Foundations of Financial Management.xlsx

Frantic Fast Foods had earnings after taxes of $420,000 in the year 2012 with 309,000 shares outstanding. On January 1, 2013, the firm issued 20,000 new shares. Because of the proceeds from these new shares and other operating improvements, earnings after taxes increased by 30 percent.    a. Compute earnings per share for the year 2012. (Round your answer to 2 decimal places.) b. Compute earnings per share for the year 2013. (Round your answer to 2 decimal places.) All input values are shown in yellow. Only these values need changed to review algo versions. Answers are displayed in red. Connect tolerances are listed below the solution. Assumptions and other problem notes are displayed at the very bottom. Input variables: Earnings after taxes 1130000 Shares outstanding 312000 shares New shares issued 32000 shares Earnings increase % 27 percent Solution and Explanation: a. Year 2012 Earnings per share C18/C193.6217948717948718 b. Year 2013 Earnings after taxes C18*(1+(C21/100))1435100 shares outstanding C19+C20344000 Earnings per share C33/C344.1718023255813952 Connect tolerances: For values: Decimal values with 3 or more places (.xxx or more) ±1% Decimal values with 1 or 2 places (.x or .xx) ±.1 an absolute value 1 - 1,000 ±1% 1,001 - 1 million ± .1% > 1 million ± .01% Sosa Diet Supplements had earnings after taxes of $800,000 in the year 2011 with 200,000 shares of stock outstanding. On January 1, 2012, the firm issued 50,000 new shares. Because of the proceeds from these new shares and other operating improvements, earnings after taxes increased by 30 percent.    a. Compute earnings per share for the year 2011. (Round your answer to 2 decimal places.)    b. Compute earnings per share for the year 2012. (Round your answer to 2 decimal places.) All input values are shown in yellow. Only these values need changed to review algo versions. Answers are displayed in red. Connect tolerances are listed below the solution. Assumptions and other problem notes are displayed at the very bottom. Input variables: Earnings after taxes 720000 Shares outstanding 308000 New shares issued 70000 Earnings increase % 26 percent Solution and Explanation: a. Earnings per share C18/C192.3376623376623376 b. Earnings after taxes C18*(1+(C21/100))907200 Shares outstanding C19+C20378000 Earnings per share C31/C322.4 Connect tolerances: For values: Decimal values with 3 or more places (.xxx or more) ±1% Decimal values with 1 or 2 places (.x or .xx) ±.1 an absolute value 1 - 1,000 ±1% 1,001 - 1 million ± .1% > 1 million ± .01% Hillary Swank Clothiers had sales of $383,000 and cost of goods sold of $260,000. a. What is the gross profit margin (ratio of gross profit to sales)? (Round your answer to the nearest whole percentage.) b. If the average firm in the clothing industry had a gross profit of 25 percent, how is the firm doing? All input values are shown in yellow. Only these values need changed to review algo versions. Answers are displayed in red. Connect tolerances are listed below the solution. Assumptions and other problem notes are displayed at the very bottom. Input variables: Sales 363000 Cost of goods sold 343000 b. Industry gross profit 15 percent Solution and Explanation: a. Gross profit C18-C1920000 Gross profit margin C25/C18*1005.5096418732782375 percent b. Performance IF(C26>C20,"outperforming","under-performing")under-performing Connect tolerances: For values: Decimal values with 3 or more places (.xxx or more) ±1% Decimal values with 1 or 2 places (.x or .xx) ±.1 an absolute value 1 - 1,000 ±1% 1,001 - 1 million ± .1% > 1 million ± .01% Block 15e Pr 2-4 A-Rod Fishing Supplies had sales of $2,500,000 and cost of goods sold of $1,710,000. Selling and administrative expenses represented 10 percent of sales. Depreciation was 6 percent of the total assets of $4,680,000. What was the firm’s operating profit? All input values are shown in yellow. Only these values need changed to review algo versions. Answers are displayed in red. Connect tolerances are listed below the solution. Assumptions and other problem notes are displayed at the very bottom. Input variables: Sales 2990000 Cost of goods sold 1460000 Selling and admin 9 percent of sales Depreciation 11 percent of total assets Total assets 4710000 Solution and Explanation: Sales C162990000 Cost of goods sold C171460000 Gross profit C25-C261530000 Selling and administrative expense C16*(C18/100)269100 Depreciation (C19/100)*C20518100 Operating profit C28-C29-C30742800 Selling and administrative expense = .xx × $x,xxx,xxx Depreciation expense = .xx × $x,xxx,xxx Connect tolerances: For values: Decimal values with 3 or more places (.xxx or more) ±1% Decimal values with 1 or 2 places (.x or .xx) ±.1 an absolute value 1 - 1,000 ±1% 1,001 - 1 million ± .1% > 1 million ± .01% Block 15e Pr 2-5 Arrange the following income statement items so they are in the proper order of an income statement: (In determining Operating profit or loss, select the operating expense first followed by the non-cash expense):         Taxes  Earnings per share   Shares outstanding Earnings before taxes   Interest expense Cost of goods sold   Depreciation expense Earnings after taxes   Preferred stock dividends Earnings available to common stockholders   Operating profit Selling and administrative expense   Sales   Gross profit All input values are shown in yellow. Only these values need changed to review algo versions. Answers are displayed in red. Connect tolerances are listed below the solution. Assumptions and other problem notes are displayed at the very bottom. Input variables: Solution and Explanation: Sales Cost of goods sold Gross profit Selling and adminstrative expense Depreciation expense Operating profit Interest expense Earnings before taxes Taxes Earnings after taxes Preferred stock dividends Earnings available to common stockholders Shares outstanding Earnings per share Connect tolerances: For values: Decimal values with 3 or more places (.xxx or more) ±1% Decimal values with 1 or 2 places (.x or .xx) ±.1 an absolute value 1 - 1,000 ±1% 1,001 - 1 million ± .1% > 1 million ± .01% Block 15e Pr 2-6 Given the following information, prepare in good form an income statement for the Dental Drilling Company. (Input all amounts as positive values.)   