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1、CHAPTER 3 Managing FinEnd-of-Chapter Problemsal Health and PerformanceReview of Final Statements1a.b.c.How would the following assets and liabilities be recorded on the balance sheets of their owners? a lottery ticketa successful songan unsuccessful movieSOLUTION:a.b.c.It will not be recorded. The e

2、xistence of a future economic benefit is very uncertain.Though an economically significant asset, it will not be recorded on the Not recorded on balance sheet.ing balance sheet.2.Show how the following events and tranions should appear on youral income statement,balance sheet, and cash flow statemen

3、t.a.On July 1, 200X, you receive $20,000 in gifts upon graduation from school and pay off a $10,000 loan.b.On August 1, 200X, you get a job as a finance intern at General Fin a salary of $4,000 per month, payable on the last day of each month.al Services Inc. You are promisedc.On August 31, you rece

4、ive your first statement of GFS salary and benefits showing the following items:Gross salaryIncome tax withholdingSocial Security and Medicare tax Health care premium Contribution to pension plan Employer Social Security taxEmployer contribution to pension plan Employer contribution to health care A

5、mount credited to employee checking Total employer benefit$4,000 1,4005001502003002001501,750650at GFS Bankd.On September 1, you purchase a new car for $20,000. You make a down payment of $5,000 and borrow the remaining $15,000 from GFS bank at a monthly interest rate of 1%. Your monthly payment is$

6、498.21 for 36 months.As an individual or a household, why might you want to maintain a balance sheet? How often would you update it? Should you mark-to-market or leave your assets and liabilities at their historical values?e.SOLUTION:a.The $20,000 in gifts increases your assets as well as your net w

7、orth by the same amount. It will not affect yourcash flow statement if its not in cash. It will not affect youral income statement either.The $10,000 paid toyour loan decreases your liabilities (debt), and your cash by the same amount. It willnot affect your net worth, nor youral income statement.b.

8、No effect. Though the job might be an economically significant asset, in the sense that you expect it will bring you some economic benefit in the future, you have not yet earned your future revenue since you havent startedyet.Increase in cash of $1,750, increase in income of $1,750, increase in pens

9、ion plan benefits asset of $400. Pension plan benefits are part of your savings, hence they increase your net worth. The Social Security and Medicare taxes, though might bring you some benefit in the future, this benefit is not related with the tax youre paying now, hence most people will consider t

10、hem simply as expenses, and never mention them in theiral balance sheet. The health insurance premium and contribution from employer will appear as a “Prepaid insurance” on the balance sheet before end of year, but will be expensed by the end of year.c.Chapter 3 - 1Copyright ©2009 Pearson Educa

11、tion, Inc. Publishing as Prentice Hall.Final EconomicsSolutions Manuald.Balance sheet effect: “Car” asset increases by $20,000. Cash decreases by $5,000. Debt increases by $15,000. Every month, your cash drops by $498.21 and you incur an interest expense of 0.01 * (remaining principal of debt), your

12、 remaining debt decreases by the difference between the $498.21 installment and the interest expense paid. For example, in the first month of payment, you incur an interest expense of $150 on your income statement, your cash decreases by $498.21 and your debt by $348.21.e.You might want to keep aal

13、balance sheet for planning purposes, and to keep track of your assets,liabilities and net worth (e.g. if you apply for a loan, you might need to present your kept records). You wouldneed to update it once a year, or as needed, depending on your purposes for keeit. Obviously, you willneed to keep you

14、r records at market value. Historical values of assets and liabilities are not useful for ing.alProblems 3 through 10 are based on the following information:The Ruffy Stuffed Toy Companys balance sheet at the end of 20x1 was as follows:AssetsCash27,30035,00057,000s ReceivableInventoryTotal Current A

15、ssets119,300Property, Plant, and EquipmentEquipmentLess Accumulated Depreciation Net EquipmentFurnitureLess Accumulated Depreciation Net FurnitureTotal Prop, Plant, EquipTotal Assets25,000(2,500)22,50016,000(2,000)14,00036,500155,800Liabilities and ShaPayabless Payable Salary Payable Utilities Payab

16、leolders Equity65,0003,0001,50025,000Loans (Long-term debt) Total LiabilitiesCommon Stock Retained Earnings94,50045,00016,300Total Shaolders Equity61,300Total Liabilities& Shaolders Equity155,800During 20x2, the Ruffy Stuffed Toy Company recorded the following tranions:·Early in the year, p

