sort. The sustainable growth rate is the growth rate the company can achieve by raising outside debt based on its retained earnings and current capital structure.
2. Pro forma financial statements for next year at a 12 percent growth rate are: Take the 2011 Income Statement and apply the growth rate to the numbers: Income Statement Sales XXXX COGS XXXX Other expenses XXXX Depreciation (stays same) 1,640,200 EBIT xxxx Interest (stays same) 573,200 Taxable
income XXXX Taxes (40%) xxxx Net income XXXX Dividends $675,565 Add to RE 1,550,472
BALANCE SHEET IS ALREADY PREPARED FOR YOU Balance Sheet Assets Liabilities and Equity
Current assets Current liabilities Cash xxxx Accounts payable xxxxx Accounts rec. xxxx Notes payable
xxxx Inventory xxxx Total CL $2,874,396 Total CA $2,204,003 Long-term debt $5,050,000 Fixed Assets
$17,261,014 Shareholder equity Common stock $322,500 Retained earnings 10,784,402 Total equity
$11,106,902 Total Assets $19,465,018 Total L&E $19,031,298 Look at the total assets and the total L&E. They are supposed to be equal. Since they are not we need to borrow some money – what is the EFN (External Financing Needed)? So, the EFN is: EFN = Total assets – Total liabilities and equity EFN = XXXXXX CAN THE COMPANY’S SALES INCREASE AT THIS GROWTH RATE? XXXXX IF THE ANSWER IS YES, WHAT ratio must increase? XXXX IF THE ANSWER IS NO, why? XXXXX