FIN 534 HOMEWORK SET #1

Use the following information for Questions 1 through 8:Assume that you recently graduated and have just reported to work as an investment advisor at the one of the firms on Wall Street. You have been presented and asked to review the following Income Statement and Balance Sheets of one of the firm’s clients. Your boss has developed the following set of questions you must answer.Income Statements and Balance SheetBalance Sheet201220132014Cash$9,000$7,282$14,000Short-term investments48,60020,000 71,632Accounts receivable351,200632,160 878,000Inventories715,2001,287,360 1,716,480Total current assets$1,124,000$1,946,802$2,680,112Gross fixed assets491,0001,202,950 1,220,000Less: Accumulated depreciation146,200263,160 383,160Net fixed assets$344,800$939,790$836,840Total assets$1,468,800$2,886,592$3,516,952Liabilities and EquityAccounts payable$145,600$324,000$359,800Notes payable200,000720,000 300,000Accruals136,000284,960 380,000Total current liabilities$481,600$1,328,960$1,039,800Long-term debt323,4321,000,000 500,000Common stock (100,000 shares)460,000460,0001,680,936Retained earnings203,76897,632296,216Total equity$663,768$557,632$1,977,152Total liabilities and equity$1,468,800$2,886,592$3,516,952Income Statements201220132014Sales$3,432,000$5,834,400$7,035,600Cost of goods sold except depr.2,864,0004,980,0005,800,000Depreciation and amortization18,900116,960 120,000Other expenses340,000720,000 612,960Total operating costs$3,222,900$5,816,960$6,532,960EBIT$209,100$17,440$502,640Interest expense62,500176,000 80,000EBT$146,600($158,560)$422,640Taxes (40%)58,640-63,424 169,056Net income$87,960($95,136)$253,584Other Data201220132014Stock price$8.50$6.00$12.17Shares outstanding100,000100,000250,000EPS$0.88($0.95)$1.104DPS$0.220.110.22Tax rate40%40%40%Book value per share$6.64$5.58$7.909Lease payments$40,000$40,000$40,000Ratio Analysis20122013Industry AverageCurrent2.31.52.7Quick0.80.51.0Inventory turnover446.1Days sales outstanding37.339.6 32.0Fixed assets turnover106.2 7.0Total assets turnover2.32 2.5Debt ratio35.60%59.60%32.0%Liabilities-to-assets ratio54.80%80.70%50.0%TIE3.30.16.2EBITDA coverage2.60.88.0Profit margin2.60%?1.6%3.6%Basic earning power14.20%0.60%17.8%ROA6.00%?3.3%9.0%ROE13.30%?17.1%17.9%Price/Earnings (P/E)9.7?6.316.2Price/Cash flow827.57.6Market/Book1.31.12.91. What is the free cash flow for 2014? 1. Suppose Congress changed the tax laws so that Berndt’s depreciation expenses doubled. No changes in operations occurred. What would happen to reported profit and to net cash flow?2. Calculate the 2014 current and quick ratios based on the projected balance sheet and income statement data. What can you say about the company’s liquidity position in 2013?3. Calculate the 2014 inventory turnover, days sales outstanding (DSO), fixed assets turnover, and total assets turnover.4. Calculate the 2014 debt ratio, liabilities-to-assets ratio, times-interest-earned, and EBITDA coverage ratios. What can you conclude from these ratios?5. Calculate the 2014 profit margin, basic earning power (BEP), return on assets (ROA), and return on equity (ROE). What can you say about these ratios?6. Calculate the 2014 price / earnings ratio, price / cash flow ratio, and market / book ratio.7. Use the extended DuPont equation to provide a summary and overview of company’s financial condition as projected for 2014. What are the firm’s major strengths and weaknesses?