FIN 300 Study Guide - Final Guide: Fixed Asset, Balance Sheet, Annual Percentage Rate

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6 Dec 2017

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Chapter 1 - corporate finance and finance managers. Exemptions from double taxation (business income trust, energy trust, reit) Market order - buy at best ask price. Chapter 2 - system analysis (gaap) (fasb) financial accounting standards board (iasb) international accounting standards board. Current asset - cash, market security, a/r, inventory. Long term asset - over a year, depreciation. Current liability - a/p, notes payable, short-term debt. Long term liability - longer than a year. Stock option - by number of stocks at a specific price and period. Convertible bond - option to convert bond to stock. Operating activity - a/r, a/p, wc, inventory, add back depreciation. Inventory activity - subtract capital expenditure, asset purchases, investments, acquisitions. Financial activity - dividends, stock sale, re purchase, short and long term borrowing. Sarbanes-oxley act (sox): legislation passed by the u. s. Congress in 2002, intended to improve the accuracy of financial information given to both boards and shareholders.

Related Questions

1) The subarea of finance where you need to value uncertain cash flows occurring at different points in time is:

a. investments

b. corporate finance

c. capital markets

d. bank management.

e. all of the above subareas

2) Which of the following statements is correct?

a. One advantage of forming a corporation is that equity investors are usually exposed to less liability than they would be in a partnership.

b. Corporations face fewer regulations than sole proprietorships.

c. One disadvantage of operating a business as a sole proprietor is that the firm is subject to double taxation, because taxes are levied at both the firm level and the Owner level.

d. It is generally less expensive to form a corporation than a proprietorship because, with a proprietorship, extensive legal documents ace required.

e. If a partnership goes bankrupt, each partner is exposed to liabilities only up to the amount of his or her investment in the business.

3) Which of the following statements is correct?

a. Corporations generally face fewer regulations than sole proprietorships.

b. Corporate shareholders are exposed to unlimited liability.

c. It is usually easier to transfer ownership in a corporation than in a partnership.

d. Corporate shareholders are exposed to unlimited liability, but this factor is offset by the tax advantages of incorporation.

e. Less of a corporation's income is generally subject to federal taxes.

4) The primary operating goal of a publicly-owned firm interested in serving its stockholders should be to:

a. Maximize its expected total corporate income.

b. Maximize its expected EPS.

c. Minimize the chances of losses.

d. Maximize the stock price per share over the long run, which is the stockâs intrinsic value.

e. Maximize the stock price on a specific target date.

5) Which of the following is correct?

a. In most corporations, the CFO ranks above the CEO.

b. By Law in most states, the chairman of the board must also be the CEO.

c. It is possible for a person to simultaneously serve as CEO and chairman of the board, though many corporate control experts believe it is bad to vest both offices in the same person.

d. The CFO generally reports to the firm's chief accounting officer, who is normally the controller.

e. The CFO is responsible for raising capital and for making sure that capital expenditures are desirable, but he or she is not responsible for the validity of the financial statements, as the controller and the auditors have that responsibility.

6) The primary operating goal of a publicly-owned firm trying to best serve its stockholders should be to

a. Maximize managers' own interests, which are by definition consistent with maximizing shareholders' wealth.

b. Maximize the firmâs expected EPS, which must also maximize the firmâs price per share.

c. Minimize the firmâs risks because most stockholders dislike risk in turn, this will maximize the firmâs stock price.

d. Use a well-structured managerial compensation package to reduce conflicts that may exist between stockholders and managers.

e. Since it is impossible to measure a stock's intrinsic value, the text states that it is better for managers to attempt to maximize the current stock price than its intrinsic value.

7) Which of the following actions would be most likely to reduce potential conflicts of interest between stockholders and bondholders?

a. Compensating managers with stock options.

b. Financing risky projects with additional debt.

c. The threat of hostile takeovers.

d. The use of covenants in bond agreements that limit the firmâs use of additional debt and constrain managers' actions.

e. Abolishing the Security and Exchange Commission.