Selling and administrative expense $ 112,000     Depreciation expense 73,000     Sales 489,000     Interest expense 45,000     Cost of goods sold 156,000     Taxes 47,000   All input values are shown in yellow. Only these values need changed to review algo versions. Answers are displayed in red. Connect tolerances are listed below the solution. Assumptions and other problem notes are displayed at the very bottom. Input variables: Selling and administrative expense 88000 Depreciation 77000 Sales 538000 Interest expense 44000 Cost of goods sold 234000 Taxes 54000 Solution and Explanation: Sales C23538000 Cost of goods sold C25234000 Gross profit C30-C31304000 Selling and adminstrative expense C2188000 Depreciation expense C2277000 Operating profit C33-C34-C35139000 Interest expense C2444000 Earnings before taxes C37-C3895000 Taxes C2654000 Earnings after taxes C40-C4141000 Connect tolerances: For values: Decimal values with 3 or more places (.xxx or more) ±1% Decimal values with 1 or 2 places (.x or .xx) ±.1 an absolute value 1 - 1,000 ±1% 1,001 - 1 million ± .1% > 1 million ± .01% Block 15e Pr 2-7 Given the following information, prepare in good form an income statement for Jonas Brothers Cough Drops. (Input all amounts as positive values.)   Selling and administrative expense $ 328,000     Depreciation expense 195,000     Sales 1,660,000     Interest expense 129,000     Cost of goods sold 560,000     Taxes 171,000   All input values are shown in yellow. Only these values need changed to review algo versions. Answers are displayed in red. Connect tolerances are listed below the solution. Assumptions and other problem notes are displayed at the very bottom. Input variables: Selling and admin 252000 Depreciation 198000 Sales 2110000 Interest 129000 Cost of goods sold 576000 Taxes 169000 Solution and Explanation: Sales C232110000 Cost of goods sold C25576000 Gross profit C30-C311534000 Selling and administrative expense C21252000 Depreciation expense C22198000 Operating profit C33-C34-C351084000 Interest expense C24129000 Earnings before taxes C37-C38955000 Taxes C26169000 Earnings after taxes C40-C41786000 Block 15e Pr 2-8 Prepare in good form an income statement for Franklin Kite Co. Inc. Take your calculations all the way to computing earnings per share.   Sales $ 900,000     Shares outstanding 50,000     Cost of goods sold 400,000     Interest expense 40,000     Selling and administrative expense 60,000     Depreciation expense 20,000     Preferred stock dividends 80,000     Taxes 50,000   All input values are shown in yellow. Only these values need changed to review algo versions. Answers are displayed in red. Connect tolerances are listed below the solution. Assumptions and other problem notes are displayed at the very bottom. Input variables: Sales 1560000 Shares outstanding 140000 Cost of goods sold 1090000 Interest expense 26000 Selling and admin 43000 Depreciation 37000 Preferred stock dividends 80000 Taxes 113000 Solution and Explanation: Sales C231560000 Cost of goods sold C251090000 Gross profit C35-C36470000 Selling and administrative expense C2743000 Depreciation expense C2837000 Operating profit C38-C39-C40390000 Interest expense C2626000 Earnings before taxes C42-C43364000 Taxes C30113000 Earnings after taxes C45-C46251000 Preferred stock dividends C2980000 Earnings available to common stockholders C48-C49171000 Shares outstanding C24140000 Earnings per share C51/C541.2214285714285715 Block 15e Pr 2-9 Prepare in good form an income statement for Virginia Slim Wear. Take your calculations all the way to computing earnings per share. (Input all amounts as positive values. Round EPS answer to 2 decimal places.)      Sales $ 1,360,000     Shares outstanding 104,000     Cost of goods sold 700,000     Interest expense 34,000     Selling and administrative expense 49,000     Depreciation expense 23,000     Preferred stock dividends 86,000     Taxes 100,000   All input values are shown in yellow. Only these values need changed to review algo versions. Answers are displayed in red. Connect tolerances are listed below the solution. Assumptions and other problem notes are displayed at the very bottom. Input variables: Sales 700000 Shares outstanding 106000 Cost of goods sold 250000 Interest expense 31000 Selling and admin 45000 Depreciation 25000 Preferred stock dividends 88000 Taxes 106000 Solution and Explanation: Sales C24700000 Cost of goods sold C26250000 Gross profit C35-C36450000 Selling and administrative expense C2845000 Depreciation expense C2925000 Operating profit C38-C39-C40380000 Interest expense C2731000 Earnings before taxes C42-C43349000 Taxes C31106000 Earnings after taxes C45-C46243000 Preferred stock dividends C3088000 Earnings available to common stockholders C48-C49155000 Shares outstanding C25106000 Earnings per share C51/C541.4622641509433962 Block 15e Pr 2-10 Frantic Fast Foods had earnings after taxes of $420,000 in the year 2012 with 309,000 shares outstanding. On January 1, 2013, the firm issued 20,000 new shares. Because of the proceeds from these new shares and other operating improvements, earnings after taxes increased by 30 percent.    