Finance

FIN415A: FALL 2015

EXAM 1

1. Sanguillen Corp. showed retained earnings of $400,000 on its balance sheet last year. This year, the company’s earnings per share (EPS) were $3.00 and its dividends paid per share (DPS) were $1.00. The company has 200,000 shares of stock outstanding. What is the level of retained earnings on the company’s balance sheet this year?

2. A company has the following balance sheet. What is its net operating working capital?

Cash $10 Accounts payable $20

Short-term investments 20 Accruals 30

Accounts receivable 30 Notes payable 20

Inventory 40 Current liabilities 70

Current assets 100 Long-term debt 30

Net fixed assets 80 Common equity 10

Retained earnings 70

Total assets $180 Total liab. & equity $180

3. Swann Systems is forecasting the following income statement for the upcoming year:

Sales $5,000,000

Operating costs (excluding depreciation) $3,000,000

Gross margin $2,000,000

Depreciation $500,000

EBIT $1,500,000

Interest $500,000

EBT $1,000,000

Taxes (40%) $400,000

Net income $600,000

The company’s president is disappointed with the forecast and would like to see Swann generate higher sales and a forecasted net income of $2,000,000.

Assume that operating costs (excluding depreciation) are always 60 percent of sales. Also, assume that depreciation, interest expense, and the company’s tax rate, which is 40 percent, will remain the same even if sales change. What level of sales would Swann have to obtain to generate $2,000,000 in net income?

4. New Mexico Lumber recently reported that its earnings per share were $3.00. The company has 400,000 shares of stock outstanding. The company’s interest expense was $500,000. The corporate tax rate is 40 percent. What was the company’s operating income (EBIT)?

5. Q Corp. has a basic earnings power (BEP) ratio of 15 percent, and has a times interest earned...