1. Review the requirements of the Chapter 3 Mini-Case, parts b through j. Then apply those requirements to do an analysis of Brinker International, which is a real company. Don't complete the minicase itself, just Brinker. Do the analysis on the basis of the figures for the most recent year. For part g, use the 2 most recent years. Download 10K financial statements for the most recent year for Brinker. A good source is the company's home page. Also compare the Brinker ratios to the industry averages and commend on significant differences. You'll note that some of the company's ratios you calculate won't agree with those found on the web page. Ratios are calculated in different ways, however, you should use the formulas in the text. Also, you won't find all of the industry averages, but you will find most of them. You'll need the company's stock price for several of the ratios; use the fiscal year end price. The company's stock symbol is EAT.

(Visit Brinker web site) (Links to an external site.)

(Access industry averages) (Links to an external site.)

Note:

All quantitative work must be done in Excel; Word is not acceptable. You can download Brinker's 10K (annual financial statements they send the Securities and Exchange Commission each year) at the following site:

http://phx.corporate-ir.net/phoenix.zhtml?c=119205&p=irol-sec

You then need to take the various items off the financial statements such as Revenues, Inventory, etc. and calculate the ratios to answer the case questions.

b. calculate the 2014 current and quick ratios based on the projected balance sheet and income statement data. What can you say about the companyâs liquidity position in 2012, 2013, and as projected for 2014? We often think of rations as being useful 1. To managers to help run the business, 2. To bankers for credit analysis, and 3. To stockholders for stock valuation. Would these different types of analysts have an equal interest in the liquidity ratios?

c. Calculate the 2014 inventory turnover, days sales outstanding, fixed assets turnover, and total assets turnover. How does Brinker utilization of assets stack up against that of other firms in its industry?

d. calculate the 2014 debt ratio, liabilities to assets ratio, times-interest-earned, and EBITDA coverage ratios. How does Brinker compare with the industry with respect to financial leverage: what can you conclude from these ratios:

e. Calculate the 2014 profit margin, basic earning power, return on assets, and return on equity. What can you say about these ratios?

f. Calculate the 2014 price/earnings ratio, price/cash flow ratio, and market/book ratio. Do these ratios indicate the investors are expected to have a high or low opinion of the company?

g. Perform a common size analysis and percentage change analysis. What do these analyses tell you about Brinker?

h. use the extended DuPont equation to provide a summary and overview of Brinkerâs financial condition as projected for 2014. What are the firmâs major strengths and weaknesses?

i. What are some potential problems and limitations of financial ratio analysis?

j. What are some qualitative factors that analysts should consider when evaluating a companyâs likely future financial performance.

PLEASE SHOW YOUR WORK. PLEASE LIST YOUR ANSWERS ON THE LEFT HAND SIDE. SOMETIMES FILES ARE POSTED TO BIG AND ARE UNABLE TO SEE WORK AND ANSWERS. I WAS ASKED FOR A CASE STUDY, AFER REVIEW, THERE ISN'T ONE. THIS IS ALL THE INFOR THAT IS GIVEN FOR THE PROBLEM. THANK YOU.

Suppose you have been hired as a financial consultant to Defense Electronics, Inc. (DEI), a large, publicly traded firm that is the market share leader in radar detection systems (RDSs). The company is looking at setting up a manufacturing plant overseas to produce a new line of RDSs. This will be a five-year project. The company bought some land three years ago for $4.3 million in anticipation of using it as a toxic dump site for waste chemicals, but it built a piping system to safely discard the chemicals instead. The land was appraised last week for $5.1 million. In five years, the aftertax value of the land will be $5.5 million, but the company expects to keep the land for a future project. The company wants to build its new manufacturing plant on this land; the plant and equipment will cost $31.84 million to build. The following market data on DEIâs securities is current:

Debt: 228,000 7.2 percent coupon bonds outstanding, 25 years to maturity, selling for 108 percent of par; the bonds have a $1,000 par value each and make semiannual payments.

Common stock: 8,600,000 shares outstanding, selling for $70.80 per share; the beta is 1.1.

Preferred stock: 448,000 shares of 5 percent preferred stock outstanding, selling for $80.80 per share and and having a par value of $100.

Market: 7 percent expected market risk premium; 5 percent risk-free rate.

DEI uses G.M. Wharton as its lead underwriter. Wharton charges DEI spreads of 8 percent on new common stock issues, 6 percent on new preferred stock issues, and 4 percent on new debt issues. Wharton has included all direct and indirect issuance costs (along with its profit) in setting these spreads. Wharton has recommended to DEI that it raise the funds needed to build the plant by issuing new shares of common stock. DEIâs tax rate is 35 percent. The project requires $1,250,000 in initial net working capital investment to get operational. Assume Wharton raises all equity for new projects externally.

a. Calculate the projectâs initial Time 0 cash flow, taking into account all side effects. Assume that the net working capital will not require flotation costs. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars.)

Solve: Cash Flow $

b. The new RDS project is somewhat riskier than a typical project for DEI, primarily because the plant is being located overseas. Management has told you to use an adjustment factor of 2 percent to account for this increased riskiness. Calculate the appropriate discount rate to use when evaluating DEIâs project. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Solve: Discount Rate (percentage)

c. The manufacturing plant has an eight-year tax life, and DEI uses straight-line depreciation. At the end of the project (that is, the end of Year 5), the plant and equipment can be scrapped for $4.3 million. What is the aftertax salvage value of this plant and equipment? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars.)

Solve: for aftertax salvage value $

d. The company will incur $6,600,000 in annual fixed costs. The plan is to manufacture 16,000 RDSs per year and sell them at $10,700 per machine; the variable production costs are $9,300 per RDS. What is the annual operating cash flow (OCF) from this project? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars.)

Solve: Operating Cash Flow $

e. DEIâs comptroller is primarily interested in the impact of DEIâs investments on the bottom line of reported accounting statements. What will you tell her is the accounting break-even quantity of RDSs sold for this project? (Do not round intermediate calculations and round your final answer to the nearest whole number.)

Solve: Break-even Quantity (units)

f. Finally, DEIâs president wants you to throw all your calculations, assumptions, and everything else into the report for the chief financial officer; all he wants to know is what the RDS projectâs internal rate of return (IRR) and net present value (NPV) are. Assume that the net working capital will not require flotation costs. (Enter your NPV answer in dollars, not millions of dollars (e.g., 1,234,567). Enter your IRR answer as a percent. Do not round intermediate calculations and round your final answers to 2 decimal places.)

Solve: IRR (percentage)

NPV (dollars)