17、urchased a new toy stuffing machine for $9,000 cash and signed a 3-year note for the balance of $12,000.Had cash sales of $115,000 and sales on credit of $316,000.······Purchased raw materials fromrs for $207,000.payments of $225,000 to its raw materials Paid rent expen

18、ses totaling $43,000.Paid insurance expenses totaling $23,000.rs.Paid utility bills totaling $7,500; $1,500 of this amount reversed the existing payable from 20x1.Chapter 3 - 2Copyright ©2009 Pearson Education, Inc. Publishing as Prentice Hall.Final EconomicsSolutions Manual···&#

19、183;Paid wages and salaries totaling $79,000; $3,000 of this amount reversed the payable from 20x1. Paid other miscellaneous operating expenses totaling $4,000.Collected $270,000 from its customers whopurchases on credit.The interest rate on the Loan Payable is 10% per year. Interest was paid on 12/

20、31/20x2.Other information:·The equipment has been estimated to have a useful life of 20 years, with no salvage value. Two years have been depreciated through 20x1.·The existing furnituas been estimated to have a useful life of 8 years (no salvage value), of whichone year has been depreciat

21、ed through 20x1.·The new stuffing machine has been estimated to have a useful life of 7 years, and will probably have no salvage value.The corporate income tax rate is 35% and taxes are paid on 12/31/20x2. Dividend payout, if possible, will be 10% of net income.Cost of Goods Sold for the years

22、sales were $250,000.····s receivable = Beginning Balance - cash received from credit customers +Ending Balance in sales on credit Ending Balance in···s payable = Beginning Balance + purchases cash payments torsEnding Balance in Inventory = Beginning Balance + purch

23、ases of raw material cost of goods soldThe companys stock price at marketon 12/31/20x2 was 4 5/8. It has 20,000 shares outstanding.3.Construct the balance sheet for the Ruffy Stuffed Toy Company as of 12/31/20x2.4.Construct the income statement for operations during the year 20x2.5.Construct a cash

24、flow statement for the year 20x2.Analysis Using Final Ratios6.Calculate the following Profitability Ratios:Return on Sales, Return on Assets, Return on Equity7.Calculate the following Asset Turnover Ratios:Receivables turnover, Inventory turnover, Asset turnover8.Calculate the following Final Levera

25、ge and Liquidity Ratios:debt, times interest earned, current ratio, quick (acid) test9.What is the Ruffys book value per share at the end of 20x2?Market Values versus Book Values10. Calculate the firms price-to-earnings ratio and the ratio of its market share price to its book value per share.Chapte

26、r 3 - 3Copyright ©2009 Pearson Education, Inc. Publishing as Prentice Hall.Final EconomicsSolutions ManualSOLUTION:Chapter 3 - 4Copyright ©2009 Pearson Education, Inc. Publishing as Prentice Hall.BALANCE SHEETS20x120x2Assets27,30010,896.25Cashs Receivable35,00081,000Inventory57,00014,000To

27、tal Current Assets119,300105,896.25Property, Plant, and EquipmentEquipment25,00025,000(3,750)21,25016,000(4,000)12,00021,000(3,000)18,00051,250157,146.2565,00047,0003,00001,500001200025,00025,00094,50084,00045,00045,00016,30028,146.2561,30073,146.25155,800157,146.25Less Accumulated Depreciation(2500

28、)Net Equipment22,500Furniture16,000Less Accumulated Depreciation(2000)Net Furniture Machine14000Less Accumulated DepreciationNet MachineTotal Prop, Plant, Equip36,500Total Assets155,800Liabilities and Shaolders EquityPayabless Payable Salary Payable Utilities Payable Note payable Loans (Long-term De

29、bt)Total LiabilitiesCommon Stock Retained EarningsTotal Shaolders EquityTotal Liabilities and Shaolders EquityFinal EconomicsSolutions ManualChapter 3 - 5Copyright ©2009 Pearson Education, Inc. Publishing as Prentice Hall.INCOME STATEMENTSales Revenue431,00076,00043,00023,0006,0004,0006,250158,

30、250COGS250,000Gross Margin181,000ExpensesWages and Salaries ExpenseRent Expense Insurance Expense Utility ExpenseMiscellaneous Operating ExpenseDepreciation Expense181,000Income Before Interest and Tax22,7502,50020,2507,087.5013,162.501,316.2511,846.25Interest Expense Taxable IncomeTaxes (0.35)Net I

