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Question 1. (30 points total) Use this balance sheet and
income statement from Carver Enterprises to complete parts a 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.)
Common?Size Balance Sheet 2013
Cash and marketable securities $ 490 %
Accounts receivable 5,990
Inventories 9,550
Current assets $ 16,030 %
Net property plant and equipment 17,030
Total assets $ 33,060 %
Accounts payable $ 7,220 %
Short?term debt 6,800
Current liabilities $ 14,020 %
Long?term liabilities 7,010
Total liabilities $ 21,030 %
Total owners’ equity 12,030
Total liabilities and owners’ equity $ 33,060 %
b. (15
points) Prepare a common-size income statement for Carver Enterprises. Complete
the common-size income statement: (Round to one decimal place.)
Common?Size Income Statement 2013
Revenues $ 30,020 %
Cost of goods sold (19,950)
Gross profit $ 10,070 %
Operating expenses (7,960)
Net operating income $ 2,110 %
Interest expense (940)
Earnings before taxes $ 1,170 %
Taxes (425)
Net income $ 745 %
Question 2. (10 points total) Use this data table of
Campbell Industries liabilities and owners’ equity to complete parts a 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. (5
points) 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? (Round to one decimal place.)
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 one decimal 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 one decimal 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points) Currently, some of Baryla’s inventory includes $2.3 million of outdated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 one
decimal place.)
Question 5. (15 points 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.
Income Statement
Revenues $
Cost of Goods Sold
Gross Profit $
Operating Expenses
Net Operating Income $
Interest Expense
Earnings before Taxes $
Income Taxes
Net Income $
b. (5
points) Calculate the firm’s operating profit margin and net profit margin.
(Round to one decimal place.)
The operating profit margin is %
The net income margin is %
c. (5
points) Compute the times interest earned ratio.
The times interest earned ratio is %
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 firm’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.) times
Inventory turnover (Round to two decimal places.) times
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.) days
Fixed asset turnover (Round to two decimal places.)
Return on equity (Round to one decimal places.) %