a. Compute earnings per share for the year 2012. (Round your answer to 2 decimal places.) b. Compute earnings per share for the year 2013. (Round your answer to 2 decimal place All input values are shown in yellow. Only these values need changed to review algo versions. Answers are displayed in red. Connect tolerances are listed below the solution. Assumptions and other problem notes are displayed at the very bottom. Input variables: Sales 1720000 Cost of goods sold 1340000 Selling and admin 67000 Operating profit 181000 Solution and Explanation: Sales C181720000 Cost of goods sold C191340000 Gross profit C26-C27380000 Selling and administrative expense C2067000 Depreciation expense C29-C30-C33132000 Operating profit C21181000 Block 15e Pr 2-11 Stein Books Inc. sold 1,900 finance textbooks for $250 each to High Tuition University in 2013. These books cost $210 to produce. Stein Books spent $12,200 (selling expense) to convince the university to buy its books.  Depreciation expense for the year was $15,200. In addition, Stein Books borrowed $104,000 on January 1, 2013, on which the company paid 12 percent interest. Both the interest and principal of the loan were paid on December 31, 2013. The publishing firm’s tax rate is 30 percent. Prepare an income statement for Stein Books Inc. (Input all amounts as positive values.) All input values are shown in yellow. Only these values need changed to review algo versions. Answers are displayed in red. Connect tolerances are listed below the solution. Assumptions and other problem notes are displayed at the very bottom. Input variables: Units sold 2300 units Selling price 200 Cost per unit 170 Selling expense 12100 Depreciation 15700 Amount borrowed 104000 Interest 19 percent Tax rate 30 percent Solution and Explanation: Sales C19*C20460000 Cost of goods sold C19*C21391000 Gross profit C30-C3169000 Selling expense C2212100 Depreciation expense C2315700 Operating profit C33-C34-C3541200 Interest expense C24*(C25/100)19760 Earnings before taxes C37-C3821440 Taxes C40*(C26/100)6432 Earnings after taxes C40-C4115008 Sales = x,xxx × $xxx = $xxx,xxx Cost of goods sold = x,xxx × $xxx = $xxx,xxx Interest expense = .xx × $xxx,xxx Taxes = .xx × $xx,xxx Block 15e Pr 2-12 Lemon Auto Wholesalers had sales of $1,000,000 in 2013 and cost of goods sold represented 78 percent of sales. Selling and administrative expenses were 12 percent of sales. Depreciation expense was $11,000 and interest expense for the year was $8,000. The firm’s tax rate is 30 percent. a.   Compute earnings after taxes. (Input all amounts as positive values.) All input values are shown in yellow. Only these values need changed to review algo versions. Answers are displayed in red. Connect tolerances are listed below the solution. Assumptions and other problem notes are displayed at the very bottom. Input variables: Sales 1310000 Cost of goods sold % 77 percent Selling and admin % 13 percent Depreciation 11000 Interest expense 11000 Tax rate 30 percent b. Selling and admin % 15 percent Sales 1360600 Cost of goods sold % 73 percent Interest expense 18200 Solution and Explanation: a. Sales C191310000 Cost of goods sold C19*(C20/100)1008700 Gross profit D34-D35301300 Selling and administrative expense C19*(C21/100)170300 Depreciation expense C2211000 Operating profit D37-D38-D39120000 Interest expense C2311000 Earnings before taxes D41-D42109000 Taxes D44*(C24/100)32700 Earnings after taxes D44-D4576300 b-1. Sales C281360600 Cost of goods sold C28*(C29/100)993238 Gross profit D51-D52367362 Selling and administrative expense C28*(C27/100)204090 Depreciation expense C2211000 Operating profit D54-D55-D56152272 Interest expense C3018200 Earnings before taxes D58-D59134072 Taxes D61*C24/10040221.599999999999 Earnings after taxes D61-D6293850.4 b-2. IF(D64>D47,"Increase","Decrease")Increase Block 15e Pr 2-13 Classify the following balance sheet items as current or noncurrent:    Items All input values are shown in yellow. Only these values need changed to review algo versions. Answers are displayed in red. Connect tolerances are listed below the solution. Assumptions and other problem notes are displayed at the very bottom. Input variables: Solution and Explanation: Retained earnings Noncurrent Accounts payable Current Prepaid expenses Current Plant and equipment Noncurrent Inventory Current Common stock Noncurrent Bonds payable Noncurrent Accrued wages payable Current Accounts receivable Current Capital in excess of par Noncurrent Preferred stock Noncurrent Marketable securities Current Block 15e Pr 2-14 Indicate whether the item is on balance sheet or income statement. If on balance sheet, designate which category. (If there are no category, select "None" from the drop down menu.)    