Assignment:
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INCOME STATEMENT, 2013 Sales $10.000
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Joe's Fly-by-Night Oil
BALANCE SHEET, as of Dec 31, 2013 ASSETS
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Cost of goods sold
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4,000
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Cash
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$5,000
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Gross profit
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$6,000
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Accounts receivable
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3,000
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S. G & A expenses
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3.000
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'mentor)/
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17.000
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EBIT
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$3,000
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Current assets
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$25,000
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Interest
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$200
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Equipment (gross)
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27,000
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Before-tax earnings
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$2,800
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Less Accum Depreciation
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(12.000)
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Taxes
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1.000
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Equipment (net)
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$15,000
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Net income
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$1.800
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Total assets
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$40,000
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LIABILITIES AND EQUIP(
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EPS
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$1.80
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Accounts payable
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$17.000
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Current liabilities
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$17,000
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Dtidends
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$600
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Long-term debt
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$3,000
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Addition to retained earnings
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$1,200
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Total liabilities
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$20,000
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Common stock (1,000 shares)
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$7,000
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Retained earnings
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$13,000
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Total equity
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$20.000
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Total liabilities & Equity
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$40,000
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Question 1: What was Joe’s NOPAT in 2013?
Question 2: What was Joe’s Free Cash Flow (FCF) in 2013? (Note: For this question, assume Joe obtained no new plant and equipment or additional net working capital in 2013. Thus his Net Investment in Operating Capital (NIOC) for 2013 is $0.00.)
Question 3: Suppose you were an investor and you were considering whether to buy a corporate bond from Joe’s Corporation or a Municipal Bond from the city of St. Louis. Joe’s corporate bond has a yield of 7%. The St Louis city bond has a yield of 5%. The income from Joe’s bond is taxable. The income from the St Louis city bond is tax-free. If your effective tax rate is 30%, which bond would give you the higher after-tax yield?
Question 4: What was Joe’s Net Worth at the end of 2013?
Question 5: Why is the market value of a firm’s stock almost always higher than the book value of the firm’s stock as shown on the balance sheet?
Question 6:
a. Calculate Joe’s ROE for 2013.
b. Construct a Du Pont equation and comment on the sources of Joe’s ROE as revealed by the equation.