1. Use the attached balance sheet and income statement to compute the required financial ratios for 2012. Use 360 for the number of days in a year. The computations for 2011 are already done for you.

Current ratio_________________________

Quick ratio__________________________

Inventor turnover____________________

Average Collection Period_____________

Total asset turnover__________________

Net profit margin____________________

Operating profit margin_______________

Times Interest Earned_________________

Debt/Net Worth Ratio_________________

Return on Equity ratio__________________

2. Using the computed financial ratios from question 1, compare Grounds Keeperâs performance from 2011 to 2012. Address what areas the company has improved and what areas it has not

A.)Liquidity

B.) Activity / turnover / efficiency

C.) Profitability

D.) Leverage / use of debt / solvency

3. If you were the CEO of Grounds Keeper, what area(s) would you concentrate on to improve the performance of the company?

4. Define the terms capital structure, cost of capital, and working capital. Focus on how they are different from each other and impact both profitability and risk.

5. Determine Grounds Keeperâs capital structure and working capital.

6. If Grounds Keeper has a required rate of return on its long-term debt of 9% (before taxes) and a required rate of return on its common stock, a tax rate of 40%, what is its weighted average cost of capital (WACC) for 2012? How could Grounds Keeper lower its WACC? (HINT: you will need to look at the balance sheet to determine the weight of debt to equity.

7. What are the advantages to Grounds Keeper in using money market instruments as financing? How does this related to financing net working capital?

8. Explain what Grounds Keeper should consider when deciding whether to issue stocks or bonds? Answer using at least 3 different characteristics comparing and contrasting stocks and bonds.

9. Define money market instruments; list at least one type of security that would be considered a money market instrument. What are the advantages to Grounds Keeper in using money market instruments as financing? What are the disadvantages?

	Grounds Keeper
	Consolidated Balance Sheets
	(Dollars in thousands)
	2012	2011
Assets
Current assets:
Cash and cash equivalents	78,240	44,395
Receivables	399,891	340,062
Inventories	844,737	736,677
Total current assets	1,322,868	1,121,133

Fixed assets, net	1,244,384	889,613
Other long-term assets	1,048,537	1,187,141
Total assets	3,615,789	3,197,887

Liabilities and Stockholdersâ Equity
Current liabilities:
Accounts payable	309,222	319,465
Accruals	201,017	145,240
Notes payable	9,748	6,669
Total current liabilities	519987	471374
Long-term debt	834574	814298
Total liabilities	1,354,561	1,285,672
Stockholdersâ equity:
Common stock, $0.10 par value:	15,268	15,447
Additional paid-in capital	1,464,560	1,499,616
Retained earnings	781400	397152
Total stockholdersâ equity	2,261,228	1,912,215
Total liabilities and stockholdersâ equity	3,615,789	3,197,887

Grounds Keeper

Consolidated Statements of Operations

(Dollars in thousands except per share data)

2012

2011

Net sales

3,889,426

2,642,390

Cost of sales

2,589,799

1,746,274

Gross profit

1,299,627

896,116

Selling and operating expenses

481,493

348,696

General and administrative expenses

219,010

187,016

Operating income

599,124

360,404

Interest expense

22,983

57,657

Income before income taxes

576,141

302,747

Income tax expense

212,641

101,699

Net Income

363,500

201,048

Basic income per share:

Average shares outstanding

154,933,948

146,214,860

Earnings per common share

2.35

1.38

Current Ratio	Current assets/ Current liabilities
Quick Ratio	Current assets â inventory/ Current liabilities
Inventory Turnover	Cost of goods sold/ Inventory
Receivables Turnover	Sales/ Accounts receivables
Average Collection Period	Receivables/ Sales per day
Fixed Asset Turnover	Sales/ Fixed assets
Total Asset Turnover	Sales/ Total Assets
Gross Profit Margin	Revenues - Cost of goods sold/ Sales
Operating Profit Margin	Earnings before interest and taxes/ Sales
Net Profit Margin	Net income/ Sales
Return on Total Assets	Net income/ Total assets
Debt/Net Worth Ratio	Total Debt/ Total Equity
Times-Interest-Earned	Operating Income/ Interest expense
Return on Equity	Net income/ Total equity

magentalouse290

Grand Canyon University

Complete the following problems from the textbook: Chapter 1, P1-2 Chapter 2, P2-4, P2-6, and Integrative Case 1 Follow these instructions for completing and submitting your assignment: Do all work in Excel. Do not submit Word files or *.pdf files. Submit a single spreadsheet file for this assignment. Do not submit multiple files. Place each problem on a separate spreadsheet tab. Label all inputs and outputs and highlight your final answer. Follow the directions in "Guidelines for Developing Spreadsheets."

