Finance Four Problems Set

Question 1.

a. Prepare a cash flow statement for the following information.

b. Include a cash reconciliation statement.

Balance Sheet

Jan 1 Dec 31

ASSETS:

Current Assets:

Cash 310,000 600,000

Marketable Securities 1,200,000 1,000,000

Accounts Receivable, net 290,000 330,000

Inventory 3,000,000 4,000,000

Prepaid Expenses 200,000 300,000

Total Current Assets 5,000,000 6,230,000

Total Fixed Assets, net 2,500,000 2,000,000

Total Assets 7,500,000 8,230,000

LIABILITIES & EQUITIES

Current Liabilities:

Accounts Payable 1,500,000 1,000,000

Notes Payable 1,000,000 1,000,000

Accrued Expenses 500,000 800,000

Total Current Liabilities 3,000,000 2,800,000

Total Long-term Liabilities 1,000,000 1,500,000

Total Liabilities 4,000,000 4,300,000

Preferred Stock 500,000 500,000

Common Stock 500,000 500,000

Capital in Excess of Par 1,000,000 1,000,000

Retained Earnings 1,500,000 1,930,000

Total Stockholders Equity 3,500,000 3,930,000

Total Liabilities and Equity 7,500,000 8,230,000

Income Statement (for ques 1)

Sales 10,000,000

COGS 6,000,000

Gross Profit 4,000,000

Administrative expenses 1,200,000

Depreciation 500,000

EBIT 2,300,000

Interest Expense 500,000

EBT 1,800,000

Taxes (40%) 720,000

Net Income 1,080,000

Question 2 Table 5-1

Income Statement Balance Sheet

Sales $20,000,000 Assets:

Cost of Goods Sold 8,000,000 Cash $ 5,000,000

12,000,000 Marketable Securities 12,500,000

Selling and Administrative 1,600,000 Accounts Receivable, net 2,500,000

Depreciation 3,000,000 Inventory 30,000,000

7,400,000 Prepaid Expenses 5,000,000

Interest 2.000,000 Plant & Equipment 30,000,000

5,400,000

Taxes (40%) 2,160,000 Total Assets 85,000,000

3,240,000

Common Stock Div. 600,000 Liabilities and Equity:

$2,640,000 Accounts Payable $20,000,000

Notes Payable 5,000,000

Accrued Expenses 5,000,000

Bonds 25,000,000

Common Stock 5,000,000

Capital in Excess of Par 10,000,000

Retained Earnings 15,000,000

Total Liabilities and

Equity $85,000,000

Shares outstanding of common stock = 1,000,000

Market price of common stock = $18.

Use Table 5-1 for the following 15 questions.

2-1. The Current Ratio is:

2-2. The Net Profit margin is:

2-3. The Quick Ratio is:

2-4. The Times Interest Earned ratio is:

2-5. The Earnings Per Share is:

2-6. The Gross Profit Margin is:

2-7. The Total Debt to Total Asset ratio is:

2-8. Return on Assets ratio is:

2-9. The Total Asset Turnover ratio is:

2-10. The Operating Profit Margin is:

2-11. The Average Collection Period (365 day year) is:

2-12. The Market to Book ratio is:

2-13. The Debt to Equity ratio is:

2-14. The Inventory Turnover ratio is:

2-15. The Return on Equity is:

Question 3

Oleans, Inc. projects sales to be $100,000; $90,000; $95,000 during the months of

August, September, and October respectively. Salaries are projected to be $12,000 plus

5% of sales. Purchases are 50% of sales for the month and paid in the month of purchase.

A tax payment of $60,000 and an equipment purchase of $20,000 will be made in

September. Transactions are for cash, and a ($20,000) cash balance starts the month

of August. The firm maintains a minimum target end of month balance of $6,000. There

is no limit as to how high the cash balance can be.

Calculate the ending cash balance after any deficit is financed to achieve the target level

for each of the three months.

Question 4

Following is the balance sheet for the end of the year 2013 for Silver Spurs, Inc.:

2013 2014

Current Assets $15,000

Net Fixed Assets 20,000

Total Assets $35,000

Accounts Payable $ 2,000

Notes Payable 1,000

Long-Term Debt 10,000

Common Equity 22,000

Total Liabilities/Equity $35,000

They have generated sales for 2013 of $35,000 resulting in net income of $15,000. Due to the difficulty associated with acquiring raw materials, Silver Spurs has experienced sluggish business that has caused fixed assets to be underutilized.Management thinks it can double sales in 2014 through the introduction of a new product. No new fixed assets will be required and the dividend payout ratio will be 100%. Assume no additional deprecation expense will be taken in 2014. Project next year’s balance sheet in the space provided above to determine the additional funding needed (AFN) for this new product. Assume notes payable at the end of 2013 are paid off in 2014.