Below are financial statements for Global Manufacturing. After computing the ratios we discussed in this chapter, discuss strong and weak points of Global’s performance.
> A supplier is offering your firm a cash discount of 2 percent if purchases are paid for within 10 days; otherwise the bill is due at the end of 60 days. Would you recommend borrowing from a bank at an 18 percent annual interest rate in order to take adva
> Genatron Manufacturing expects its sales to increase by 10 percent in 2018. Estimate the firm’s investment in accounts receivable, inventory, and accounts payable in 2018.
> Financial statements for the Genatron Manufacturing Corporation for the years 2016 and 2017 are listed in the text. Calculate Genatron’s operating cycle and cash conversion cycle for 2016 and 2017. Why did they change between 2016 and 2017?
> Robinson expects its 2018 sales and cost of goods sold to grow by 20 percent over their 2017 levels. a) What will be the effect on its levels of receivables, inventories, and payments if the components of its cash conversion cycle remain at their 2017 le
> Robinson expects its 2018 sales and cost of goods sold to grow by 5 percent over their 2017 levels. a) What will be the effect on its levels of receivables, inventories, and payments if the components of its cash conversion cycle remain at their 2017 le
> Given Robinson’s 2016 and 2017 financial information presented in problems 3 and 4, a) Compute its operating and cash conversion cycle in each year. b) What was Robinson’s net investment in working capital each year? Data from Problem 3: The Robinson
> 1. The risk-free interest rate is made up of which of the following components in addition to a real rate of interest? a. Inflation premium b. Default risk premium c. Market risk premium d. Liquidity premium 2. Which of the following Treasury secur
> 1. Which one of the following is not a real asset? a. Land and buildings b. Equipment and inventories c. Precious metals d. Equity securities 2. Purchasing power is the a. amount of goods or services that can be purchased with a unit of money. b.
> Suppose the Robinson Company had a cost of goods sold of $1,000,000 in 2016 and $1,200,000 in 2017. a. Calculate the inventory turnover for each year. Comment on your findings. b. What would have been the amount of inventories in 2017 if the 2016 turnove
> The Robinson Company from Problem 2 had net sales of $1,200,000 in 2016 and $1,300,000 in 2017. a. Determine the receivables turnover in each year. b. Calculate the average collection period for each year. c. Based on the receivables turnover for 2016, e
> Genatron Manufacturing (from problem 8) is considering changing its credit standards. Analysis shows that sales may fall 5 percent from 2017 levels with no bad debts from the change in sales. The cost of financing the increase in current assets is 8 perc
> Robinson Company has a 2017 profit margin of 5 percent. They are examining the possibility of loosening their credit policy. Analysis shows that sales may rise 10 percent while bad debts on the change in sales will be 2 percent. The cost of financing the
> The Robinson Company has the current assets and current liabilities for the two years listed in the text. If sales in 2016 were $1.2 million and sales in 2017 were $1.3 million, and cost of goods sold were 70 percent of sales, how long were Robinson’s op
> Pa Bell, Inc., wants to increase its credit standards. They expect sales will fall by $50,000 and bad-debt expense will fall by 10 percent of this amount. The firm has a 15 percent profit margin on its sales. The tougher credit standards will lower the f
> Mattam Corporation’s year sales are $5 million and its average collection period is 32 days. Only 10 percent of sales are for cash and the remainder is credit sales. a. What is Mattam’s investment in accounts receivable? b. If Mattam extends its credit
> CD Later’s projected sales for the first four months of 201X are January……………………………………………….$60,000 February………………………………………………$55,000 March …………………………………………………$65,000 April…………………………………………………….$70,000 The firm expects to collect 10 percent of sales in c
> Using the information provided in problem 14, construct cash budgets from each of the following scenarios. Use the data from problem 14 as the “base case.” What insights do we obtain from a cash budget scenario analysis? a. Best case: sales are 10-percen
> Redo Problem number 14, using the monthly sales estimates listed in the text. Data from Problem 14: Of its monthly sales, The Kingsman Company historically has had 25-percent cash sales with the remainder paid within one month. Each month’s purchases a