Item Income Statement/ Category Balance Sheet All input values are shown in yellow. Only these values need changed to review algo versions. Answers are displayed in red. Connect tolerances are listed below the solution. Assumptions and other problem notes are displayed at the very bottom. Input variables: Solution and Explanation: Accounts receivable Balance sheet Current assets Retained earnngs Balance sheet Stockholders' equity Income tax expense Income statement None Accrued expenses Balance sheet Current liabilities Cash Balance sheet Current assets Selling and adminstrative expenses Income statement None Plant and equipment Balance sheet Fixed assets Operating expenses Income statement None Marketable securities Balance sheet Current assets Interest expense Income statement None Sales Income statement None Notes payable (6 months) Balance sheet Current liabilities Bonds payable, maturity 2019 Balance sheet Long-term liabilities Common stock Balance sheet Stockholders' equity Depreciation expense Income statement None Inventory Balance sheet Current assets Capital in excess of par Balance sheet Stockholders' equity Net income (earnings after taxes) Income statement None Income tax payable Balance sheet Current liabilities Block 15e Pr 2-15 Prepare the balance sheet for the following: (Be sure to list assets and liabilities in the order of their liquidity. Input all amounts as positive values.)   Accumulated depreciation $ 309,000     Retained earnings 187,000     Cash 14,000     Bonds payable 136,000     Accounts receivable 54,000     Plant and equipment—original cost 775,000     Accounts payable 35,000     Allowance for bad debts 9,000     Common stock, $1 par, 100,000 shares outstanding 100,000     Inventory 70,000     Preferred stock, $59 par, 1,000 shares outstanding 59,000     Marketable securities 24,000     Investments 20,000     Notes payable 34,000     Capital paid in excess of par (common stock) 88,000   All input values are shown in yellow. Only these values need changed to review algo versions. Answers are displayed in red. Connect tolerances are listed below the solution. Assumptions and other problem notes are displayed at the very bottom. Input variables: Accumulated depreciation 352000 Retained earnings 109000 Cash 16000 Bond payable 171000 Accounts receivable 53000 Plant and equipment - original cost 775000 Accounts payable 43000 Allowance for bad debts 10000 Common stock, $1 par, 100,000 shares outstanding 100000 Inventory 75000 Preferred stock, $59 par, 1,000 shares outstanding 56000 Marketable securities 28000 Investments 26000 Notes payable 35000 Capital paid in excess of par (common stock) 97000 Solution and Explanation: Current Assets: Current liabilities: Cash C3616000 Accounts payable C4043000 Marketable securities C4528000 Notes payable C4735000 Accounts receivable C3853000 Less: Allowance for bad debts C4110000 Total current liabilities SUM(H54:H55)78000 Long-term liabilities C56-C5743000 Bonds payable C37171000 Inventory C4375000 Total liabilities SUM(H57:H59)249000 Total current assets SUM(D54:D60)162000 Stockholders's Equity: Other Assets: Preferred stock C4456000 Investments C4626000 Common stock C42100000 Capital in excess of par C4897000 Fixed assets: Retained earnings C35109000 Plant and equipment C39775000 Less: Accumulated depreciation C34352000 Total stockholders' equity SUM(H64:H67)362000 Net plant and equipment C68-C69423000 Total assets SUM(D62:D71)611000 Total liabilities and stockholders' equity H61+H69611000 Block 15e Pr 2-16 Elite Trailer Parks has an operating profit or $200,000. Interest expense for the year was $10,000; preferred dividends paid were $18,750; and common dividends paid were $30,000. The tax was $61,250. The firm has 20,000 shares of common stock outstanding.    a. Calculate the earnings per share and the common dividends per share for Elite Trailer Parks. (Round your answers to 2 decimal places.) b. What was the increase in retained earnings for the year? All input values are shown in yellow. Only these values need changed to review algo versions. Answers are displayed in red. Connect tolerances are listed below the solution. Assumptions and other problem notes are displayed at the very bottom. Input variables: Operating profit 283000 Interest expense 37900 Preferred dividends 31000 Common dividends 39000 Tax 63600 Common shares outstanding 17800 shares Solution and Explanation: a. Elite Trailer Parks Operating profit (EBIT) C19283000 Interest expense C2037900 Earnings before taxes (EBT) C31-C32245100 Taxes C2363600 Earnings after taxes (EAT) C34-C35181500 Preferred dividends C2131000 Earnings available to common stockholders C37-C38150500 Common dividends C2239000 Increase in retained earnings C40-C41111500 Earnings per share C40/C248.4550561797752817 Common dividends per share C41/C242.191011235955056 b. Increase in retained earnings C43111500 Block 15e Pr 2-17 Quantum Technology had $669,000 of retained earnings on December 31, 2013. The company paid common dividends of $35,500 in 2013 and had retained earnings of $576,000 on December 31, 2012. a. How much did Quantum Technology earn during 2013? b. What would earnings per share be if 47,400 shares of common stock were outstanding? (Round your answer to 2 decimal places.) All input values are shown in yellow. Only these values need changed to review algo versions. Answers are displayed in red. Connect tolerances are listed below the solution. Assumptions and other problem notes are displayed at the very bottom. Input variables: Ending retained earnings 688000 Dividends paid 33900 Beginning retained earnings 591000 b. Shares outstanding 48300 shares Solution and Explanation: a. Quantum Technology Retained earnings, December 31, 2013 C21688000 Less: Retained earnings, December 31, 2012 C23591000 Change in retained earnings C30-C3197000 Add: Common stock dividends C2233900 Earnings available to common stockholders SUM(C33:C34)130900 b. Earnings per share C36/C242.7101449275362319 Block 15e Pr 2-18 Botox Facial Care had earnings after taxes of $370,000 in 2012 with 200,000 shares of stock outstanding. The stock price