Accounting 2364-A firm has the following financial statements

Subject: Business    / Accounting
Question

Assignment 1
Financial Management I (ACC 2364)
This assignment is worth 20 percent of the Final Grade. It consists of 4 questions that are each
worth 5 percent each. These questions will involve doing calculations, and will require written
explanations of the answer derived from these calculations. You must show your calculations
and how you came up with your answers in order to receive marks.

Question 1. A firm has the following financial statements and paid a $1,000 dividend during the year.
ASSETS
Cash
Accounts receivable
Inventory
Current Assets
Gross Capital assets
Accumulated amortization
Net capital assets
Total assets
LIABILITIES
Accounts payable
Accruals
Current Liabilities
Long term Debt
Equity
Total liabilities & equity
a.
b.
c.
d. Balance Sheets
Ending
Beginning
$ 2,000
$ 1,600
12,000
5,200
14,000
15,600
$28,000
$22,400
$27,000
$20,000
(16,000)
(14,400)
11,000
5,600
$39,000
$28,000
$ 3,000
1,000
$ 4,000
10,000
25,000
$39,000 $ 2,500
1,500
$ 4,000
5,000
19,000
$28,000 Income Statement
Sales
$100,000
COGS
80,000
Gross Margin
$ 20,000
Cash Expenses
$ 8,000
Amortization
1,600
EBIT
$ 10,400
Interest
800
EBT
$ 9,600
Tax
2,600
Net Income
$ 7,000 Calculate cash from operating activities showing the current account changes separately.
Calculate cash from financing activities.
Calculate cash from investing activities.
Develop a statement of cash flows including a reconciliation with the cash account.

Question 2. Emperor Corporation’s financial statements for the last year are shown below. All figures are in
thousands ($000). The firm paid a $1,000 dividend to its shareholders during the year. Two million
common shares are outstanding. The shares are currently trading at a price of $50. There were no sales of
new common shares. Lease payments totalling $400 are included in cost and expense.
BALANCE SHEET
ASSETS
Cash
Accounts receivable
Inventory
Current Assets
Gross Capital assets
Accumulated amortization
Net capital assets $ 2,000
12,000
14,000
$28,000
$27,000
(16,000)
11,000 INCOME STATEMENT
Sales
$100,000
COGS
80,000
Gross Margin
$ 20,000
Cash Expenses
$ 8,000
Amortization
1,600
EBIT
$ 10,400
Interest
800 Total assets
LIABILITIES
Accounts payable
Accruals
Current Liabilities
Long term Debt
Equity
Total liabilities & equity $39,000
$ 3,000
1,000
$ 4,000
10,000
25,000
$39,000 EBT
Tax
Net Income $ 9,600
2,600
$ 7,000 Develop Emperor’s:
Current Ratio
Quick Ratio
Average Collection Period (ACP)
Inventory Turnover
Capital Asset Turnover
Total Asset Turnover
Debt Ratio
Debt to Equity ratio
Times Interest Earned (TIE)
Cash Coverage
Fixed Charge Coverage
Return on Sales (ROS)
Return on Assets (ROA)
Return on Equity (ROE)
Price Earnings Ratio (P/E)
Market to Book Value Ratio

Question 3. Baxter Inc. is in a fast growing industry, but doesn’t seem to be able to match its competitors’ growth
rates. Selected financial information for Baxter is as follows ($000):
Sales
NI
Total Assets
Equity
Annual dividend $20,000
$1,000
$10,000
$8,000
$700 Research has revealed that the average firm in Baxter’s industry pays out 10% of its earnings in
dividends, earns 4 cents after tax on every sales dollar, has an equity multiplier of 3.0, and a total asset
turnover of 1.9.
a. Use a sustainable growth rate analysis in the following table to determine the source(s) of
Baxter’s growth problems.
gs = Retention Ratio Return on Sales Total Asset
Turnover Equity
Multiplier Industry
Baxter
b. What negatives might be associated with fixing the problems revealed by the analysis?

Question 4. The Winthrop Company expects to finish the current year with the financial results indicated on the
worksheet on the next page. Develop next year’s income statement and ending balance sheet using that
information and the following planning assumptions and facts. Work to the nearest thousand dollars.
PLANNING ASSUMPTIONS and FACTS
Income Statement Items
1. Revenue will grow by 20%.
2. The cost ratio will improve by 2%.
3. Spending in the Marketing Department will be held to 20% of revenue.
4. Finance and Engineering expenses will each increase by 10%.
5. The combined income tax rate will be 40%.
6. Interest on all long term borrowing will be 10%.
Balance Sheet Items
7.
Cash balances will remain constant.
8.
The ACP will be 35 days. (Use ending balances.)
9.
The Inventory Turnover Ratio based on COGS will be 4.5X. (Use ending balances.)
10.
Capital spending is expected to be $5M. The average amortization life of the assets to
be acquired is 5 years and straight-line amortization is used. Amortization expense for
old assets will be $1.5M.
11.
Accounts payable is expected to be 30% of inventory.
12.
Accruals will not change.
13.
No dividends will be paid and no new shares will be sold. Revenue
COGS
Gross Margin WINTHROP COMPANY
INCOME STATEMENT
($000)
THIS YEAR
$
%
$73,820
100.0
31,743
43.0
$42,077
57.0 Expenses:
Marketing
Engineering
Fin & Admin
Total Exp $17,422
7,087
7,603
$32,112 23.6
9.6
10.3
43.5 EBIT
Interest
EBT
Income Tax
NI $ 9,965
2,805
$ 7,160
$ 3,007
$ 4,153 13.5
3.8
9.7
4.1
5.6 NEXT YEAR
$
%
100.0 ASSETS
Cash
Accts Rec
Inventory
Curr Assets
Capital Assets
Gross
Accum Amort
Net
Tot Assets WINTHROP COMPANY
BALANCE SHEET
($000)
LIABILITIES & EQUITY
THIS
NEXT
THIS
$ 8,940
Accts Pay
$1,984
12,303
Accruals
860
7,054
Curr
$2,844
Liabilities
$28,297
L/T Debt
$22,630
$65,223
Equity
44,059
($23,987)
Tot Cap
$66,689
$41,236
$69,533
Tot L&E
69,533 NEXT