> 1. The risk-free interest rate can be expressed as a function of which of the following? a. Real rate of interest and the inflation premium b. Real rate of interest, inflation premium, and the default risk premium c. Deflation premium, real rate of in
> Of its monthly sales, The Kingsman Company historically has had 25-percent cash sales with the remainder paid within one month. Each month’s purchases are equal to 75 percent of the next month’s sales forecast; suppliers are paid one month after the purc
> Eastnorth’s suppliers are upset that Eastnorth takes two months to pay their accounts payable; they demand that in the following year Eastnorth pay its bills within 30 days, or one month after the purchase. a. Using this new information, update Eastnorth
> Suppose Eastnorth Manufacturing is planning to change its credit policies next year. It anticipates that 10 percent of each month’s sales will be for cash; two-thirds of each month’s receivables will be collected in the following month, and one-third wil
> In problem 10, we assumed the current asset and liability accounts decrease proportionately with Genatron’s sales. This is probably unrealistic following a decline in sales. What will be the impact on the working capital accounts if its collection period
> With concerns of increased competition, Genatron is planning in case its 2018 sales fall by 5 percent from their 2017 levels. If cost of goods sold and the current asset and liability accounts decrease proportionately, a) Calculate the 2018 cash convers
> Pretty Lady Cosmetic Products has an average production process time of 40 days. Finished goods are kept on hand for an average of 15 days before they are sold. Accounts receivable are outstanding an average of 35 days, and the firm receives 40-days cred
> Rework Problem 8 assuming that Genatron Manufacturing expects its sales to increase by 20 percent in 2018. What is the amount of external financing needed? Data from Problem 8: Genatron Manufacturing expects its sales to increase by 10 percent in 2018.
> Genatron Manufacturing expects its sales to increase by 10 percent in 2018. Estimate the firm’s external financing needs by using the percent-of-sales method for the 2017 data. Assume that no excess capacity exists and that one-half of the 2017 net incom
> This problem uses the financial statements for the Genatron Manufacturing Corporation for the years 2017 and 2016 from Problem 6. a. Calculate Genatron’s dollar amount of net working capital in each year. b. Calculate the current ratio and the acid-test
> Financial statements for the Genatron Manufacturing Corporation for 2017 and 2016 are shown in the text. a. Apply Du Pont analysis to both the 2017 and 2016 financial statements’ data. b. Explain how financial performance differed between 2017 and 2016.
> 1. What is the price of loanable funds in financial markets called? a. Interest rate b. Disequilibrium interest rate c. Supply of loanable funds d. Demand for loanable funds 2. Which of the following time periods was associated with decreasing/low
> Selected financial data in thousands of dollars for the Hunter Corporation are listed in the text. a. Calculate Hunter’s rate of return on total assets in 2017 and in 2016. Did the ratio improve or worsen? b. Diagram the expanded Du Pont system for Hunte
> Next year, Allgreens expects its sales to reach $33,000 with an investment in total assets of $10,750. Net income of $1,225 is anticipated. This year, sales were $30,000, total assets were $9,900, and net income was $1,000. Last year, these figures were
> The Dayco Manufacturing Company had the following financial statement results for last year. Net sales were $1.2 million with net income of $90,000. Total assets at year end amounted to $900,000. a. Calculate Dayco’s asset turnover ratio and its profit m
> Using your estimate for the degree of operating leverage for Genatron in 2017, estimate the level of operating income if the following year’s sales a) rise by 5 percent; b) fall by 12 percent.
> Using the financial statements presented in problem 6, determine Genatron’s degree of operating leverage in each of the years presented. Assume the cost of goods sold and marketing expenses are variable costs and all other costs are fixed. Data from Pro
> Using your estimate for the degree of operating leverage for Global in 2017, estimate the level of operating income if the following year’s sales a) rise by 5 percent; b) fall by 12 percent.
