Sergio Zubieta
Problems:
P1. Complete the table below using the attached financial statements.
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Industry Average
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Allied Food
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Current Ratio
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4.2
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Quick Ratio
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2.2
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Inventory Turnover Ratio
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10.9
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Average Collection Period
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36 days
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Fixed Asset Turnover
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2.8
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Total Asset Turnover
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1.8
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Debt Ratio
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40%
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Times Interest Earned
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6
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Profit Margin
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5%
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Return on Assets
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9%
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Operating Margin
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10%
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Basic Earning Power
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18%
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Return on Equity
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15%
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After comparing Allied Food to the industry for each ratio and category of ratios, share key insights and/or managerial recommendations (note: this part of the question is just as important as correctly solving for all of the above ratios using Allied's financials below).
P2. Solve for Firm U's Return on Equity for expected and bad conditions:
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Firm U (unleveraged)
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CA
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50
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Debt
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0
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FA
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50
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Equity
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100
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TA
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100
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100
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Expected
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Bad
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Sales
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100
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82.5
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Toper Costs
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70
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80
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EBIT
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30
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2.5
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Interest
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0
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0
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EBT
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30
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2.5
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Taxes
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12
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1
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Net Inc
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18
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1.5
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Now, solve for firm L's Return on Equity for expected and bad conditions:
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Firm L (Leveraged)
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CA
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50
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Debt
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50
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FA
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50
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Equity
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50
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TA
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100
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100
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Expected
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Bad
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Sales
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100
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82.5
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Oper Costs
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70
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80
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EBIT
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30
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2.5
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Interest
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7.5
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7.5
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EBT
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22.5
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-5
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Taxes
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9
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-2
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Net Inc
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13.5
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-3
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Use this information to elaborate upon an organization's use of debt.
P3. Compare the percentage change in net operating profit after taxes to the percentage change in net income using 2007 and 2008 data from Allied Food Product's financial statements. What conclusions can you draw from this analysis?
P4. Using 2008 data, calculate Allied's earnings per share (EPS). Assume there are 45,000,000 shares outstanding and the data in the income statement and balance sheet accounts are measured in millions.
P5. Use the financial statements below to solve for Allied'sDuPont Equation. Explain key drivers of performance for Allied.
P6. Solve for the present value of $10,500 to be received in 5 years if the opportunity cost rate is 8%.
P7. Solve for the future value of $12,000 to be invested for 10 years at 15%.
P8. Solve for the present value of the following series of cash flows: $400 to be received at the end of 1 year, $500 to be received at the end of 2 years, $600 to be received at the end of 3 years, and $700 to be received at the end of 4 years. Assume the opportunity cost rate is 7%.
P9. Solve for the future value of the following series of cash flows: $300 to be invested today for 3 years and $200 to be invested one year from now for 2 years.
P10. What is the present value of $1000 to be received at the end of every year in between now and forever if the opportunity cost rate is 5%?
P11. Ed inherited from his grandparents $100,000 today and $50,000 at the end of every year for 5 years. What is the present value of Ed's inheritance?
Multiple Choice:
M1. DuPont Analysis: You are considering investing in Lenny's Lube, Inc. You have been able to locate the following information on the form: total assets = $20 million, accounts receivable =$6 million, ACP =20 days. Net income = $5 million, and debt-to-equity ratio=2.5 times. What is the ROE for the firm?
a. 22.5%
b. 8.75%
c. 87.5%
d. 17.5%
M2. Given the following information, calculate the return on equity for Chaus, Inc.:
Return on Sales= 5%
Total asset turnover = 2
Debt ratio = .73
a. 22%
b. 32%
c. 47%
d. 37%
M3. For corporations, maximizing the value of owner's equity can also be stated
a. Maximizing corporate social responsibility
b. Maximizing revenues
c. Maximizing the stock price
d. Minimizing tax payments to the government
M4. Common stockholders' equity divided by number of shares of common stock outstanding is the formula for calculating
a. Book value per share
b. Earnings per share
c. The market value of equity per share
d. Dividends per share
M5. Which ratio measures how many days inventory is held before the final product is sold?
a. Inventory turnover ratio
b. Asset turnover ratio
c. Times interest earned ratio
d. Days' sales in inventory
M6. How much cash does Gray Computer Co. have if the firm has a current ratio of 2.5, a quick ratio of 1.2, and current liabilities of $12,000? Gray's credit sales are $98,000 and its average collection period is 40 days. (Assume 365 days per year.)
a. 2250
b. 3660
c. 4550
d. 8770
M7. Calculate the times interest earned ratio for LaTonya's Flop Shops, Inc. using the following information. Sales = $1 million, cost of goods sold = $600,000, depreciation expense = $100,000, addition to retained earnings = $97,500, dividends per share = $1, tax rate = 30%, and number of shares of common stock outstanding = 60,000. LaTonaya's Flop Shops has no preferred stock outstanding.
a. 3 times
b. 4 times
c. 5 times
d. 6 times
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Allied Food Products: Balance Sheet
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Assets
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2013
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2012
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Liabilities and Equity
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2013
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2012
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Cash
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$10
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$80
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AP
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$60
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30
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AR
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$375
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$315
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NP
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$110
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60
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Inv
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$615
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$415
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Acc
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$140
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130
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Total CA
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$1,000
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$810
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Total CL
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$310
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220
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FA
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$1,000
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$870
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Long-term Bonds
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$754
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580
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Total Liabilities
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$1,064
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800
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PS
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$40
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40
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CS
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$130
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130
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RE
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$766
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710
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Total Common Equity
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$896
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$840
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Total Assets
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$2,000
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$1,680
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Total Liabilities and Equity
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$2,000
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$1,680
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Allied Food Product: Income Statements
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2013
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2012
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Net Sales
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$3,000.0
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$2,850
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Operating Costs
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$2,616.2
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$2,497
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EBITDA
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$383.8
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$353
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Depreciation
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$100.0
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$90
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Amort
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$0.0
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$0
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EBIT
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$283.8
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$263.0
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Interest
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$88.0
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$60
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Earnings Before Taxes
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$195.8
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$203.0
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Taxes (40%)
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$78.3
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$81.2
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Net Income Before Pre Div
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$117.5
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$121.8
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Pre Div
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$4.0
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$4.0
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Net Income
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$113.5
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$117.8
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Common Div
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$57.5
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$53.0
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Addition to RE
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$56.0
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$64.8
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