was $31.50. In 2013, earnings after taxes increased to $436,000 with the same 200,000 shares outstanding. The stock price was $42.00. a. Compute earnings per share and the P/E ratio for 2012. (The P/E ratio equals the stock price divided by earnings per share.) (Enter only numeric values. Round your intermediate calculations and final answers to 2 decimal places.) b. Compute earnings per share and the P/E ratio for 2013. (Enter only numeric values. Round your intermediate calculations and final answers to 2 decimal places.) c. Why the P/E ratio changed? (Do not round intermediate calculations. Round your answers to 2 decimal places.) All input values are shown in yellow. Only these values need changed to review algo versions. Answers are displayed in red. Connect tolerances are listed below the solution. Assumptions and other problem notes are displayed at the very bottom. Input variables: Earnings after taxes - Year 1 335000 2012 Shares outstanding 200000 shares Stock price - Year 1 77.8 2012 Earnings after taxes - Year 2 421000 2013 Stock price - Year 2 95 2013 Solution and Explanation: a. For 2012: EPS C23/C241.675 P/E ratio C25/C3446.447761194029844 times b. For 2013: EPS C26/C242.105 P/E ratio C27/C3945.13064133016627 times c. Stock price increase % IF(C27>C25,"increased","decreased")increased (C27-C25)/C25*10022.107969151670957 percent EPS increase % IF(C39>C34,"increased","decreased")increased (C39-C34)/C34*10025.67164179104477 percent Block 15e Pr 2-19 Stilley Corporation had earnings after taxes of $436,000 in 2013 with 200,000 shares outstanding. The stock price was $42.00. In 2014, earnings after taxes declined to $206,000 with the same 200,000 shares outstanding. The stock price declined to $27.80. a. Compute earnings per share and the P/E ratio for 2013. (Round your answers to 2 decimal places.) b. Compute earnings per share and the P/E ratio for 2014. (Round your answers to 2 decimal places.) All input values are shown in yellow. Only these values need changed to review algo versions. Answers are displayed in red. Connect tolerances are listed below the solution. Assumptions and other problem notes are displayed at the very bottom. Input variables: Earnings after taxes - Year 1 445000 Shares outstanding 250000 shares Stock price - Year 1 44.1 Earnings after taxes - Year 2 255000 Stock price - Year 2 30.3 Solution and Explanation: a. 2013: EPS C20/C211.78 P/E ratio C22/C3124.775280898876407 times b. 2014: EPS C23/C211.02 P/E ratio C24/C3629.705882352941178 times Block 15e Pr 2-20 Identify whether each of the following items increases or decreases cash flow: All input values are shown in yellow. Only these values need changed to review algo versions. Answers are displayed in red. Connect tolerances are listed below the solution. Assumptions and other problem notes are displayed at the very bottom. Input variables: Solution and Explanation: Increase in accounts receivable Decreases Increase in notes payable Increases Depreciation expense Increases Increase in investments Decreases Decrease in accounts payable Decreases Decrease in prepaid expenses Increases Increase in inventory Decreases Dividend payment Decreases Increase in accrued expenses Increases While depreciation and accrued expenses do not require cash, they both lower taxable income, which lowers taxes. By lowering taxes, these non-cash expenses increase the cash flows of the firm. A decrease in an asset or an increase in a liability or equity account increases cash. An increase in an asset or a decrease in a liability or equity account decreases cash. Any activity that increases cash flow is a source of cash. Any activity that decreases cash flow is a use of cash. Block 15e Pr 2-21 The Rogers Corporation has a gross profit of $880,000 and $360,000 in depreciation expense. The Evans Corporation also has $880,000 in gross profit, with $60,000 in depreciation expense. Selling and administrative expense is $120,000 for each company.    a. Given that the tax rate is 40 percent, compute the cash flow for both companies. b. Calculate the difference in cash flow between the two firms. All input values are shown in yellow. Only these values need changed to review algo versions. Answers are displayed in red. Connect tolerances are listed below the solution. Assumptions and other problem notes are displayed at the very bottom. Input variables: Rogers Corp: Gross profit 742000 Depreciation expense 280000 Evans Corp: Gross profit C22742000 Depreciation expense 42100 Both: Selling and admin. 171000 a. Tax rate 40 percent Solution and Explanation: a. Rogers Evans Gross profit C22742000 C26742000 Selling and administrativce expense C30171000 C30171000 Depreciation C23280000 C2742100 Operating profit C37-C38-C39291000 D37-D38-D39528900 Taxes (xx%) 0.4*C41116400 0.4*D41211560 Earnings after taxes C41-C42174600 D41-D42317340 Depreciation expense C39280000 D3942100 Cash flow C44+C45454600 D44+D45359440 b. Difference in cash flow C47-D4795160 Rogers had C39-D39237900 more in depreciation which provided C47-D4795160 (.xx × $xxx,xxx) more in cash flow. Block 15e Pr 2-22 Nova Electrics anticipated cash flow from operating activities of $6 million in 2011. It will need to spend $1.2 million on capital investments in order to remain competitive within the industry. Common stock dividends are projected at $.4 million and preferred stock dividends at $0.55 million.    