> Using the financial statements presented in problem 12, determine Global Manufacturing’s degree of operating leverage in each of the years presented. Assume the cost of goods sold are variable costs and all other costs are fixed. Data from problem 12:
> Using Global Manufacturing’s financial statements in problem 12, estimate their external financing needs if 10-percent growth in sales is expected and the firm pays out half of its earnings as dividends. 1. Forecast the dollar amount of expected sales in
> Using the data in the chapter, estimate Walgreen’s external financing needs if a 20-percent growth rate is expected. 1. Forecast the dollar amount of the expected sales increase: 2. Determine the dollar amount of new asset investment necessary to support
> The Jackman Company had sales of $1,000,000 and net income of $50,000 last year. Sales are expected to increase by 20 percent next year. Selected year-end balance sheet items were: Current assets = $400,000; Fixed assets = $500,000; Total assets = $900,0
> 1. When were the “seeds” that culminated in the 2007-08 financial crisis sown? a. At the beginning of the 1970s b. During the 1980s c. In the early 1990s d. At the beginning of the decade of the 2000s 2. What was the personal savings rate during th
> The Robinson Company had a cost of goods sold of $1,000,000 in 2016 and $1,200,000 in 2017. a. Calculate the inventory turnover for each year. Comment on your findings. b. What would have been the amount of inventories in 2017 if the 2016 turnover ratio
> This problem uses the two years of financial statements data provided in Problem 6 for the Genatron Manufacturing Corporation. a. Calculate and compare each current assets account as a percentage of total assets for that year. b. Calculate and compare ea
> Graph the revenue and cost lines to estimate the break-even point for the following data. Compute the break-even point mathematically. a. price = $12.95; variable cost/unit = $6.89; fixed costs = $10,000 b. price = $23, 995; variable cost/unit = $16,545;
> Associated Containers Company is planning to manufacture and sell plastic pencil holders. Direct labor and raw materials will be $2.28 per unit. Fixed costs are $15,300 and the expected selling price is $3.49 per unit. a. Determine the break-even point (
> Evaluate the performance of Johnson and Johnson in comparison to its industry.
> Compute the financial ratios for Global Manufacturing’s industry. Using Global’s ratios from problem 12, graph the firm’s and industry ratios as we’ve done in this chapter. Analyze Global’s performance in comparison to its industry. Data from problem 12
> Compare the reasons for the changes in return on equity for Global Manufacturing and its industry.
> Following are the consolidated financial statements for Global Manufacturing’s industry. Use Du Pont analysis on the industry financial statements to determine why industry return on equity changed from year to year.
> Using the information in Tables 14.1 and 14.2, compute the financial ratios we discussed in this chapter for Walgreens using the 2010 and 2009 data.
> 1. How have the purchases of houses in the United States traditionally been financed? a. Fixed-rate mortgage b. Adjustable-rate mortgage c. Subprime mortgage d. Mortgage-backed security 2. A home loan to a borrower with a relatively high creditwort
> Genatron wants to estimate what will happen to its income before interest and taxes if its net sales change from the 2017 level of $1,500,000. Refer to Genatron’s 2017 income statement, shown in Problem 6, where the income before interest and taxes is $2
> The Robinson Company has current assets and current liabilities for the two years listed in the text. a. Compare the current ratios between the two years. b. Compare the acid-test ratios between 2016 and 2017. Comment on your findings.
> Use a spreadsheet to construct a common-size balance sheet from the data in problem 2 and a common-size income statement from the data in problem 5. Data from problem 5: Use your knowledge of income statements to fill in the missing items. Data from p
> Use your knowledge of income statements and common-size statements to fill in the missing dollar amounts.
> Use the following information to construct an income statement. Cost of goods sold = $684,000; Gross profit = $546,000; General and administrative expense = $159,000; Selling and marketing expense = $134,000; Operating income = $228,000; Income before ta
> Use the following information to construct an income statement. Interest = $25,000; Sales = $950,000; Income tax rate = 25%; Selling and marketing expenses = $160,000; General and administrative expenses = $200,000; Gross profit = $550,000; Depreciation
> Use your knowledge of income statements to fill in the missing items.
