Busi 320 Dev Shell – 2012 Fall B Assignment 1

September 29, 2018

Busi 320 Dev Shell – 2012 Fall B
Foundations of Financial Management ( Block , 14th ed.)
assignment: Homework 1

1.Problem 2-1 Income
statement [LO1]

Frantic Fast Foods had earnings
after taxes of \$1,200,000 in the year 2009 with 322,000 shares outstanding.
On January 1, 2010, the firm issued 30,000 new shares. Because of the
proceeds from these new shares and other operating improvements, earnings
after taxes increased by 24 percent.

(a)

Compute earnings per share for the
year 2009. (Round your answer to 2 decimal
places. Omit the “\$” sign in your response.)

Earnings per share

(b)

Compute earnings per share for the
year 2010. (Round your answer to 2 decimal
places. Omit the “\$” sign in your response.)

Earnings per share

2.Problem 2-3 Gross
profit [LO1]

Hillary Swank Clothiers had sales
of \$428,000 and cost of goods sold of \$260,000.

(a)

What is the gross profit margin
(ratio of gross profit to sales)? (Round your
answer to the nearest whole percentage. Omit the “%” sign in your
response.)

Gross profit margin

(b)

If the average firm in the
clothing industry had a gross profit of 35 percent, how is the firm doing?

The firm is .

3.Problem 2-4 Operating
profit [LO1]

A-Rod Fishing Supplies had sales
of \$2,160,000 and cost of goods sold of \$1,550,000. Selling and
administrative expenses represented 10 percent of sales. Depreciation was 6
percent of the total assets of \$4,450,000.

What was the firm’s operating
profit? (Omit the “\$” sign in your response.)

Operating profit

4.Problem 2-6 Income
statement [LO1]

Given the following information,
prepare an income statement for the Dental Drilling Company. (Input all amounts as positive values. Omit the
“\$” sign in your response.)

Selling and
administrative expense

\$

72,000

Depreciation expense

71,000

Sales

536,000

Interest expense

45,000

Cost of goods sold

179,000

Taxes

53,000

5.Problem 2-7 Income
statement [LO1]

Given the following information,
prepare an income statement for Jonas Brothers Cough Drops. (Input all amounts as positive values. Omit the
“\$” sign in your response.)

Selling and
administrative expense

\$

326,000

Depreciation expense

196,000

Sales

1,600,000

Interest expense

124,000

Cost of goods sold

551,000

Taxes

167,000

6.Problem 2-11
Depreciation and earnings [LO1]

Stein Books, Inc., sold 2,300
finance textbooks for \$200 each to High Tuition University in 2010. These
books cost \$170 to produce. Stein Books spent \$12,300 (selling expense) to
convince the university to buy its books.

Depreciation
expense for the year was \$15,500. In addition, Stein Books borrowed \$102,000
on January 1, 2010, on which the company paid 17 percent interest. Both the
interest and principal of the loan were paid on December 31, 2010. The
publishing firm’s tax rate is 30 percent.

Prepare an income statement for
Stein Books. (Input all amounts as positive
values. Omit the “\$”
sign in your response.)

7.Problem 2-15
Development of balance sheet [LO3]

Arrange the following items in
proper balance sheet presentation (Be sure to
list the assets in order of their liquidity. Input all amounts as positive
values. Omit the “\$” sign in your response):

Accumulated
depreciation

\$

347,000

Retained earnings

46,000

Cash

14,000

Bonds payable

137,000

Accounts receivable

51,000

Plant and
equipment—original cost

668,000

Accounts payable

38,000

Allowance for bad
debts

6,000

Common stock, \$1 par,
100,000 shares outstanding

100,000

Inventory

71,000

Preferred stock, \$52
par, 1,000 shares outstanding

52,000

Marketable securities

28,000

Investments

24,000

Notes payable

39,000

Capital paid in excess
of par (common stock)

91,000

8.Problem 2-16 Earnings
per share and retained earnings [LO1, 3]

Okra Snack Delights, Inc., has an
operating profit of \$241,000. Interest expense for the year was \$35,800;
preferred dividends paid were \$34,100; and common dividends paid were
\$39,600. The tax was \$61,400. The firm has 23,700 shares of common stock
outstanding.