a. What is the firm’s projected free cash flow for the year 2011? (Enter your answer in millions of dollars rounded to 2 decimal places.) b. What does the concept of free cash flow represent? All input values are shown in yellow. Only these values need changed to review algo versions. Answers are displayed in red. Connect tolerances are listed below the solution. Assumptions and other problem notes are displayed at the very bottom. Input variables: CF from operating activities 12 million Capital investments 8.1999999999999993 million Common stock dividends 1.6 million Preferred stock dividends 1.25 million Solution and Explanation: a. Cash flow from operating activities C1912 million Less: Capital expenditures C208.1999999999999993 Common stock dividends C211.6 Preferred stock dividends C221.25 Free cash flow C29-SUM(C31:C33)0.95000000000000107 million b. Free cash flow represents the funds that are available for special financing activities, such as a leveraged buyout, increased dividends, common stock repurchases, or repayment of debt. Block 15e Pr 2-23 Landers Nursery and Garden Stores has current assets of $220,000 and fixed assets of $170,000. Current liabilities are $80,000 and long-term liabilities are $140,000. There is $40,000 in preferred stock outstanding and the firm has issued 25,000 shares of common stock. Compute book value (net worth) per share. (Round your answer to 2 decimal places.) All input values are shown in yellow. Only these values need changed to review algo versions. Answers are displayed in red. Connect tolerances are listed below the solution. Assumptions and other problem notes are displayed at the very bottom. Input variables: Current assets 220000 Fixed assets 170000 Current liabilities 80000 Long-term liabilities 140000 Preferred stock value 40000 Common stock shares 25000 shares Solution and Explanation: Current assets C18220000 Fixed assets C19170000 Total assets SUM(C27:C28)390000 Less: Current liabilities C2080000 Long-term liabilities C21140000 Stockholders's equity C30-C32-C33170000 Less: Preferred stock obligation C2240000 Net worth assigned to common stock C35-C37130000 Common shares outstanding C2325000 Book value (net worth) per share C39/C425.2 Block 15e Pr 2-24 The Holtzman Corporation has assets of $400,000, current liabilities of $50,000, and long-term liabilities of $100,000. There is $40,000 in preferred stock outstanding; 20,000 shares of common stock have been issued.    a. Compute book value (net worth) per share. (Round your answer to 2 decimal places.)    b. If there is $22,000 in earnings available to common stockholders, and Holtzman’s stock has a P/E of 18 times earnings per share, what is the current price of the stock? (Do not round intermediate calculations. Round your answer to 2 decimal places.) c. What is the ratio of market value per share to book value per share? (Do not round intermediate calculations. Round your answer to 2 decimal places.) All input values are shown in yellow. Only these values need changed to review algo versions. Answers are displayed in red. Connect tolerances are listed below the solution. Assumptions and other problem notes are displayed at the very bottom. Input variables: Assets 400000 Current liabilities 50000 Long-term liabilities 100000 Preferred stock value 40000 Common stock shares 20000 shares b. Earnings available to common 22000 b. P/E ratio 18 times Solution and Explanation: a. Total assets C22400000 Less: Current liabilities C2350000 Long-term liabilities C24100000 Stockholders's equity C34-C36-C37250000 Less: Preferred stock obligation C2540000 Net worth assigned to common C39-C41210000 Common shares outstanding C2620000 Book value (net worth) per share C43/C4510.5 b. Earnings available to common C2722000 Shares outstanding C2620000 Earnings per share C49/C501.1000000000000001 Price = P/E × EPS = C28*C5119.8 c. Market value per share (price) to book value per share = $xx.xx / $xx.xx = C53/C461.8857142857142857 . Block 15e Pr 2-25 Amigo Software Inc. has total assets of $889,000, current liabilities of $192,000, and long-term liabilities of $154,000. There is $87,000 in preferred stock outstanding. Thirty thousand shares of common stock have been issued. a. Compute book value (net worth) per share. (Round your answer to 2 decimal places.) b. If there is $56,300 in earnings available to common stockholders, and the firm’s stock has a P/E of 23 times earnings per share, what is the current price of the stock? (Round your intermediate calculations and final answer to 2 decimal places.) c. What is the ratio of market value per share to book value per share? (Round your intermediate calculations and final answer to 2 decimal places.) All input values are shown in yellow. Only these values need changed to review algo versions. Answers are displayed in red. Connect tolerances are listed below the solution. Assumptions and other problem notes are displayed at the very bottom. Input variables: Total assets 889000 Current liabilities 192000 Long-term liabilities 154000 Preferred stock value 87000 Common stock shares 30000 shares b. Earnings available 56300 b. P/E 23 Solution and Explanation: a. Total assets C22889000 Less: Current liabilities C23192000 Long-term liabilities C24154000 Stockholders's equity C34-C36-C37543000 Less: Preferred stock obligation C2587000 Net worth assigned to common stockholders C39-C41456000 Common shares outstanding C2630000 Book value (net worth) per share C43/C4515.2 b. Earnings available to common stockholders C2756300 Shares outstanding C2630000 Earnings per share C49/C501.8766666666666667 Price = P/E × EPS = C28*C5143.163333333333334 c. Market value per share (price) to book value per share = $xx.xx / $xx.xx = C53/C462.8396929824561403 . Block 15e