> Use your knowledge of balance sheets and common-size statements to fill in the missing dollar amounts.
> Use your knowledge of balance sheets to fill in the amounts missing in the text.
> Use your knowledge of balance sheets to fill in the amounts missing in the text.
> 1. What are debt securities with maturities longer than one year and corporate stocks referred to as? a. Money market securities b. Mortgage market securities c. Capital market securities d. Derivative securities 2. What is the term for a loan back
> Using the financial statements in the text: a. Compute common-size financial statements. b. Compute year-to-year percentage changes in the various accounts. c. What insights about the firm can you obtain from this analysis?
> Compare and contrast the two common-size balance sheets below. Which one do you think may belong to a supermarket? To a jeweler?
> Compare and contrast the two common-size balance sheets below. Which one do you think may belong to an auto manufacturer? To a computer manufacturer?
> Using the financial statements below for the Global Manufacturing corporation, a. Compute common-size financial statements. b. Put together a statement of cash flows of the firm. Where did the firm invest funds during the year? How did it finance these
> Use the following income statement and balance sheet information to put together a statement of cash flows. 2017 Assets 2017 2016 Sales $1,230,000 Cash $25,000 $21,990 Cost of goods sold $684,000 Accounts receivable
> Use the “balance sheet equation” to determine owners’ equity if liabilities are $5 million and assets are $10 million.
> The countries of Stabilato and Variato have the following average returns and standard deviations for their stocks, bond, and short-term government securities. What range of returns should you expect to earn 95% of the time for each asset class if you in
> Find the real return, nominal after-tax return, and real after-tax return on the following: Stock Nominal Return Inflation Tax Rate X 13.5% 5% 15% Y 8.7% 4.7% 25% Z 5.2% 2.5% 28%
> Find the real return on the following investments: Stock Nominal Return Inflation A 10% 3% B 15% 8% C -5% 2%
> RCMP, Inc. shares rose 10 percent in value last year while the inflation rate was 3.5 percent. What was the real return on the stock? If an investor sold the stock after one year and paid taxes on the investment at a 15 percent tax rate what is the real
> 1. Which of the following factors influence the total amount of savings? a. Levels of income b. Economic expectations c. Cyclical influences d. Life stage of the individual saver or business firm e. All of the choices are correct. 2. Which of the
> What is the real, or after-inflation, return from each of the asset classes listed in Table 12.4?
> Recalling the definitions of risk premiums from chapter 8 and using the Treasury bill return in Table 12.4 as an approximation to the nominal risk-free rate, what is the risk premium from investing in each of the other asset classes listed in Table 12.4?
> Construct a spreadsheet to replicate the analysis of Table 12.5. That is, assume $10,000 is invested in a single asset which returns 7 percent annually for 25 years and $2,000 is placed in 5 different investments, earning returns of –100%, 0%, 5%, 10%,
> If the conditions in the future are expected to be like those in the past, what is the expected portfolio return and standard deviation in a portfolio comprised of a. 25% XOM and 75% MSFT? b. 50% XOM and 50% MSFT? c. 75% XOM and 25% MSFT?