(a)

Calculate the earnings per share
and the common dividends per share. (Round
your answers to 2 decimal places. Omit the “\$” sign in your
response.)

Earnings per share

Common dividends per
share

(b)

What was the increase in retained
earnings for the year? (Omit the
“\$” sign in your response.)

Increase in retained
earnings

9.Problem 2-17 Earnings
per share and retained earnings [LO1, 3]

Quantum Technology had \$644,000 of
retained earnings on December 31, 2010. The company paid common dividends of
\$30,100 in 2010 and had retained earnings of \$524,000 on December 31, 2009.

(a)

How much did Quantum Technology
earn during 2010? (Omit the “\$”
sign in your response.)

Earnings available to
common stockholders

(b)

What would earnings per share be
if 42,700 shares of common stock were outstanding? (Round your answer to 2 decimal places. Omit the “\$” sign in your response.)

Earnings per share

10.Problem 2-18
Price-earnings ratio [LO2]

Botox Facial Care had earnings
after taxes of \$325,000 in 2009 with 200,000 shares of stock outstanding. The
stock price was \$95.60. In 2010, earnings after taxes increased to \$407,000
with the same 200,000 shares outstanding. The stock price was \$104.00.

(a)

Compute earnings per share and the
P/E ratio for 2009. The P/E ratio equals the stock price divided by earnings
per share. (Enter only numeric values.Round
your intermediate calculations and final answers to 2 decimal
places. Omit the “\$” sign in your response.)

Earnings per share

P/E ratio

(b)

Compute earnings per share and the
P/E ratio for 2010. (Enter only numeric
values.Round your intermediate calculations and final answers to 2 decimal
places. Omit the “\$” sign in your response.)

Earnings per share

P/E ratio

(c)

Why the P/E ratio changed? (Round your intermediate calculations and final answers to
2 decimal places. Omit the
“%” sign in your response.)

The stock price %
while EPS only

11.Problem 2-21
Depreciation and cash flow [LO5]

The Jupiter Corporation has a
gross profit of \$726,000 and \$337,000 in depreciation expense. The Saturn
Corporation also has \$726,000 in gross profit, with \$48,300 in depreciation
expense. Selling and administrative expense is \$220,000 for each company.

(a)

Given that the tax rate is 40
percent, compute the cash flow for both companies. (Omit the “\$” sign in your response.)

Jupiter

Saturn

Cash flow

(b)

What is the difference in cash
flow between the two firms? (Omit the
“\$” sign in your response.)

Difference in cash
flow

12.Problem 2-22 Free cash
flow [LO4]

Coastal Pipeline, Inc.,
anticipated cash flow from operating activities of \$9 million in 2010. It
will need to spend \$6.0 million on capital investments in order to remain
competitive within the industry. Common stock dividends are projected at
\$1.20 million and preferred stock dividends at \$.65 million.

(a)

What is the firm’s projected free
cash flow for the year 2010? (Enter your
answer in millions of dollars rounded to 2 decimal places. Omit the
“\$” sign in your response.)

Free cash flow

\$ million

(b)

What does the concept of free cash
flow represent?

13.Problem 2-24 Book
value and market value [LO2, 3]

The Rockford Corporation has
assets of \$418,000, current liabilities of \$126,000, and long-term
liabilities of \$131,000. There is \$38,700 in preferred stock outstanding;
20,000 shares of common stock have been issued.

(a)

Compute book value (net worth) per
share. (Round your answer to 2 decimal
places. Omit the “\$” sign in your response.)