31、ncome Dividends (0.1)Income after DividendsCASH FLOW STATEMENTNet Income+Dep13162.56,250- A/R increase+ Inventory decrease- A/P decrease3500081000(46,000)570001400043,0006950047000(22,500)Total Cash Flow from Operations-6087.5-21000-21000-1316.25.75-16403.75- Investment in PPETotal cash from investi

32、ng activities- Dividends+ Increase in Notes PayableTotal cash from finng activitiesChange in Cash FlowRATIOS:ROS ROA ROEReceivables Turnover Inventory Turnover Asset Turnover DebtTimes Interest Earned CurrentQuick P/EMarket to Book227504310000.052822750156473.130.145413162.567223.130.195843100058000

33、7.4310250000355007.0423431000156473.132.754584000157146.250.53452275025009.1000105896.25470002.253191,896.25470001.95524.6250.65817.02784.6253.65731.2646Final EconomicsSolutions ManualAnalysis Using Final Ratios11. You have the following information taken from the 1996 final statements of Computroni

34、csCorporation and Digitek Corporation: (All figures are in $ millions exceptfor the second and final three rows.)Compare and contrast the fin this chapter.al performance of the two companies using the final ratios discussed inSOLUTION:To compute total shaolder returns we need to first compute divide

35、nds per share and then follow the definitionchange in share price plus dividend divided by beginning share price:For Computronix the dividend per share is (.4 x $153.7 million) /200 million shares = $.3074, and total shaolderreturn is: ($12 - $15 + .3074) /$15 = -17.95%For Digitek the dividend per s

36、hare is (.2 x $239 million) /100 million shares = $.478,and total sha ($40 - $38 + .478) /$38 = 6.52%Ratios:older return is:Total Sha ReturnTimes Interest EarnedolderFirmROEROAROS ATODebt/EquityComputronix Digitek-17.95%6.52%13.8%10.2%12.9%11.7%9.4% 1.378.9% 1.315.80683.9791.210.47·olders than

37、did Computronix: 6.52% vs. -17.95%, despite theDigitek offered a higher return to its shafact that Computronix had a higher ROE, a higher ROA, a higher ROS, and a higher ATO.···Average liabilities for Computronix were $1,344.6 million and for Digitek $1,112.4 million. Times interest e

38、arned was 5.806 for Computronix and 83.979 for Digitek.Computronix had a higher debt/equity ratio (liabilities / equity).Review of Final Statements12. You are thinking of taking a trip to Florida for your spring vacation, which begins two months fromnow. You use Excitespreview Travel service on the

39、www to find the cheapest round trip fare fromBoston to Fort Lauderdale. It tells you that the cheapest airline is AirTran. You have never heard of thisairline before and are concerned that it may have gone out of business before you can use your ticket twomonths from now. How can you use final data

40、available on the www (e.g. at) toChapter 3 - 6Copyright ©2009 Pearson Education, Inc. Publishing as Prentice Hall.ComputronixDigitekNet income153.7239.0Dividend payout ratio40%20%EBIT317.6403.1Interest expense54.74.8Average assets2,457.93,459.7Sales3,379.34,537.0Average shaolders equity1,113.32

41、,347.3Market price of the common stock: beginning of year$15$38end of year$12$40Shares of common stock outstanding200 million100 millionFinal EconomicsSolutions Manualinvestigate the risk to you of buying an AirTr for your purposes?SOLUTION:ket? Which firms are in the relevant “benchmark” groupYou c

42、an use relevant final ratios available from the final information disd, such as profitability,turnover, final leverage, liquidity and market value ratios. These ratios can then be compared with the ratios of acomparable set of companies, namely other airline companies that are “pure plays.”13. Refer

43、 to the following final statements:INCOME STATEMENT20x6$1,200,000 750,000450,00020x7$1,500,000 937,500562,50020x8Sales COGSGross Margin Operating Expenses Advertising ExpenseRent Expense50,00072,00048,00015,000265,000106,000159,00055,650103,35041,34062,01062,50090,00060,00018,750331,250113,000218,25

44、076,388141,86356,74585,118SalesCommission ExpenseUtilities Expense EBITInterest Expense Taxable Income Taxes (35%) Net IncomeDividends (40% payout)Change in Retained EarningsBALANCE SHEETAssetsCash Receivables InventoryProperty, Plant, EquipmentTotal Assets$300,000 200,000700,0001,800,000$3,000,000$

