33:390:310 Lecture Notes - Lecture 8: Cumulative Voting, Valuation Using Multiples, Current Yield
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I just need help with the chart at the bottom. Here is all the information for the company.
Accounts receivable for 2015__$300____
Total current assets= cash and marketable securities + account rec + inventory
1,542=347+a/r+895
Accounts rec = $300
Accounts payable for 2014__$319_____
Total Current Liabilities = Accrued Wages and taxes + Accounts Payable + Notes Payable
997 = 257 + Accounts Payable + 421
Accounts Payable = $319
c. Gross plant and equipment for 2015_$3,159______
Net Plant and Equipment = Gross Plant and Equipment â Depreciation
2,872 = Gross Plant and Equipment â 287
Gross Plant and Equipment = $3,159
d. Long-term debt for 2014__$132_____
Total Debt = Long-term Debt + Current Liabilities
1,129 = Long-term Debt + 997
Long-term Debt = $132
e. Common stock and paid-in surplus (250 million shares) for 2014 $300
Total Equity = Preferred Stock + Common Stock and paid surplus + Retained Earnings
1,472 = 30 + Common Stock and paid surplus + 1,142
Common Stock and paid surplus = $300
f. Total FA for 2015 $3,393
Total FA = Net Plant and Equipment + Other long-term assets
Total FA = $2,872 + 521
Total FA = $3,393
g. Net sales for 2015_______
Net Sales â Cost of Goods Sold = Gross Profit
Net Sales â 987 = 1,396
Net Sales = $2,383
h. Less: Cost of goods sold for 2014_______
Net Sales â Cost of Goods Sold = Gross Profit
2,018 - Cost of Goods Sold = 1,189
Cost of Goods Sold = $829
i. Less: Interest for 2015_______
EBIT- Interest = EBT
1,086 â Interest = 949
Interest = $137
j. Less: Taxes for 2015_______
Net Income = EBT â Taxes
644 = 949 â Taxes
Taxes = $305
k. Earnings per share (EPS) for 2015_______
Earning per share for 2015 = Net Income available to Common Stockholders / No of Common Stocks
Earning per share =566 / 250
Earning per share = $2.27 per share
l. Dividends per share (DPS) for 2014_______
Dividend per share = Common stock Dividend/ No of Common Stocks
Dividend per share = 219/250
Dividend per share = $0.88 per share
m. Book value per share (BVPS) for 2015_______
Book value per share= total common stockholderâs equity/No of Common Stocks
Book value per share= 1,789/250
Book value per share= 7.16
n. Net income $664
o. Increase in accrued wages and taxes $309-$257= $52
p. Increase in inventory â(895-797)= $ -98
q. Net cash flow from operating activities 664+287+52+62-41-98=$926
r. Increase in other long-term assets â(521-487)= $-34
s. Net cash flow from investing activities -343-34=-377
t. Increase in notes payable 492-421= 71
u. Pay dividends 98+219= 317
v. Net cash flow from financing activities 71+147-317= -99
w. Plus: Net income for 2015 $664
x. Preferred stock $98
Worldwide Widget Manufacturing, Inc.
Company | Industry | Comparison | |
Current Ratio | 2.2 times | ||
Quick Ratio | 1.1 times | ||
Cash Ratio | 0.35 times | ||
Inventory Turnover | 2 times or 1 time | ||
Days' sales in inventory | 135 days or 335 days | ||
Average payment period | 110 days | ||
Sales to working capital | 3 times | ||
total asset turnover | 0.6 times | ||
debt to equity | 1.1 times | ||
profit margin | 16.5% | ||
gross profit margin | 48.13% | ||
ROA | 8.78% | ||
ROE | 19.45% | ||
Dividend payout | 32% |
A. Use the information found in Worldwide Widget Manufacturingâs financial statements to calculate all of the listed financial ratios in the above table for your company. Then, for each ratio, provide a comparison of the companyâs result with the industry standards, indicating if your companyâs results are lower than, higher than, slower than, or faster than the industry standards.
B. Calculate your companyâs internal and sustainable growth rates.
Reedyâs International
In the world of Archery knowledge, customer service and attention to detail are prerequisites to success. Mathew Reedy had it all. During 2015, his local Archery sales, service, instruction and excursion company, Reedyâs, rocketed to $100 million in sales after 21 years in business. His company gave the archery community a place to go to get fitted for just the right bow for that fresh venison, turkey, elk and even wild boar.
Reedyâs had made it. The companyâs historical growth was so spectacular that no one could have predicted it. However, securities analysts speculated that Reedyâs could not keep up the pace. They warned that competition is fierce in the archery and hunting retail sales industry and that the firm might encounter little or no growth in the future. They estimated that stockholders also should expect no growth in future dividends.
Contrary to the conservative securities analysts, Mathew Reedy feels that the company could maintain a constant annual growth rate in dividends per share of 9.5% in the future, or possibly 13% for the next 2 years and 9.5% thereafter. Reedy based his estimates on an established long-term expansion plan into other states, Canadian and Mexican markets. Venturing into these markets was expected to cause the risk of the firm, as measured by the beta on its stock, to increase immediately from 1.1 to 1.5.
In preparing the long-term financial plan, Reedyâs chief financial officer, Eric Disbrow, has assigned a junior financial analyst, Chris Reed, to evaluate the firmâs current stock price. He has asked Chris to consider the conservative predictions of the securities analysts and the aggressive predictions of the company founder, Mathew Reedy.
Eric has compiled the 2015 financial data to aid his analysis:
Data item | 2015 value | |
Earnings per share (EPS) | $4.13 | |
Price per share of common stock | $39.00 | |
Book value of common stock equity | $6,000,000 | |
Total common shares outstanding | 300,000 | |
Common stock dividend per share | $2.05 | |
Data Points | ||
Beta, b | Required Return, K | |
0 | 4.5% | |
.25 | 6.75% | |
.5 | 9% | |
.75 | 11.25% | |
1 | 13.5% | |
1.25 | 15.75% | |
1.5 | 18% | |
To Do
a. What is the firmâs current book value per share?
b. What is the firmâs current P/E ratio?
c. (1) What is the current required return for Reedy stock (use CAPM)?
(2) What will be the new required return for Reedy stock assuming that they expand into Canadian, Mexican and other state markets as planned (use CAPM)?
d. If the securities analysts are correct and there is no growth in future dividends, what will be the value per share of the Reedy stock? (Note: use the new required return on the companyâs stock here)
e. (1) If Mathew Reedyâs predictions are correct, what will be the value per share of Reedyâs stock if the firm maintains a constant annual 9.5% growth rate in future dividends? (Note: Continue to use the new required return here.)
(2) If Mathew Reedyâs predictions are correct, what will be the value per share of Reedyâs stock if the firm maintains a constant annual 13% growth rate in dividends per share over the next 2 years and 9.5% thereafter? (Note: Use the new required return here.)
f. Compare the current (2016) price of the stock and the stock values found in parts a, d, and e. Discuss why these values may differ. Which valuation method do you believe most clearly represents the true value of the Reedyâs stock?
PLEASE SHOW ALL WORK. THANK YOU.