Unit II Assignment
Use the provided Excel template to submit your responses to
each of the study problems from the textbook below:
? 3-13, p. 72. Review of financial statements
? 3-15, p. 73. Analyzing the cash flow statement
? 4-25, p. 116. Calculating financial ratios
Each question has a corresponding worksheet (look for the
tab along the bottom of the workbook). The cells can be adjusted, added, or
removed as necessary.
Unit 5 assignment
Question 1. (30 points total)Use this balance sheet and
income statement from Carver Enterprises to complete partsa and b: 
a.
(15 points) Prepare a common size balance sheet
for Carver Enterprises. Complete the common-size balance sheet: (Round to one
decimal place.)
b.
(15
points) Prepare a common-size income statement for Carver Enterprises.Complete
the common-size income statement: (Round to one decimal place.)
Question 2.(10 points total) Use this data table of Campbell
Industries liabilities and owners’ equity to complete partsa and b.
a.
(5 points) What percentage of the firm’s assets
does the firm finance using debt (liabilities)? (Round to one decimal place.)
b.
If Campbell were to purchase a new warehouse for
$1.3 million and finance it entirely with long-term debt, what would be the
firm’s new debt ratio?
Question 3. (10 points total)(Liquidity analysis)Airspot
Motors, Inc. has $2,433,200 in current assets and $869,000 in current
liabilities. The company’s managers want to increase the firm’s inventory,
which will be financed using short-term debt. How much can the firm increase
its inventory without its current ratio falling below 2.1 (assuming all other
assets and current liabilities remain constant)?(Round to onedecimal place.)
Question 4. (10 points total)(Efficiency analysis)Baryla
Inc. manufactures high quality decorator lamps in a plant located in eastern
Tennessee. Last year the firm had sales of $93 million and a gross profit
margin of 45 percent.
a.
(5 points) How much inventory can Baryla hold
and still maintain an inventory turnover ratio of at least 6.3 times?(Round to
onedecimal place.)
b.
(5 points) Currently, some of Baryla’s inventory
includes $2.3 million of outdated and damaged goods that simply remain in
inventory and are not salable. What inventory ratio must the good inventory
maintain in order to achieve an overall turnover ratio of at least 6.3
(including the unsalable items)? (Round to onedecimal place.)
Question 5. (15points total)(Profitability and capital
structure analysis)In the year that just ended, Callaway Lighting had sales of
$5,470,000 and incurred cost of goods sold equal to $4,460,000. The firm’s
operating expenses were $128,000 and its increase in retained earnings was
$42,000 for the year. There are currently 99,000 common stock shares
outstanding and the firm pays a $4.770 dividend per share. The firm has
$1,180,000 in interest-bearing debt on which it pays 7.7 percent interest.
a.
(5 points) Assuming the firm’s earnings are
taxed at 35%, construct the firm’s income statement.
b.
(5 points) Calculate the firm’s operating profit
margin and net profit margin.(Round to one decimal place.)
c.
(5 points) Compute the times interest earned
ratio.
What does this tell you about Callaway’s ability to pay its interest
expense? (Fill in the blank with the times interest earned ratio from above and
select the best choice.)
1) Callaway’s operating income
can fall as much as______ times the interest expense and the company would
still be able to service its debt.
2) Callaway’s interest expense is
_______ times higher than its competitors.
3) Callaway’s gross profit can
fall as much as ______ times and still be able to service its debt.
4) Callaway’s operating income
can fall as much as ______ times and still be able to repay its debt.
What is the fin’s return on equity? (Select the best choice.)
1) The firm’s return on equity is
the same as the net profit margin, 9.4%.
2) The firm’s return on equity is
the sum of the operating profit margin and the net profit margin, 25.5%.
3) There is not enough
information to answer this question.
4) The firm’s return on equity is the same as
the operating profit margin, 16.1%.
Question 6. (5 points total)(Market value analysis) Lei
Materials’ balance sheet lists total assets of $1.16 billion, $132 million in
current liabilities, $415 million in long-term debt, $613 million in common
equity, and 58 million shares of common stock. If Lei’s current stock price is
$52.08, what is the firm’s market-to-book ratio? (Round to one decimal place.)
Question 7. (5 points total) (DuPont analysis)Bryley, Inc.
earned a net profit margin of 5.1 percent last year and had an equity
multiplier of 3.49. If its total assets are $109 million and its sales are $157
million, what is the firm’s return on equity?(Round to one decimal place.)
Question 8. (15 points total)(Calculating financial ratios)
Use the balance sheet and income statement for the J. P. Robard Mfg. Company to
calculate the following ratios:
Current ratio(Round to two decimal places.)
Times interest earned(Round to two decimal places.)
Inventory turnover(Round to two decimal places.)
Total asset turnover(Round to two decimal places.)
Operating profit margin(Round to one decimal places.)
Operating return on assets(Round to one decimal places.)
Debt ratio (Round to one decimal places.)
Average collection period(Round to one decimal places.)
Fixed asset turnover(Round to two decimal places.)
Return on equity(Round to one decimal places.)
