Managerial Finance
1. Hoover Inc. has current assets of $350,000 and fixed assets of $650,000. Current liabilities are $100,000 and long-term liabilities are $250,000. There is $120,000 in preferred stock outstanding and the firm has issued 10,000 shares of common stock. Compute book value (net worth) per share
2. Find the firms Break Even Point in number of units
Sales (1.000 units) 110.000
Variable costs 90.000
Contribution margin 40.000
Fixed manufacturing costs 50.000
Operating income 10.000
Interest 40.000
Earnings before taxes 12.000
Taxes (30°0 528.000
Net Income 1.000
TEW COMPANY
Balance Sheet
As of December 31, 2007
|
ASSETS
Cash
Accounts Receivable
Inventory
Net Plant and Equipment Total Assets
|
$20,000
80,000
50,000
250.000
$400,000
|
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts Payable Accrued Expenses
Long-Term debt
Common Stock
Paid-In capital
Retained earnings
Total Liabilities and Stockholders' Equity
$40,000
60,000
130,000
100,000
10,000
60.000
$400,000
TEW COMPANY
Income Statement
For the Year Ended December 31, 2007
Sales (all on credit) $500,000
Cost of Goods Sold 200.000
Gross Profit 300,000
Sales and Administrative Expense 20,000
Fixed Lease Expenses 10,000
Depreciation 40.000
Operating Profit 230,000
Interest Expense 20.000
Profit before Taxes 210,000
Taxes (35%) 73.500
Net Income $136,500
3. Given the information below compute the following ratios .
A. Using the DuPont method, return on assets (investment)
B. TEW's return on equity is ____.
C. Times interest earned for TEW Company is ____.
D. TEW's average collection period is
E. TEW's total asset turnover is?
F. TEW's quick ratio is ____.
G. TEW's Current ratio is ____.
H. TEW's debt to assets ratio is ____.
I. Fixed charge coverage for TEW Company is ____.
4. The Amber Magic Shoppe has forecast its sales revenues and purchases for the last 5 months of 20XX to be as follows:
65% of sales are on credit. On the basis of past experience, 50% of the accounts receivable are collected the month after the sale and the remainder are collected two months after the sale. Purchases are paid 30 days after they are incurred. The firm had a cash balance of $5,000 as of September 30, and its minimum required cash balance is $4,000. It had no beginning loan balance. Prepare a cash budget for October, November, and December.
5. Find the degree of combined leverage
6. Your client just turned 75 years old and plans on retiring in 10 years on her 85th birthday. She is saving money today for her retirement and is establishing a retirement account with your office. She would like to withdraw money from her retirement account on her birthday each year until she dies. She would ideally like to withdraw $50,000 on her 85th birthday, and increase her withdrawals 10 percent a year through her 89th birthday (i.e., she would like to withdraw $73,205 on her 89th birthday). She plans to die on her 90th birthday, at which time she would like to leave $200,000 to her descendants. Your client currently has $100,000. You estimate that the money in the retirement account will earn 8 percent a year over the next 15 years.
Your client plans to contribute an equal amount of money each year until her retirement. Her first contribution will come in 1 year; her 10th and final contribution will come in 10 years (on her 85th birthday). How much should she contribute each year to meet her objectives?