Book value per share

\$

(b)

If there is \$32,300 in earnings
available to common stockholders and Rockford’s stock has a P/E of 21 times
earnings per share, what is the current price of the stock? (Do not round intermediate calculations. Round your answer
to 2 decimal places. Omit the “\$” sign in your response.)

Current price

\$

(c)

What is the ratio of market value
per share to book value per share? (Do not
round intermediate calculations. Round your answer to 2 decimal places.)

Ratio

14.Problem 2-25 Book
value and market value [LO2, 3]

Amigo Software, Inc., has total
assets of \$820,000, current liabilities of \$181,000, and long-term
liabilities of \$210,000. There is \$90,000 in preferred stock outstanding.
Thirty thousand shares of common stock have been issued.

(a)

Compute book value (net worth) per
share. (Round your answer to 2 decimal
places. Omit the “\$”
sign in your response.)

Book value per share

\$

(b)

If there is \$52,800 in earnings
available to common stockholders and the firm’s stock has a P/E of 26 times
earnings per share, what is the current price of the stock? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit
the “\$” sign in your response.)

Current price

\$

(c)

What is the ratio of market value
per share to book value per share? (Do not
round intermediate calculations. Round your answer to 2 decimal
places.)

Ratio

15.Problem 2-27
Construction of income statement and balance sheet [LO1, 3]

On December 31, 2009, the balance
sheet of Baxter Corporation was as follows:

Current
Assets

Liabilities

Cash

\$

13,000

Accounts payable

\$

15,000

Accounts receivable

18,000

Notes payable

23,000

Inventory

28,000

Bonds payable

53,000

Prepaid expenses

12,300

Fixed
Assets

Stockholders’
Equity

Plant and equipment
(gross)

\$

253,000

Preferred stock

\$

23,000

Less:
Accumulated depreciation

50,600

Common stock

58,000

Paid-in capital

28,000

Net plant and
equipment

202,400

Retained earnings

73,700

Total assets

\$

273,700

Total liabilities and
stockholders’ equity

\$

273,700

Sales
for 2010 were \$235,000, and the cost of goods sold was 60 percent of sales.
Selling and administrative expense was \$23,500. Depreciation expense was 11
percent of plant and equipment (gross) at the beginning of the year. Interest
expense for the notes payable was 9 percent, while the interest rate on the
bonds payable was 15 percent. This interest expense is based on December 31,
2009, balances. The tax rate averaged 20 percent.

\$2,300
in preferred stock dividends were paid and \$9,560 in dividends were paid to
common stockholders. There were 10,000 shares of common stock outstanding.

During
2010, the cash balance and prepaid expenses balances were unchanged. Accounts
receivable and inventory increased by 9 percent. A new machine was purchased
on December 31, 2010, at a cost of \$38,000.

Accounts
payable increased by 35 percent. Notes payable increased \$6,300 and bonds
payable decreased \$11,500, both at the end of the year. The preferred stock,
common stock, and paid-in capital in excess of par accounts did not change.

(a)

Prepare an income statement for
2010. (Round EPS answer to 2 decimal places.
Input all amounts as positive values. Omit the “\$” sign in your
response.)

(b)

Prepare a statement of retained
earnings for 2010. (Input all amounts as
positive values. Omit the “\$” sign in your response.)

(c)

Prepare a balance sheet as of
December 31, 2010. (Be sure to list the
assets and liabilities in order of their liquidity. Input all amounts as
positive values. Omit the “\$” sign in your response.)

16.Problem 2-28 Statement
of cash flows [LO4]

Given is the Income Statement for
the year ended December 31, 2010, Statement of Retained Earnings for the year
ended December 31, 2010 and Comparative Balance Sheets for 2009 and 2010 of
Jeter Corporation:

JETER
CORPORATION
Income Statement
For the Year Ended December 31, 2010

Sales

\$

4,240,000

Cost of goods sold

2,810,000

Gross
profits

1,430,000

Selling and
administrative expense

738,000

Depreciation expense

236,000

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