Unit 6 assignment
Question 1:(10 points).(Bond valuation) Calculate the value
of a bond that matures in 12 years and has $1,000 par value. The annual coupon
interest rate is 9 percent and the market’s required yield to maturity on a
comparable-risk bond is 12 percent. Round to the nearest cent.
Question 2: (10 points).(Bond valuation) Enterprise, Inc.
bonds have an annual coupon rate of 11 percent. The interest is paid
semiannually and the bonds mature in 9 years. Their par value is $1,000. If the
market’s required yield to maturity on a comparable-risk bond is 14 percent,
what is the value of the bond? What is its value if the interest is paid
annually and semiannually? (Round to the nearest cent.)
a. The value of the Enterprise bonds if the interest is paid
semiannually is
b. The value of the Enterprise bonds if the interest is paid
annually is
Question 3: (10 points).(Yield to maturity) The market price
is $750 for a 20-year bond ($1,000 par value) that pays 9 percent annual
interest, but makes interest payments on a semiannual basis (4.5 percent
semiannually). What is the bond’s yield to maturity? (Round to two decimal
places.)
The bond’s yield to maturity is
Question 4: (10 points).(Yield to maturity) A bond’s market
price is $950. It has a $1,000 par value, will mature in 14 years, and has a
coupon interest rate of 8 percent annual interest, but makes its interest
payments semiannually. What is the bond’s yield to maturity? What happens to the
bond’s yield to maturity if the bond matures in 28 years? What if it matures in
7 years?(Round to two decimal places.)
The bond’s yield to maturity if it matures in 14 years is
The bond’s yield to maturity if it matures in 28 years is
The bond’s yield to maturity if it matures in 7 years is
Question 5: (15 points).(Bond valuation relationships)
Arizona Public Utilities issued a bond that pays $70 in interest, with a $1,000
par value and matures in 25 years. The markers required yield to maturity on a
comparable-risk bond is 8 percent.(Round to the nearest cent.)For questions
with two answer options (e.g. increase/decrease) choose the best answer and
write it in the answer block.
Question
a. What is the value of the bond if the markers required
yield to maturity on a comparable-risk bond is 8 percent?
b. What is the value of the bond if the markers required
yield to maturity on a comparable-risk bond increases to 11 percent?
c. What is the value of the bond if the market’s required
yield to maturity on a comparable-risk bond decreases to 7 percent?
d. The change in the value of a bond caused by changing
interest rates is called interest-rate risk. Based on the answer: in parts b
and c, a decrease in interest rates (the yield to maturity) will cause the
value of a bond to (increase/decrease):
By contrast in interest rates will cause the value to
(increase/decrease):
Also, based on the answers in part b, if the yield to
maturity (current interest rate) equals the coupon interest rate, the bond will
sell at (par/face value):
exceeds the bond’s coupon rate, the bond will sell at a
(discount/premium):
and is less than the bond’s coupon rate, the bond will sell
at a (discount/premium):
e. Assume the bond matures in 5 years instead of 25 years,
what is the value of the bond if the yield to maturity on a comparable-risk
bond is 8 percent? $ 960.07 Assume the bond matures in 5 years instead of 25
years, what is the value of the bond if the yield to maturity on a
comparable-risk bond is 11 percent?
f. Assume the bond matures in 5 years instead of 25 years,
what is the value of the bond if the yield to maturity on a comparable-risk
bond is 7 percent?
g. From the findings in part e, we can conclude that a
bondholder owning a long-term bond is exposed to (more/less) interest-rate risk
than one owning a short-term bond.
Question 6: (5 points).(Measuring growth) If Pepperdine,
Inc.’s return on equity is 14 percent and the management plans to retain 55
percent of earnings for investment purposes, what will be the firm’s growth
rate?(Round to two decimal places.)
The firm’s growth rate will be
Question 7: (10 points).(Common stock valuation) The common
stock of NCP paid $1.29 in dividends last year. Dividends are expected to grow
at an annual rate of 6.00 percent for an indefinite number of years. (Round to
the nearest cent.)
a. If your required rate of return is 8.70 percent, the
value of the stock for you is:
b. You (should/should not) make the investment if your
expected value of the stock is (greater/less) than the current market price
because the stock would be undervalued.
Question 8: (10 points).(Measuring growth) Given that a
firm’s return on equity is 22 percent and management plans to retain 37 percent
of earnings for investment purposes, what will be the firm’s growth rate? If
the firm decides to increase its retention rate, what will happen to the value
of its common stock? (Round to two decimal places.)
a. The firm’s growth rate will be:
b. If the firm decides to increase its retention ratio, what
will happen to the value of its common stock? An increase in the retention rate
will (increase/decrease) the rate of growth in dividends, which in turn will
(increase/decrease) the value of the common stock.
Question 9: (10 points).(Relative valuation of common stock)
Using the P/E ratio approach to valuation, calculate the value of a share of
stock under the following conditions:
• the
investor’s required rate of return is 13 percent,
• the
expected level of earnings at the end of this year (E1) is $8,
• the firm
follows a policy of retaining 40 percent of its earnings,
• the
return on equity (ROE) is 15 percent, and
• similar
shares of stock sell at multiples of 8.571 times earnings per share.
