Finance-Assignment should be typed (word-processed) and submitted on Sakai

| January 30, 2017

Question
FINC311-013

Fall 2015

Assignment 2

Instructions: Assignment should be typed (word-processed) and submitted on Sakai by 2:00pm on Monday October 6.

Balance Sheets as on 31st Dec 2013 & 31st Dec 2014

31st Dec 2013

31st Dec 2014

Current Assets:

Cash

$500

$600

Accounts Receivables

$2,000

$3,000

Inventory

$1,500

$2,500

Total Current Assets

$4,000

$6,100

Fixed Assets:

Buildings

$3,000

$4,000

Furniture & office equipment

$1,000

$1,500

Total Fixed Assets

$4,000

$5,500

Total Assets

$8,000

$11,600

Liabilities:

Current Liabilities:

Accounts Payable

$1,000

$1,200

Notes Payable

$500

$500

Interest Payable

$100

$120

Total Current Liabilities

$1,600

$1,820

Shareholder’s Equity:

Common Stock

$5,000

$7,500

Retained earnings

$1,400

$2,280

Total Stockholder’s equity

$6,400

$9,780

Total Liabilities & Stockholder’s equity

$8,000

$11,600

Create a comparative balance sheet for 2013-2014.
Provide an analysis of the firm’s financial position from 2013 to 2014.

Income Statements for the years ended 31st Dec 2013 & 31st Dec 2014

31st Dec 2013

31st Dec 2014

Sales

$7,000

$9,000

Less: Cost of goods sold

$5,000

$6,400

Gross profit

$2,000

$2,600

Less: Operating expenses

General & administrative expenses

$200

$300

Selling & distribution expenses

$400

$500

Other operating expenses

$100

$150

Operating profit

$1,300

$1,650

Less: Interest expenses

$300

$400

Net income before taxes

$1,000

$1,250

Less: Taxes at 30%

$300

$375

Net Income after taxes

$700

$875

Create common-size income statements for 2013 and 2014.
How does the financial performance in 2013 compare to 2014?
Calculate the following ratios for 2013 and 2014 from the balance sheets and income statements above:
Current ratio, Debt ratio, Debt-equity ratio, Return on equity, Fixed asset turnover, Inventory

turnover, Accounts receivable turnover and Net profit margin.

Comment on the trend in liquidity, solvency, profitability and asset management for this firm.
Comment on the trend in net tangible value.
What will be the expected rates of return for the following stock investments using the SML:
Starwood Hotels :

Beta – 1.09; T-bill rate – 3.5%; Russell 2000 Index rate of return – 10.5%

Chipotle Mexican Restaurants :

Beta – 0.57; T-bill rate – 3.5%; Russell 2000 Index rate of return – 12.4%

ADM:

Market premium – 5%; Beta – 0.98; Risk-free rate – 3.2%

DuPont:

Market premium – 10%; Beta – 1.28; Risk-free rate – 4.0%

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