Assignment Questions
1. What are the main advantages and disadvantages of organizing a firm as a corporation?
2. In recent years, top managers have been given large packages of options, giving them the right to buy stock in the firm at a fixed price. Will these compensation schemes make managers more responsive to stockholders? Why, or why not? Are lenders to the firm affected by these compensation schemes?
3. Classify each of the following items as an inflow (I) or an outflow (O) of cash or as neither (N). (Tip: You can use class notes p.24-30 to help you identify which is cash inflow or cash outflow).
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Item
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Charge ($)
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Item
|
Charge ($)
|
|
Cash
|
+600
|
Accounts receivable
|
-900
|
|
Accounts payable
|
-1,200
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Net profits
|
+700
|
|
Notes payable
|
+800
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Depreciation
|
+200
|
|
Long-term debt
|
-2,500
|
Repurchase of stock
|
+500
|
|
Inventory
|
+400
|
Cash dividends
|
+300
|
|
Fixed assets
|
+600
|
Sale of stock
|
+1,300
|
4. Assume current liabilities are $10,000, the current ratio is 2.0, and the quick ration is 1.0. How much does the firm have in inventory and other assets and how much does the firm have in current assets?
5. Using the financial statements and stock price information of Mydeco Corp in the next page to answer following questions:
a. How did Mydeco's accounts receivable days change over this period?
b. How did Mydeco's inventory days change over this period?
c. Based on your analysis, has Mydeco improved its management of its working capital during this time period?
d. Compare accounts payable days in 2012 and 2016.
e. Did this change in accounts payable days improve or worsen Mydeco's cash position in 2016?
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2012-2016 Financial Statement Data and Stock Price Data for Mydeco Corp.
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|
Mydeco Corp. 2012-2016
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(All data as of fiscal year end; in $ million)
|
|
Income Statement
|
2012
|
2013
|
2014
|
2015
|
2016
|
|
Revenue
|
404.3
|
363.8
|
424.6
|
510.7
|
604.1
|
|
Cost of Goods Sold
|
(188.3)
|
(173.8)
|
(206.2)
|
(246.8)
|
(293.4)
|
|
Gross Profit
|
216.0
|
190.0
|
218.4
|
263.9
|
310.7
|
|
Saks and Marketing
|
(66.7)
|
(66.4)
|
(82.8)
|
(102.1)
|
(120.8)
|
|
Administration
|
(60.6)
|
(59.1)
|
(59.4)
|
(66.4)
|
(78.5)
|
|
Depreciation & Amortization
|
(27.3)
|
(27.0)
|
(34.3)
|
(38.4)
|
(38.6)
|
|
EBIT
|
61.4
|
37.5
|
41.9
|
57.0
|
72.8
|
|
Interest Income (Expense)
|
(33.7)
|
(32.9)
|
(32.2)
|
(37.4)
|
(39.4)
|
|
Pretax Income
|
27.7
|
4.6
|
9.7
|
19.6
|
33.4
|
|
Income Tax
|
(9.7)
|
(1.6)
|
(3.4)
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(6.9)
|
(11.7)
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Net Income
|
18.0
|
3.0
|
6.3
|
12.7
|
21.7
|
|
Sham outstanding (millions)
|
55.0
|
55.0
|
55.0
|
55.0
|
55.0
|
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Earnings per share
|
$0.33
|
$0.05
|
$0.11
|
$0.23
|
$0.39
|
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Balance Sheet
|
2012
|
2013
|
2014
|
2015
|
2016
|
|
Assets
|
|
|
|
|
|
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Cash
|
48.8
|
68.9
|
86.3
|
77.5
|
85.0
|
|
Accounts Receivable
|
88.6
|
69.8
|
69.8
|
76.9
|
86.1
|
|
Inventory
|
33.7
|
30.9
|
28.4
|
31.7
|
35.3
|
|
Total Current Assets
|
171.1
|
169.6
|
184.5
|
186.1
|
206.4
|
|
Net Property, Plant & Equip.
|
245.3
|
243.3
|
309
|
345.6
|
347.0
|
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Goodwill & Intangibles
|
361.7
|
361.7
|
361.7
|
361.7
|
361.7
|
|
Total Assets
|
778.1
|
774.6
|
855.2
|
893.4
|
915.1
|
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Liabilities and Stockholders' Equity
|
|
Accounts Payable
|
18.7
|
17.9
|
22.0
|
26.8
|
31.7
|
|
Accrued Compensation
|
6.7
|
6.4
|
7.0
|
8.1
|
9.7
|
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Total Current Liabilities
|
25.4
|
24.3
|
29.0
|
34.9
|
41.4
|
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Long-term Debt
|
500.0
|
500.0
|
575.0
|
600.0
|
600.0
|
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Total Liabilities
|
525.4
|
524.3
|
604.0
|
634.9
|
641.4
|
|
Stockholders' Equity
|
252.7
|
250.3
|
251.2
|
258.5
|
273.7
|
|
Total Liabilities
|
778.1
|
774.6
|
855.2
|
893.4
|
915.1
|
|
& Stockholder? Equity
|
|
|
|
|
|
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Statement of Cash Flows
|
2012
|
2013
|
2014
|
2015
|
2016
|
|
Net Income
|
18.0
|
3.0
|
63
|
12.7
|
21.7
|
|
Depreciation & Amortization
|
27.3
|
27.0
|
343
|
38.4
|
38.6
|
|
Chg. in Accounts Receivable
|
3.9
|
18.8
|
(0.0)
|
(7.1)
|
(9.2)
|
|
Chg. in Inventory
|
(2.9)
|
2.8
|
2.5
|
(3.3)
|
(3.6)
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Gig. in Payables & Accrued Comp.
|
2.2
|
(1.1)
|
4.7
|
5.9
|
6.5
|
|
Cash from Operations
|
48.5
|
50.5
|
47.8
|
46.6
|
54.0
|
|
Capital Expenditures
|
(25.0)
|
(25.0)
|
(100.0)
|
(75.0)
|
(40.0)
|
|
Cash from Investing Activities
|
(25.0)
|
(25.0)
|
(100.0)
|
(75.0)
|
(40.0)
|
|
Dividends Paid
|
(5.4)
|
(5.4)
|
(5.4)
|
(5.4)
|
(6.5)
|
|
Sale (or purchase) of stock
|
-
|
-
|
-
|
-
|
-
|
|
Debt Issuance (Pay Down)
|
-
|
-
|
75.0
|
25.0
|
-
|
|
Cash from Financing Activities
|
(5.4)
|
(5.4)
|
69.6
|
19.6
|
(6.5)
|
|
Change in Cash
|
18.1
|
20.1
|
17.4
|
(8.8)
|
7.5
|
|
Mydeco Stock Price
|
$7.92
|
$3.30
|
$5.25
|
$8.71
|
$10.89
|