Pr 2-26 Vriend Software Inc.’s book value per share is $15.20. Earnings per share is $1.88, and the firm’s stock trades in the stock market at 3.5 times book value per share, what will the P/E ratio be? (Do not round intermediate calculations. Round your answer to the nearest whole number.) All input values are shown in yellow. Only these values need changed to review algo versions. Answers are displayed in red. Connect tolerances are listed below the solution. Assumptions and other problem notes are displayed at the very bottom. Input variables: Book value per share 15.2 Earnings per share 1.88 Market to book ratio 3.5 times Solution and Explanation: Price C16*C1853.199999999999996 P/E C23/C1728.297872340425531 times Block 15e Pr 2-27 For December 31, 2012, the balance sheet of Baxter Corporation was as follows: Current Assets Liabilities Cash $ 15,000    Accounts payable $ 17,000     Accounts receivable 20,000    Notes payable 25,000     Inventory 30,000    Bonds payable 55,000     Prepaid expenses 12,500  Fixed Assets Stockholders' Equity   Plant and equipment (gross) $ 255,000    Preferred stock $ 25,000       Less: Accumulated depreciation 51,000    Common stock 60,000        Paid-in capital 30,000     Net plant and equipment 204,000    Retained earnings 69,500     Total assets $ 281,500    Total liabilities and stockholders’ equity $ 281,500   Sales for 2013 were $245,000, and the cost of goods sold was 60 percent of sales. Selling and administrative expense was $24,500. Depreciation expense was 8 percent of plant and equipment (gross) at the beginning of the year. Interest expense for the notes payable was 10 percent, while the interest rate on the bonds payable was 12 percent. This interest expense is based on December 31, 2012 balances. The tax rate averaged 20 percent.      $2,500 in preferred stock dividends were paid and $5,500 in dividends were paid to common stockholders. There were 10,000 shares of common stock outstanding.      During 2013, the cash balance and prepaid expenses balances were unchanged. Accounts receivable and inventory increased by 10 percent. A new machine was purchased on December 31, 2013, at a cost of $40,000.      Accounts payable increased by 20 percent. Notes payable increased by $6,500 and bonds payable decreased by $12,500, both at the end of the year. The preferred stock, common stock, and paid-in capital in excess of par accounts did not change. a. Prepare an income statement for 2013. (Input all amounts as positive values. Round EPS answer to 2 decimal places.) b. Prepare a statement of retained earnings for 2013. (Input all amounts as positive values.) c. Prepare a balance sheet as of December 31, 2013. (Be sure to list the assets and liabilities in order of their liquidity. Input all amounts as positive values.) All input values are shown in yellow. Only these values need changed to review algo versions. Answers are displayed in red. Connect tolerances are listed below the solution. Assumptions and other problem notes are displayed at the very bottom. Input variables: Year 1: Cash 15000 Accounts receivable 20000 Inventory 30000 Prepaid expenses 12500 Plant and equipment (gross) 255000 Accumulated depreciation 51000 Net plant and equipment C49-C50204000 Total assets SUM(C45:C48)+C51281500 Accounts payable 17000 Notes payable 25000 Bonds payable 55000 Preferred stock 25000 Common stock 60000 Capital paid in excess of par 30000 Retained earnings 69500 Total liabilities and stockholders' equity SUM(C54:C60)281500 Sales 245000 Cost of goods sold % 60 percent Selling and administrative expense 24500 Depreciation % 8 percent of gross plant and equipment Note payable interest expense % 10 percent of notes payable Bonds payable interest expense % 12 percent of bonds payable Average tax rate 20 percent Preferred stock dividends 2500 Common stock dividends 5500 Common stock shares 10000 Year 2 Accounts receivable and inventory change % 10 percent New machine cost 40000 Accounts payable increase % 20 percent Notes payable increase 6500 Bonds payable decrease 12500 input as a positive value Solution and Explanation: a. Sales C63245000 Cost of goods sold C63*(C64/100)147000 Gross profit C86-C8798000 Selling and administrative expense C6524500 Depreciation expense (C66/100)*C4920400 Operating profit C89-C90-C9153100 Interest expense ((C67/100)*C55)+((C68/100)*C56)9100 Earnings before taxes C93-C9444000 Taxes C69/100*C968800 Earnings after taxes C96-C9735200 Preferred stock dividends C712500 Earnings available to common stockholders C99-C10032700 Shares outstanding C7310000 Earnings per share C102/C1053.27 Depreciation expense = .xx × $xxx,xxx = C9120400 Interest expense =( .xx × $xx,xxx) + (.xx × $xx,xxx) = C949100 b. Retained earnings, January 1, xxxx C6069500 Add: Earnings available to common stockholders, xxxx C10232700 Less: Cash dividend declared in xxxx C725500 Retained earnings, December 3, xxxx C112+C113-C11496700 c. Cash C4515000 Accounts payable (1+(C78/100))*C5420400 Accounts receivable (1+(C76/100))*C4622000 Notes payable C55+C7931500 Inventory (1+(C76/100))*C4733000 Bonds payable C56-C8042500 Prepaid expenses C4812500 Total current assets SUM(C120:C123)82500 Total liabilities SUM(F120:F122)94400 Gross plant and equipment C49+C77295000 Preferred stock C5725000 Less: Accumulated depreciation C50+((C66/100)*C49)71400 Common stock C5860000 Capital paid in excess of par C5930000 Net plant and equipment C127-C128223600 Retained earnings C11696700 Total stockholders' equity SUM(F127:F130)211700 Total assets C125+C130306100 Total liabilities and stockholders' equity