FCF 9th Edition Chapter 03

Chapter 3Problems 1-30Input boxes in tan Output boxes in yellow Given data in blue Calculations in red Answers in green NOTE: Some functions used in these spreadsheets may require that the "Analysis ToolPak" or "Solver Add-In" be installed in Excel. To install these, click on the Office button then "Excel Options," "Add-Ins" and select "Go." Check "Analyis ToolPak" and "Solver Add-In," then click "OK."

require that

Chapter 3Question 1 Input area:

Net working capital $ 1,370 Current liabilities 3,720 Inventory 1,950

Output area:

Current assets Current ratio Quick ratio

$ 5,090 1.37 0.84

Chapter 3Question 2 Input area:

Sales Total assets Total debt Profit margin

$

29,000,000 17,500,000 6,300,000 8%

Output area:

Net income Return on assets Total equity Return on equity

$

2,320,000 13.26%

$

11,200,000 20.71%

Chapter 3Question 3 Input area:

Accounts receivable Credit sales

$

431,287 3,943,709

Output area:

Receivables turnover Days' sales in receivables The average collection period for an outstanding accounts receivable was 39.92 days.

9.14 39.92

Chapter 3Question 4 Input area:

Ending inventory Cost of goods sold

$

407,534 4,105,612

Output area:

Inventory turnover

10.07

Days' sales in inventory

36.23

On average, a unit of inventory sat on the shelf 36.23 days.

Chapter 3Question 5 Input area:

Total debt ratio

0.63

Output area:

Debt/equity ratio Equity multiplier

1.70 2.70

Chapter 3Question 6 Input area:

Addition to retained earnings Cash dividends Total equity Common shares outstanding Share price Sales

$ 430,000 $ 175,000 $ 5,300,000 210,000 $ 63

$ 4,500,000

Output area:

Net income Earnings per share Dividends per share Book value per share Market-to-book ratio P/E ratio Sales per share P/S ratio

$ $ $ $

605,000 2.88 0.83 25.24 2.50 21.87

$

21.43 2.94

Chapter 3Question 7 Input area:

Equity multiplier Total asset turnover Profit margin

2.80 1.15 5.50%

Output area:

Return on equity

17.71%

Chapter 3Question 8 Input area:

Profit margin Total asset turnover Return on equity

6.80% 1.95 18.27%

Output area:

Equity multiplier Debt/equity ratio

1.38 0.38

Chapter 3Question 9 Input area:

Decrease Decrease Increase Increase

in inventory in accounts payable in notes payable in accounts receivable

$

375 190 210 105

Output area:

Decrease Decrease Increase Increase Change in cash

in inventory is a in accounts payable is a in notes payable is a in accounts receivable is a $ 290

source use source use

of cash of cash of cash of cash

$ 375 (190) 210 (105)

Chapter 3Question 10 Input area:

Cost of goods sold Accounts payable balance

$

28,384 6,105

Output area:

Payables turnover Days' sales in payables

4.65 78.51

The company left its bills to suppliers outstanding for 52.59 days on average. 78.51 days on average. A large value for this ratio could imply that either (1) the company is having liquidity problems, making it difficult to pay off its short-term obligations, or (2) that the company has successfully negotiated lenient credit terms from its suppliers.

on average. is having liquidity (2) that the

Chapter 3Question 11 Input area:

Increase in net fixed assets account Depreciation expense

$

835 148

Output area:

Net investment in net fixed assets The company bought $ assets. This is a use of cash.

$

983

983 in new fixed

Chapter 3Question 12 Input area:

Debt/equity ratio Return on assets Total equity

0.65 8.5% $ 540,000

Output area:

Equity multiplier Return on equity Net income $

1.65 14.03% 75,735

Chapter 3Questions 13 -15 Input area:

2008 Current Assets Cash Accounts receivable Inventory Total $ 8,436 21,530 38,760 68,726 $

2009 10,157 23,406 42,650 76,213 Current liabilities Accounts payable Notes payable Total Long-term debt Owners' equity Common stock and paid-in surplus Retained earnings Total Total liabilities and owners' equity $ $ $

2008 43,050 18,384 61,434 25,000 $ $ $

2009 46,821 17,382 64,203 32,000

$

$

$

Net plant and equipment

$ 226,706

$ 248,306

40,000 168,998 $ 208,998

$

40,000 188,316 $ 228,316

Total assets

$ 295,432

$ 324,519

$ 295,432

$ 324,519

Output area:

2008 Assets Current assets Cash Accounts receivable Inventory Total Fixed assets Net plant and equipment Total assets Liabilites and Owners' Equity Current liabilities Accounts payable Notes payable Total Long-term debt Owners' equity Common stock and paid-in surplus Accumulated retained earnings Total Total liabilities and owners' equity $ 8,436 21,530 38,760 68,726