P1â2 Accrual income versus cash flow for a period Thomas Book Sales, Inc., supplies

textbooks to college and university bookstores. The books are shipped with a proviso

that they must be paid for within 30 days but can be returned for a full refund

credit within 90 days. In 2014, Thomas shipped and billed book titles totaling

$760,000. Collections, net of return credits, during the year totaled $690,000. The

company spent $300,000 acquiring the books that it shipped.

a. Using accrual accounting and the preceding values, show the firmâs net profit for

the past year.

b. Using cash accounting and the preceding values, show the firmâs net cash flow

for the past year.

c. Which of these statements is more useful to the financial manager? Why?

P2â4 Interest versus dividend income During the year just ended, Shering Distributors,

Inc., had pretax earnings from operations of $490,000. In addition, during the year

it received $20,000 in income from interest on bonds it held in Zig Manufacturing

and received $20,000 in income from dividends on its 5% common stock holding in

Tank Industries, Inc. Shering is in the 40% tax bracket and is eligible for a 70% dividend

exclusion on its Tank Industries stock.

a. Calculate the firmâs tax on its operating earnings only.

b. Find the tax and the after-tax amount attributable to the interest income from

Zig Manufacturing bonds.

c. Find the tax and the after-tax amount attributable to the dividend income from

the Tank Industries, Inc., common stock.

d. Compare, contrast, and discuss the after-tax amounts resulting from the interest

income and dividend income calculated in parts b and c.

e. What is the firmâs total tax liability for the year?

P2â6 Capital gains taxes Perkins Manufacturing is considering the sale of two nondepreciable

assets, X and Y. Asset X was purchased for $2,000 and will be sold today for

$2,250. Asset Y was purchased for $30,000 and will be sold today for $35,000. The

firm is subject to a 40% tax rate on capital gains.

a. Calculate the amount of capital gain, if any, realized on each of the assets.

b. Calculate the tax on the sale of each asset.

Merit Enterprise Corp.

Sara Lehn, chief financial officer of Merit Enterprise Corp., was reviewing her

presentation one last time before her upcoming meeting with the board of directors.

Meritâs business had been brisk for the last 2 years, and the companyâs CEO

was pushing for a dramatic expansion of Meritâs production capacity. Executing the

CEOâs plans would require $4 billion in capital in addition to $2 billion in excess

cash that the firm had built up. Saraâs immediate task was to brief the board on options

for raising the needed $4 billion.

Unlike most companies its size, Merit had maintained its status as a private

company, financing its growth by reinvesting profits and, when necessary, borrowing

from banks. Whether Merit could follow that same strategy to raise the $4 billion

necessary to expand at the pace envisioned by the firmâs CEO was uncertain,

although it seemed unlikely to Sara. She had identified the following two options for

the board to consider.

Option 1: Merit could approach JPMorgan Chase, a bank that had served Merit

well for many years with seasonal credit lines as well as medium-term loans. Lehn

believed that JPMorgan was unlikely to make a $4 billion loan to Merit on its own,

but it could probably gather a group of banks together to make a loan of this magnitude.

However, the banks would undoubtedly demand that Merit limit further borrowing

and provide JPMorgan with periodic financial disclosures so that it could

monitor Meritâs financial condition as Merit expanded its operations.

Option 2: Merit could convert to public ownership, issuing stock to the public

in the primary market. With Meritâs excellent financial performance in recent years,

Sara thought that its stock could command a high price in the market and that many

investors would want to participate in any stock offering that Merit conducted.

Becoming a public company would also allow Merit, for the first time, to offer

employees compensation in the form of stock or stock options, thereby creating

stronger incentives for employees to help the firm succeed. On the other hand, Sara

knew that public companies faced extensive disclosure requirements and other regulations

that Merit had never had to confront as a private firm. Furthermore, with

stock trading in the secondary market, who knew what kind of individuals or institutions

might wind up holding a large chunk of Merit stock?

TO DO

a. Discuss the pros and cons of option 1, and prioritize your thoughts. What are the

most positive aspects of this option, and what are the biggest drawbacks?

b. Do the same for option 2.

c. Which option do you think that Sara should recommend to the board, and why?

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Create a spreadsheet to conduct a tax analysis for HemingwayCorporation and determine the following:
a.	What is Hemingwayâs current annual corporate tax liability?
b.	What is Hemingwayâs current average tax rate?
c.	If Hemingway finances its expansion using cash reserves, whatwill be its new corporate tax liability and average tax rate?
d.	If Hemingway finances its expansion using debt, what will be itsnew corporate tax liability and average tax rate?
e.	What would you recommend that the firm do? Why? Principles ofManagerial Finance 15th Ed Zutter Smart Chapter 2