Financing

3-1. BALANCE SHEET The assets of Dallas & Associates consist entirely of current assets and net plantand equipment, and the firm has no excess cash. The firm has total assets of $2.5million and net plant
and equipment equals $2million. It has notes payable of $150,000, long-term debt of $750,000, and
total common equity of $1.5million. The firm does have accounts payable and accruals on its balance
sheet. The firm only finances with debt and common equity, so it has no preferred stock on its balance
sheet.
a.
b.
c.
d.
e.
What is the company’s total debt? 150k + 750k= 900,000
What is the amount of total liabilities and equity that appears on the firm’s balance sheet? 2,500,000
What is the balance of current assets on the firm’s balance sheet? 2,500,000 – 2,000,000= 500,000
What is the balance of current liabilities on the firm’s balance sheet? 250,000
What is the amount of accounts payable and accruals on its balance sheet? (Hint: Consider this
as a single line item on the firm’s balance sheet.) 250,000 – 150, 000 = 100,000
f. What is the firm’s net working capital? 500,000 – 250, 000 = 250,000
g. What is the firm’s net operating working capital? 500,000 – (250k-150k)= 400,000
h. What is the explanation for the difference in your answers to parts f and g? F: net working cap; G: Net
operating cap
3-2. INCOME STATEMENT Byron Books Inc. recently reported $15million of net income. Its EBIT was
$20.8million, and its tax rate was 25%. What was its interest expense? (Hint: Write out the headings for
an income statement, and fill in the known values. Then divide $15million of net income by (1-T)=0.75 to
find the pretax income. The difference between EBIT and taxable income must be interest expense. Use
this same procedure to complete similar problems.) IE= 5.2M
3-4. STATEMENT OF STOCKHOLDERS’ EQUITY In its most recent financial statements, Nessler Inc.
reported $75million of net income and $825million of retained earnings. The previous retained earnings
were $784million. How much in dividends were paid to shareholders during the year? Assume that all
dividends declared were actually paid.
3-10. STATEMENT OF STOCKHOLDERS’ EQUITY Electronics World Inc. paid out $22.4million in total
common dividends and reported $144.7million of retained earnings at year-end. The prior year’s
retained earnings were $95.5million. What was the net income? Assume that all dividends declared
were actually paid.
3-12. STATEMENT OF CASH FLOWS Hampton Industries had $39,000 in cash at year-end 2020 and
$11,000 in cash at year-end 2021. The firm invested in property, plant, and equipment totaling
$210,000—the majority having a useful life greater than 20 years and falling under the alternative
depreciation system. Cash flow from financing activities totaled +$120,000.
a. What was the cash flow from operating activities?
b. If accruals increased by $15,000, receivables and inventories increased by $50,000, and
depreciation and amortization totaled $25,000, what was the firm’s net income?
4-1. DAYS SALES OUTSTANDING Baxley Brothers has a DSO of 23 days, and its annual sales are
$3,650,000. What is its accounts receivable balance? Assume that it uses a 365-day year.
4-2. DEBT TO CAPITAL RATIO Kaye’s Kitchenware has a market/book ratio equal to 1. Its stock price is
$12 per share and it has 4.8 million shares outstanding. The firm’s total capital is $110 million and it
finances with only debt and common equity. What is its debt-to-capital ratio?
4-3. DuPONT ANALYSIS Henderson’s Hardware has an ROA of 11%, a 6% profit margin, and an ROE of
23%. What is its total assets turnover? What is its equity multiplier?
4-4. MARKET/BOOK AND EV/EBITDA RATIOS Edelman Engines has $17 billion in total assets—of which
cash and equivalents total $100 million. Its balance sheet shows $1.7 billion in current liabilities—of
which the notes payable balance totals $1 billion. The firm also has $10.2 billion in long-term debt and
$5.1 billion in common equity. It has 300 million shares of common stock outstanding, and its stock price
is $20 per share. The firm’s EBITDA totals $1.368 billion. Assume the firm’s debt is priced at par, so the
market value of its debt equals its book value. What are Edelman’s market/book and its EV/EBITDA
ratios?
4-5. PRICE/EARNINGS RATIO A company has an EPS of $2.40, a book value per share of $21.84, and a
market/book ratio of 2.7×. What is its P/E ratio?
4-6. DuPONT AND ROE A firm has a profit margin of 3% and an equity multiplier of 1.9. Its sales are $150
million, and it has total assets of $60 million. What is its ROE?
4-7. ROE AND ROIC Baker Industries’s net income is $24,000, its interest expense is $5,000, and its tax
rate is 25%. Its notes payable equals $27,000, long-term debt equals $75,000, and common equity
equals $250,000. The firm finances with only debt and common equity, so it has no preferred stock.
What are the firm’s ROE and ROIC?
4-8. DuPONT AND NET INCOME Precious Metal Mining has $17 million in sales, its ROE is 17%, and its
total assets turnover is 3.2×. Common equity on the firm’s balance sheet is 50% of its total assets. What
is its net income?
4-9. BEP, ROE, AND ROIC Broward Manufacturing recently reported the following information:
Net income
ROA
Interest expense
$615,000
10%
$202,950
Accounts payable and accruals $950,000
Broward’s tax rate is 25%. Broward finances with only debt and common equity, so it has no preferred
stock. 40% of its total invested capital is debt, and 60% of its total invested capital is common equity.
Calculate its basic earning power (BEP), its return on equity (ROE), and its return on invested capital
(ROIC).
4-10. M/B, SHARE PRICE, AND EV/EBITDA You are given the following information: Stockholders’ equity
as reported on the firm’s balance sheet=$6.5 billion, price/earnings ratio=9, common shares
outstanding=180 million, and market/book ratio=2.0. The firm’s market value of total debt is $7 billion,
the firm has cash and equivalents totaling $250 million, and the firm’s EBITDA equals $2 billion. What is
the price of a share of the company’s common stock? What is the firm’s EV/EBITDA?
4-11. RATIO CALCULATIONS Assume the following relationships for the Caulder Corp.:
Sales/Total assets
1.3×
Return on equity (ROE)
8.0%
Return on assets (ROA)
4.0%
Calculate Caulder’s profit margin and debt-to-capital ratio assuming the firm uses only debt and
common equity, so total assets equal total invested capital.
4-12. RATIO CALCULATIONS Thomson Trucking has $12 billion in assets, and its tax rate is 25%. Its basic
earning power (BEP) ratio is 10%, and its return on assets (ROA) is 5.25%. What is its times-interestearned (TIE) ratio?
4-13. TIE AND ROIC RATIOS The W.C. Pruett Corp. has $600,000 of interest-bearing debt outstanding,
and it pays an annual interest rate of 7%. In addition, it has $600,000 of common equity on its balance
sheet. It finances with only debt and common equity, so it has no preferred stock. Its annual sales are
$2.7 million, its average tax rate is 25%, and its profit margin is 7%. What are its TIE ratio and its return
on invested capital (ROIC)?