#13

2009

#13

#14

$

2.86% 7.29% 13.12% 23.26% 76.74% 100%

$

$

10,157 23,406 42,650 76,213 248,306 324,519

3.13% 7.21% 13.14% 23.48% 76.52% 100%

1.2040 1.0871 1.1004 1.1089 1.0953 1.0985

226,706 $ 295,432

$

$ $ $ $

43,050 18,384 61,434 25,000

14.57% 6.22% 20.79% 8.46% 13.54% 57.20% 70.74% 100%

$ $ $ $ $ $

46,821 17,382 64,203 32,000 40,000 188,316 228,316 324,519

14.43% 5.36% 19.78% 9.86% 12.33% 58.03% 70.36% 100%

1.0876 0.9455 1.0451 1.2800 1.0000 1.1143 1.0924 1.0985

40,000 168,998 $ 208,998 $ 295,432

#15

1.0961 0.9897 1.0017 1.0095 0.9971 1.0000

0.9901 0.8608 0.9514 1.1653 0.9104 1.0144 0.9945 1.0000

Chapter 3Questions 16,17 Input area:

Cash Accounts receivable Inventory Net plant and equipment Accounts payable Notes payable Long-term debt Common stock and paid in surplus Retained earnings

$

2008 8,436 21,530 38,760 226,706 43,050 18,384 25,000 40,000 168,998

$

2009 10,157 23,406 42,650 248,306 46,821 17,382 32,000 40,000 188,316

Output area:

2008 Assets Current assets Cash Accounts receivable Inventory Total Fixed assets Net plant and equipment Total assets Liabilites and Owners' Equity Current liabilities Accounts payable Notes payable Total Long-term debt Owners' equity Common stock and paid-in surplus Accumulated retained earnings Total Total liabilities and owners' equity

Sources/Uses

2009

$

$

8,436 21,530 38,760 68,726

$

$ $ $

1,721 1,876 3,890 7,487

U U U U

$

$

10,157 23,406 42,650 76,213

$ 226,706 $ 295,432

21,600 U 29,087 U

$ 248,306 $ 324,519

$ $ $ $

43,050 18,384 61,434 25,000

$ $ $

3,771 (1,002) 2,769 7,000

S U S S

$ $ $ $

46,821 17,382 64,203 32,000

40,000 168,998 $ 208,998 $ 295,432

$ $

0 19,318 S 19,318 S 29,087 S

40,000 188,316 $ 228,316 $ 324,519

The firm used $ 29,087 in cash to acquire new assets. It raised this amount of cash by increasing liabilities and owners' equity by the same amount. In particular, the needed frunds were raised entirely by internal financing (on a net basis), out of the additions to retained earnings.

a. b. c. d. e.

Current ratio Quick ratio Cash ratio NWC to total assets ratio Debt-equity Equity mulitplier f. Total debt ratio Long-term debt ratio

2008 1.12 0.49 0.14 2.47% 0.41 1.41 0.29 0.11

2009 1.19 0.52 0.16 3.70% 0.42 1.42 0.30 0.12

Chapter 3Question 18 Input area:

Sales Total assets Debt-equity ratio Return on equity

$

5,726 3,105 1.40 15%

Output area:

Profit margin Net income $

0.0339 194.06

Chapter 3Question 19 Input area:

Net income Profit margin Accounts receivable Percent credit sales

$ $

218,000 8.70% 132,850 70%

Output area:

Total sales Credit sales Receivables turnover Days' sales in receivables

$ $

2,505,747 1,754,023 13.20 27.65

Chapter 3Question 20 Input area:

Long-term debt ratio Current ratio Current liabilities Sales Profit margin Return on equity

$ $

0.45 1.25 875 5,780 9.5% 18.5%

Output area:

Current assets Net income Total equity Long-term debt Total debt Total assets Net fixed assets

$ 1,093.75 549.10 2,968.11 2,428.45 3,303.45 6,271.56 $ 5,177.81

Chapter 3Question 21 Input area:

Child's payment Amount purchased Sales Net income Total assets Total debt

$ $ $

3.00 50 750 22.5 420 280

Output area:

Child: Profit =

Child's payment Amount purchased

= 6.00%

Store:

Profit margin = Net income Sales

= 3.00%

The advertisement is referring to the store's profit margin, but a more appropriate earnings measure for the firm's owners is the return on equity: Return on equity = Net income / (Total assets - Total debt) = 16.07%

Chapter 3Question 22 Input area:

Firm A D/TA ROA Firm B D/TA ROA

35.00% 12.00% 30.00% 11.00%

Output area:

