Week 2 - Problems Fin301

Week 2 – Homework Problems

Chapter 3

3-1

150,000(N/P)+750,000(L/T) = 900,000

900,000 + 100,000 + 1.5mil(O/E)

2.5mil – 2mil = 500,000 current assets

150,000(N/P) + 100,000(A/P & Accruals) = 250,000 current liabilities

(1.5mil(O/E) + 150,000(N/P) + 750,000(L/T)) – 2.5mil(T/A) = 100,000(accounts payables & accruals)

500,000(current assets) + 250,000(current liabilities) = 750,000(net working capital)

500,000(C/A) + (250,000(C/L) -150,000(N/P)) = 600,000(Net operating working capital)

Answer (g) does not include interest bearing note payables as it is not a “free” liability.

3-6

2,000,000*$30 = 60,000,000

= 60,000,000 - 35,000,000

= 25,000,000 (MVA)

3-8

Is the answer because a company can only claim new issued stock as increase in to cash. If it were outstanding it wouldn’t change anything on the statement of cash flows.

Chapter 4

4-8

6,000,000(sales)/3.2x(total asset turnover) = 1,875,000(total assets)

1,875,000 / (1,875,000*50%) = 1,875,000/937,500(total common equity) = 2

12%(ROE) / 2(O/E) = 6 / 3.2x(total asset turnover) = 1.88 (profit margin)

6,000,000(sales) * 1.88(profit margin) = 11,280,000(net income)

4-11

Profit Margin = 3%(ROA) / 1.5X(total asset turnover)

= 2%

Debt to Capital Ratio = 3% (ROA) * 1/.05(ROE) = .60(60%)

= 1 - .60 = .4

= 40%

4-15

BALANCE SHEET AFTER CHANGES

CASH $10,000 ACCOUNTS PAYABLE $30,000

RECEIVABLES 50,000 NOTES PAYABLES 20,000

TOTAL CURRENT ASSETS $60,000 TOTAL CURRENT LIABILITIES $50,000

NET FIXED ASSETS 90,000 LONG-TERM DEBT 50,000

TOTAL ASSETS $150,000 COMMON EQUITY...