Now show that you get the same answer using the discounted
dividend model. (Round to the nearest cent.)
a. The stock price using the P/E ratio valuation method is:
b. The stock price using the dividend discount model is:
Question 10: (10 points) (Preferred stock valuation)
Calculate the value of a preferred stock that pays a dividend of $8.00 per
share when the market’s required yield on similar shares is 13 percent. (Round
to the nearest cent.)
a.
The value of the preferred stock is
b.
Unit 7 assignment
Instructions: Enter all answers directly in this worksheet.
When finished select Save As, and save this document using your last name and
student ID as the file name. Upload the data sheet to Blackboard as a .doc,
.docx or .rtf file when you are finished.
Question 1: (10 points). (Net present value calculation)
Dowling Sportswear is considering building a new factory to produce aluminum
baseball bats. This project would require an initial cash outlay of $4,000,000
and would generate annual net cash inflows of $900,000 per year for 7 years.
Calculate the project’s NPV using a discount rate of 5 percent. (Round to the
nearest dollar.)
a. If the discount rate is 5 percent, then the project’s NPV
is:
Question 2: (30 points). (Net present value calculation) Big
Steve’s, makers of swizzle sticks, is considering the purchase of a new plastic
stamping machine. This investment requires an initial outlay of $90,000 and
will generate net cash inflows of $19,000 per year for 11 years. To answer
Choose an item questions, click on the orange text and use the pull down menu
to select the best answer.
a. What is the project’s NPV using a discount rate of 7
percent? (Round to the nearest dollar.)
If the discount rate is 7 percent, then the project’s NPV
is:
Should the project be accepted?
The project should be accepted because the NPV is positive
and therefore adds value to the firm.
b. What is the project’s NPV using a discount rate of 16
percent?
If the discount rate is 16 percent, then the project’s NPV
is
Should the project be accepted?, it adds value to the firm
c. What is this project’s internal rate of return? (Round to
two decimal places.)
This project’s internal rate of return is:
%
Should the project be accepted? Why or why not?
If the project’s required discount rate is 7%, then the
project _________accepted because the IRR is lower than the required discount
rate.
If the project’s required discount rate is 16%, then the
project __________ accepted because the IRR is higher than the required
discount rate.
Question 3: (15 points). (Related to Checkpoint 11.2)
(Equivalent annual cost calculation) Barry Boswell is a financial analyst for
Dossman Metal Works, Inc. and he is analyzing two alternative configurations
for the firm’s new plasma cutter shop. The two alternatives that are denoted A
and B below perform the same task and although they each cost to purchase and
install they offer very different cash flows. Alternative A has a useful life of
7 years whereas Alternative B will only last for 3 years. The after-tax cash
flows from the two projects are as follows:
a. Calculate each project’s equivalent annual cost (EAC)
given a discount rate of 10 percent. (Round to the nearest cent.)
a. Alternative A’s equivalent annual cost (EAC) at a
discount rate of 10% is:
b. Alternative B’s equivalent annual cost (EAC) at a
discount rate of 10% is
b. Which of the alternatives do you think Barry should
select? Why? (Select the best choice below.)
a. This
cannot be determined from the information provided.
b. Alternative
B should be selected because its equivalent annual cost is less per year than
the annual equivalent cost for Alternative A.
c. Alternative
A should be selected because its equivalent annual cost is less per year than
the annual equivalent cost for Alternative B.
d. Alternative
A should be selected because it has the highest NPV.
Question 4: (10 points). (IRR calculation) What is the
internal rate of return for the following project: An initial outlay of $9,000
resulting in a single cash inflow of $15,424 in 7 years. (Round to the nearest
whole percent.)
a. The internal rate of return for the project is:
Question 5: (10 points). (IRR calculation) Jella Cosmetics
is considering a project that costs $750,000 and is expected to last for 9
years and produce future cash flows of $180,000 per year. If the appropriate
discount rate for this project is 17 percent, what is the project’s IRR? (Round
to two decimal places.)
a.
The project’s IRR is:
Question 6: (10 points) (IRR, payback, and calculating a
missing cash flow) Mode Publishing is considering a new printing facility that
will involve a large initial outlay and then result in a series of positive
cash flows for four years. The estimated cash flows associated with this
project are:
If you know that the project has a regular payback of 2.9
years, what is the project’s internal rate of return?
a. The IRR of the project is:
Question 7: (15 points) (Mutually exclusive projects and
NPV) You have been assigned the task of evaluating two mutually exclusive
projects with the following projected cash flows:
If the appropriate discount rate on these projects is 11
percent, which would be chosen and why? (Round to the nearest cent.)
a. The NPV of Project A is:
b. The NPV of Project B is:
Which project would
be chosen and why? (Select the best choice below.)
a. Cannor
choose without comparing their IRRs.
b. Choose A
because its NPV is higher.
c. Choose
both because they both have positive NPVs.
d. Choose B
because its NPV is higher.