Firm A ROE Firm B ROE

18.46% 15.71%

Chapter 3Question 23 Input area:

Net income Tax rate Total interest expense Depreciation expense

$ $ $

13,168 34% 3,605 2,382

Output area:

Earnings before taxes EBIT EBITD Cash coverage ratio

$ 19,951.52 $ 23,556.52 $ 25,938.52 7.20

Chapter 3Question 24 Input area:

Current liabilities Quick ratio Inventory turnover Current ratio

$

365,000 0.85 5.80 1.40

Output area:

Current assets Inventory Cost of goods sold

$ $ $

511,000 200,750 1,164,350

Chapter 3Question 25 Input area:

Net income Sales Sales

- 13,482,000 138,793,000 $ 274,213,000

Output area:

Profit margin

-9.71%

As long as both net income and sales are measured in the same currency, there is not problem; in fact, except for some market value ratios like EPS and BVPS, none of the financial ratios discussed in the text are measured in terms of currency. This is one reason why financial ratio analysis is widely used in international finance to compare business operations of firms and/or divisions across national economic borders. Net income $ (26,636,355)

Chapter 3Questions 26-28 Input area:

Tax rate

35% SMOLIRA GOLF CORP. 2008 and 2009 Balance Sheets Assets 2008 2009 $ 22,050 13,850 24,650 60,550

L

Current assets Cash Accounts receivable Inventory Total

$

$

21,860 11,316 23,084 56,260

$

Fixed assets Net plant and equipment Total assets

$

234,068 290,328

$

260,525 321,075

Current liabilities Accounts payable Notes payable Other Total Long-term debt Owners' equity Common stock and p Accumulated retaine Total Total liabilities and owne

SMOLIRA GOLF CORP. 2009 Income statement Sales Cost of goods sold Depreciation EBIT Interest paid Taxable income Taxes (35%) Net income Dividends Retained earnings $ 305,830 210,935 26,850 68,045 11,930 56,115 19,640 36,475 20,000 16,475

$ $ $ $

Output area:

26) Short-term solvency ratios: 2008 Current ratio 2009 Current ratio 1.44 1.40

2008 Quick ratio 2009 Quick ratio 2008 Cash ratio 2009 Cash ratio Asset utilization ratios: Total asset turnover Inventory turnover Receivables turnover Long-term solvency ratios: 2008 Total debt ratio 2009 Total debt ratio 2008 Debt-equity ratio 2009 Debt-equity ratio 2008 Equity mulitplier 2009 Equity multiplier Times interest earned ratio Cash coverage ratio Profitability ratios: Profit margin Return on assets Return on equity

0.85 0.83 0.56 0.51

0.95 8.56 22.08

0.39 0.40 0.65 0.66 1.65 1.66 5.70 7.95

11.93% 11.36% 18.91%

27) Return on equity

0.1891

28)

SMOLIRA GOLF, INC. Statement of Cash Flows For Period Ending December 31, 2009 Cash, beginning of the year Operating activities Net income $ 21,860

$

36,475

Plus: Depreciation Increase in accounts payable Increase in other current liabilities Less: Increase in accounts receivable Increase in inventory Net cash from operating activities Investment activities Fixed asset acquisition Net cash from investment activities Financing activities Decrease in notes payable Dividends paid Increase in long-term debt Net cash from financing activities Net increase in cash Cash, end of year

$ $ $ $ $ $

26,850 3,530 1,742 (2,534) (1,566) 64,497

$ $

(53,307) (53,307)

$ $ $ $ $ $

(1,000) (20,000) 10,000 (11,000) 190 22,050

F CORP. alance Sheets Liabilities and owners' equity 2008 Current liabilities Accounts payable Notes payable Total Long-term debt Owners' equity Common stock and paid-in surplus Accumulated retained earnings Total Total liabilities and owners' equity $ 19,320 10,000 9,643 38,963 75,000 25,000 151,365 176,365 290,328 $ 2009 22,850 9,000 11,385 43,235 85,000 25,000 167,840 192,840 321,075

$

$

$ $ $

$ $ $

Chapter 3Question 29 Input area:

Net income Common stock outstanding Stock price Dividends paid Total equity Growth rate

$ $

36,475 25,000 43 20,000 192,840 9%

Output area:

Earnings per share P/E ratio Dividends per share Book value per share Market-to-book ratio PEG ratio

$

1.46 29.47

$ $

0.80 7.71 5.57 3.27

Chapter 3Question 30 Input area:

Common stock outstanding Stock price Current liabilities Long-term debt Book value of assets

$ $ $ $

25,000 43 43,235 85,000 321,075

Output area:

Market value of equity Book value of debt Tobin's Q

$ $

1,075,000 128,235 3.75