Fin 534 – homework set 1


Question Description:

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1. What is the free cash flow for 2013? 2. Suppose Congress changed the tax laws so that Berndt’s depreciation expenses doubled. No changes in operations occurred. What would happen to reported profit and to net cash flow? 3. Calculate the 2013 current and quick ratios based on the projected balance sheet and income statement data. What can you say about the company’s liquidity position in 2013? 4. Calculate the 2013 inventory turnover, days sales outstanding (DSO), fixed assets turnover, and total assets turnover. 5. Calculate the 2013 debt ratio, liabilities-to-assets ratio, times-interest-earned, and EBITDA coverage ratios. What can you conclude from these ratios? 6. Calculate the 2013 profit margin, basic earning power (BEP), return on assets (ROA), and return on equity (ROE). What can you say about these ratios? 7. Calculate the 2013 price / earnings ratio, price / cash flow ratio, and market / book ratio. 8. Use the extended DuPont equation to provide a summary and overview of company’s financial condition as projected for 2013. What are the firm’s major strengths and weaknesses? Document Preview: Income Statements 2012 2013 Sales $3,432,000 $5,834,400 Cost of goods sold except depr. 2,864,000 4,980,000 Depreciation and amortization 18,900 116,960 Other expenses 340,000 720,000 Total operating costs $3,222,900 $5,816,960 EBIT $209,100 $17,440 Interest expense 62,500 176,000 EBT $146,600 ($158,560) Taxes (40%) 58,640 -63,424 Net income $87,960 ($95,136) Other Data 2012 2013 Stock price $8.50 $6.00 Shares outstanding 100,000 100,000 EPS $0.88 ($0.95) DPS $0.22 0.11 Tax rate 40% 40% Book value per share $6.64 $5.58 Lease payments $40,000 $40,000 Ratio Analysis 2012 2013 Current 2.3 1.5 Quick 0.8 0.5 Inventory turnover 4 4 Days sales outstanding 37.3 39.6 Fixed assets turnover 10 6.2 Total assets turnover 2.3 2 Debt ratio 35.60% 59.60% Liabilities-to-assets ratio 54.80% 80.70% TIE 3.3 0.1 EBITDA coverage 2.6 0.8 Profit margin 2.60% -1.6% Basic earning power 14.20% 0.60% ROA 6.00% -3.3% ROE 13.30% -17.1% Price/Earnings (P/E) 9.7 -6.3 Price/Cash flow 8 27.5 Market/Book 1.3 1.1 1. What is the free cash flow for 2013? 2. Suppose Congress changed the tax laws so that Berndt’s depreciation expenses doubled. No changes in operations occurred. What would happen to reported profit and to net cash flow? 3. Calculate the 2013 current and quick ratios based on the projected balance sheet and income statement data. What can you say about the company’s liquidity position in 2013? 4. Calculate the 2013 inventory turnover, days sales outstanding (DSO), fixed assets turnover, and total assets turnover. 5. Calculate the 2013 debt ratio, liabilities-to-assets ratio, times-interest-earned, and EBITDA coverage ratios. What can you conclude from these ratios? 6. Calculate the 2013 profit margin, basic earning power (BEP), return on assets (ROA), and return… Attachments: homework.docx

Answer

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