> Based upon your answers to problem 1, which asset appears riskiest based on standard deviation? Based on coefficient of variation? Data from problem 1: From the information listed in the text, compute the average annual return, the variance, standard d
> Spreadsheets are useful for computing statistics: averages, standard deviation, variance, and correlation are included as built-in functions. Below is recent monthly stock return data for ExxonMobil (XOM) and Microsoft (MSFT). Using a spreadsheet and its
> a) Tim’s portfolio contains two stocks, Lightco and Shineco. Last year his portfolio returned 14 percent. Lightco’s return as 5 percent and Shineco returned 20 percent. What are the weights of each in Tim’s portfolio? b) The following year Tim adds a thi
> Estimate the weights (wi) for assets in the three portfolios given the following information about the portfolio holdings:
> Below is annual stock return data on AAB Company and YYZ, Inc. Year AAB YYZ 2009 0% 5% 2010 5% 10% 2011 10% 15% 2012 15% 20% 2013 -10% -20% a. What is the average return, variance, and standard deviation for each stock? b. What is the expected portfo
> Below is annual stock return data on Hollenbeck Corp and Luzzi Edit, Inc. Year Hollenbeck Luzzi Edit 2010 10% -3% 2011 15% 0% 2012 -10% 15% 2013 5% 10% a. What is the average return, variance, and standard deviation for each stock? b. What is the expec
> 1. How is personal saving by individuals calculated? a. Personal income plus depreciation less personal outlays b. Personal income less personal current taxes less personal outlays c. Personal income less only personal outlays d. Personal income plus
> Using the data in Table 12.4, calculate and interpret the coefficient of variation for each asset class.
> Scenario analysis has many practical applications in addition to being used to forecast security returns. In this problem, scenario analysis is used to forecast an exchange rate. Jim Danday’s forecast for the Euro/dollar exchange rate depends upon what t
> Ima’s sister, Uma, has completed her own analysis of the economy and Wallnut’s stocks. Uma used recession, constant growth and inflation scenarios but with different probabilities and expected stock returns. Uma believes the probability of recession is q
> Ima is considering a purchase of Wallnut Company stock. Using the same scenarios and probabilities as in problem 10, she estimates Wallnut’s return is -5% in a recession, 20 percent in constant growth, and 10% in inflation. a) What is Ima’s expected ret
> Given her evaluation of current economic conditions, Ima Nutt believes there is a 20 percent probability of recession, a 50 percent change of continued steady growth, and a 30 percent probability of inflationary growth. For each possibility, Ima has deve
> From the information listed in the text, compute the average annual return, the variance, standard deviation, and coefficient of variation for each asset.
> A U.S. firm wants to raise $10 million of capital so it can invest in new technology. How much will it need to raise in order to net $10 million, using the average costs of raising funds in the chapter?
> The Quad Index is comprised of four stocks, Uno, Dos, Tres, and Fore. a) Given the data below on the number of shares outstanding and their share prices at time t and time t+1, what is the percentage change in the Quad Index if it is calculated as a pri
> The four stocks listed in the text are part of an index. Using the prior information, a. Compute a price-weighted index by adding the stocks’ prices at time t and time t + 1. What is the percentage change in the index? b. Compute a va
> The Trio Index is comprised of three stocks, Eins, Zwei, and Tri. Their current prices are as follows: a) Between now and the next time period, the stock prices of Eins and Zwei increase 10 percent while Tri increases 20 percent. What is the percentage c
> 1. What is the federal government’s largest annual source of revenues or income is from a. Social Security and other retirement taxes b. Personal income taxes c. Borrowing to cover the deficit d. Corporate income taxes 2. The federal government spen
> Currently the price of Mattco stock is $30 a share. You have $30,000 of your own funds to invest. Using the maximum margin allowed, what is your percentage profit or loss under the following situations (ignore dividends and taxes)? What would the percent
> You purchased shares of Broussard Company using 50 percent margin; you invested a total of $20,000 (buying 1,000 shares of a price of $20 per share) by using $10,000 of your own funds and borrowing $10,000. Determine your percentage profit or loss under
> Which of the following securities is likely to be the most liquid according to this data? Stock Bid Ask R $39.43 $39.55 S 13.67 13.77 T 116.02 116.25
> In late 2009, you purchased the common stock of a company that has reported significant earnings increases in nearly every quarter since your purchase. The price of the stock increased from $12 a share at the time of the purchase to a current level of $4
> Adjust the spreadsheet and its calculations in problem 13 for one more complication: have the length of the holding period (in quarters) be one of the spreadsheet’s inputs. Compute the annualized return if the holding period for Mattco stock were a) 3 mo