F125+F132306100 Accumulated depreciation = $xx,xxx + xx,xxx = C12871400 Block 15e Pr 2-28 Refer to the following financial statements for Crosby Corporation: CROSBY CORPORATION Income Statement For the Year Ended December 31, 2011 Sales $ 2,200,000     Cost of goods sold 1,300,000           Gross profits 900,000     Selling and administrative expense 420,000     Depreciation expense 150,000           Operating income $ 330,000     Interest expense 90,000           Earnings before taxes $ 240,000     Taxes 80000  Earnings after taxes 160,000     Preferred stock dividends 10,000     Earnings available to common stockholders $ 150,000     Shares outstanding 120,000     Earnings per share $ 1.25 Statement of Retained Earnings For the Year Ended Decamber 31, 20111 Retained earnings, balance, January 1, 2011 $ 500,000        Add: Earnings available to common stockholders, 2011 150,000        Deduct: Cash dividends declared and paid in 2011 50,000     Retained earnings, balance, December 31, 2011 $ 600,000   Comparative Balance Sheets For 2010 and 2011 Year-End 2010 Year-End 2011   Assets   Current assets:      Cash $ 70,000   $      Accounts receivable (net) 300,000        Inventory 410,000        Prepaid expenses 50,000             Total current assets 830,000        Investments (long-term securities) 80,000        Plant and equipment 2,000,000        Less: Accumulated depreciation 1,000,000           Net plant and equipment 1,000,000        Total assets $ 1,910,000   $      Liabilities and Stockholders’ Equity   Current liabilities:      Accounts payable $ 250,000   $      Notes payable 400,000        Accrued expenses 70,000             Total current liabilities 720,000   890,000     Long-term liabilities:      Bonds payable, 2011 70,000   120,000             Total liabilities 790,000   1,010,000     Stockholders’ equity:      Preferred stock, $100 par value 90,000   90,000        Common stock, $1 par value 120,000   120,000        Capital paid in excess of par 410,000   410,000        Retained earnings 500,000   600,000             Total stockholders’ equity 1,120,000   1,220,000        Total liabilities and stockholders’ equity $ 1,910,000   $ 2,230,000      a. Prepare a statement of cash flows for the Crosby Corporation: (Amounts to be deducted should be indicated with a minus sign.) d. Compute the book value per common share for both 2010 and 2011 for the Crosby Corporation. (Round your answers to 2 decimals places.) e. If the market value of a share of common stock is 3.3 times book value for 2004, what is the firm’s P/E ratio for 2011? (Round your intermediate calculations and final answer to 2 decimals places.) All input values are shown in yellow. Only these values need changed to review algo versions. Answers are displayed in red. Connect tolerances are listed below the solution. Assumptions and other problem notes are displayed at the very bottom. Input variables: From the income statement: Sales 3570000 Cost of goods sold 2200000 Gross profits D108-D1091370000 Selling and adminstrative expense 687000 Depreciation expense 309000 Operating income D110-D111-D112374000 Interest expense 80200 Earnings before taxes D113-D114293800 Taxes 170000 Earnings after taxes D115-D116123800 Preferred stock dividends 10000 Earnings available to common stockholders D108-D109-D111-D112-D114-D116-D118113800 From the statement of retained earnings: Common stock dividends 199000 Year 1 Year 2 Cash 127000 102200 Accounts receivable 525000 591000 Inventory 601000 654000 Prepaid expenses 61200 31200 Total current assets SUM(D125:D128)1314200 SUM(E125:E128)1378400 Investments 92900 88600 Gross plant and equipment 2120000 2550000 Accumulated depreciation 1520000 1829000 Net plant and equipment D131-D132600000 E131-E132721000 Total assets D129+D130+D1332007100 E129+E130+E1332188000 Accounts payable 300000 576000 Notes payable 534000 534000 Accrued expenses 75100 55200 Total current liabilities SUM(D136:D138)909100 SUM(E136:E138)1165200 Bonds payable 192000 202000 Total liabilities SUM(D139:D140)1101100 SUM(E139:E140)1367200 Preferred stock 90000 90000 Common stock, $1 par 150000 150000 Capital paid in excess of par 350000 350000 Retained earnings 316000 230800 Total stockholders' equity SUM(D142:D145)906000 SUM(E142:E145)820800 Total liabilities and stockholders' equity D141+D1462007100 E141+E1462188000 Book value of common equity SUM(D143:D145)816000 SUM(E143:E145)730800 c. Market to book value 1.4 Solution and Explanation: a: Cash flows form operating activities: Net income D117123800 Adjustments: Add back depreciation D112309000 Increase in accounts receivable D126-E126-66000 Increase in inventory D127-E127-53000 Decrease in prepaid expenses D128-E12830000 Increase in accounts payable E136-D136276000 Decrease in accrued expenses E138-D138-19900 Total adjustments SUM(D159:D164)476100 Net cash flows from operating activities SUM(E157:E166)599900 Cash flows from investing activities: Decrease in investments D130-E1304300 Increase in plant and equipment D131-E131-430000 Net cash flows from investing activities SUM(D171:D172)-425700 Cash flows from financing activities: Increase in bonds payable E140-D14010000 Preferred stock dividends paid -D118-10000 Common stock dividends paid -D122-199000 Net cash flows from financing activities: SUM(D177:D179)-199000 Net increase (decrease) in cash flows SUM(E168:E182)-24800 b. Book value per share, Year 1 D149/D1435.44 Book value per share, Year 2 E149/E1434.8719999999999999 c. Market value, Year 2 D188*D1506.8207999999999993 P/E ratio D191/(D119/E143)8.9905096660808415