45、375,000 250,000875,0002,250,000$3,750,000Liabilities and ShaLiabilities Payablesolders Equity$300,000 500,000800,000$375,000 989,882900,000Short-term debt (10% interest)Long-term debt (7% interest)Shaolders EquityCommon Stock Retained EarningsTotal Liabilities and Equity1,100,000300,000$3,000,0001,1

46、00,000385,118$3,750,000Chapter 3 - 7Copyright ©2009 Pearson Education, Inc. Publishing as Prentice Hall.Final EconomicsSolutions Manuala.b.c.d.Determine which items varied in constant proportion to sales between 20x6 and 20x7. Determine the rate of growth in sales that was achieved from 20x6 to

47、 20x7.What was the firms return on equity for 20x7? Can you calculate it for 20x6?What was the firms external (additional) funding requirement determined to be for 20x7? How was the funding obtained?SOLUTION:a.INCOME STATEMENTSales COGSGross Margin Operating Expenses Advertising ExpenseRent Expense2

48、0x6$1,200,000 750,000450,00020x7$1,500,000 937,500562,50020x6100.0%62.5%37.5%20x7100.0%62.5%37.5%50,00072,00048,00015,000265,000106,000159,00055,650103,35041,34062,01062,50090,00060,00018,750331,250113,000218,25076,388141,86356,74585,1184.2%6.0%4.0%1.3%22.1%8.8%13.3%4.6%8.6%3.4%5.2%4.2%6.0%4.0%1.3%2

49、2.1%7.5%14.6%5.1%9.5%3.8%5.7%SalesCommission ExpenseUtilities Expense EBITInterest Expense Taxable Income Taxes (35%) Net IncomeDividends (40% payout)Change in Retained EarningsBALANCE SHEETAssetsCash Receivables InventoryProperty, Plant, EquipmentTotal Assets20x620x720x620x7$300,000 200,000700,0001

50、,800,000$3,000,000$375,000 250,000875,0002,250,000$3,750,00025.0%16.7%58.3%150.0%250.0%25.0%16.7%58.3%150.0%250.0%Liabilities and Shaolders EquityLiabilities PayablesShort-term debt (10% interest)Long-term debt (7% interest)$300,000 500,000800,000$375,000 989,882900,00025.0%41.7%66.7%25.0%66.0%60.0%

51、Shaolders EquityCommon Stock Retained EarningsTotal Liabilities and Equity1,100,000300,000$3,000,0001,100,000385,118$3,750,00091.7%25.0%250.0%73.3%25.7%250.0%Chapter 3 - 8Copyright ©2009 Pearson Education, Inc. Publishing as Prentice Hall.Final EconomicsSolutions Manuala.(1,500,000 1,200,000)/1

52、,200,000 = .25 or 25%b.9.83% = (141,863/(1,400,000 + 1,485,118)/2). Since the denominator is the average of the period beginningand ending shaolders equity, 20x5 ending shaolders equity would be needed to calculate ROE for 20x6.The retained earnings in 20x5 can be calculated: RE19x5= 300,000 - 62,01

53、0 = 237,990. AssuStock19x5 = 1,100,000.no additional stock was issued in 20x6, hence, CommonROE = (103,350/(1,337,990 + 1,400,000)/2) = 7.55%c.$589,882. $489,882 was acquired from short-term debt and the remaining $100,000 from long-term debt.d.INCOME STATEMENT20x2$1,725,000 1,078,125646,875Sales CO

54、GSGross Margin Operating Expenses Advertising Expense Rent Expense$72,450103,50069,00022,425379,500151,9881227,51279,629147,88344,365103,518SalesCommission ExpenseUtilities ExpenseEBITInterest ExpenseTaxable Income Taxes (35%) Net IncomeDividends (30% payout) Change in Retained EarningsBALANCE SHEET

55、AssetsCash Receivables InventoryProperty, Plant, Equipment Total Assets$ 431,250288,0751,005,6752,587,500$4,312,500Liabilities and Sha Liabilities Payablesolders Equity431,250889,882Short-term debt (10% interest) Long-term debt (7% interest)Shaolders EquityCommon StockRetained Earnings489,290$4,312,500Total Liabilities and Equity1Interest Expense