8) Which of the following actions would be most likely to reduce potential conflicts of interest between stockholders and managers?

a. Pay managers large cash salaries and give them no stock options.

b. Change the corporation's formal documents to make it easier for outside investors to acquire a controlling interest in the firm through a hostile takeover.

c. Beef up the restrictive covenants in the firmâs debt agreements.

d. Eliminate a requirement that members of the board of directors must hold a high percentage of their personal wealth in the firmâs stock.

e. For a firm that compensates managers with stock options, reduce the time before options are vested, i.e., the time before options can be exercised and the shares that are received can be sold.

9) Which of the following mechanisms would be most likely to help motivate managers to act in the best interests of shareholders?

a. Decrease the use of restrictive covenants in bond agreements.

b. Take actions that reduce the possibility of a hostile takeover.

c. Elect a board of directors tlta.t allows managers greater freedom of action.

d. Increase the proportion of executive compensation that comes from stock options and reduce the proportion that is paid as cash salaries.

e. Eliminate a requirement that members of the board of directors have a substantial investment in the firmâs stock.

10) Which of the following is correct?

a. Potential conflicts between stockholders and bondholders are increased if a firm's bonds are convertible into its common stock.

b. Because bankruptcy requires that corporate bondholders be paid in full before stockholders receive anything, bondholders generally prefer to see corporate managers invest in high risk/high return projects rather than low risk/low return projects.

c. There is no good reason to expect a firmâs stockholders and bondholders to react differently to the types of assets in which it invests.

d. Stockholders should generally be happier than bondholders to have managers invest in risky projects with high potential returns as opposed to safe projects with lower expected returns.

e. Bondholders should generally be happier titan stockholders to have managers invest in risky projects with high potential returns as opposed to safe projects with lower expected returns.

11) You recently sold 100 shares of Microsoft stock to your brother at a family reunion. At the reunion your brother gave you a check for the stock and you gave your brother the stock certificates. Which of the following best describes this transaction?

a. This is an example of a direct transfer of capital

b. This is an example of a primary market transaction.

c. This is an example of an exchange of physical assets.

d. This is an example of a money market transaction.

e. This is an example of a derivative market transaction.

12) Which of the following statements is correct?

a. The NYSE does not exist as a physical location. Rather it represents a loose collection of dealers who trade stock electronically.

b. An example of a primary market transaction would be your uncle transferring 100 shares of Walmart stock to you as a birthday gift.

c. Capital market instruments include both long-term debt and common stocks.

d. If your uncle in New York sold 100 shares of Microsoft through his broker to an investor in Los Angeles, this would be a primary market transaction.

e. While the two frequently perform similar functions, investment banks generally specialize in lending money, whereas commercial banks generally help companies raise large blocks of capital from investors.

13) Which of the following is a primary market transaction?

a. You sell 200 shares of IBM stock on the NYSE through your broker.

b. You buy 200 shares of IBM stock from your brother. The trade is not made through a broker--you just give him cash and he gives you the stock.

c. IBM issues 2,000,000 shares of new stock and sells them to the public through an investment banker.

d. One financial institution buys 200,000 shares of IBM stock from another institution. An investment banker arranges the transaction.

e. IBM sells 2,000.000 shares of treasury stock to its employees when they exercise options that were granted in prior years.

14) Money Markets are markets for:

a. Foreign currencies.

b. Consumer automobile loans.

c. Common stocks.

d. Long-term bonds.

e. Short-term debt securities such as Treasury bills and commercial paper.

15) You recently sold 200 shares of Disney stock, and the transfer was made through a broker. This is an example of:

a. A money market transaction.

b. A primary market transaction.

c. A secondary market transaction.

d. A futures market transaction.

e. An over-the-counter market transaction.

16) Which of the following statements is correct?

a. Hedge funds are legal in Europe and Asia, but they are not permitted to operate in the United States.

b. Hedge funds are legal in the United States, but they are not permitted to operate in Europe or Asia.

c. Hedge funds have more in common with investment banks than with any other type of financial institution.

d. Hedge funds have more in common with commercial banks than with any other type of financial institution.

e. Hedge funds are not as highly regulated as most other types of financial institutions.

17) Which of the following factors statements is correct?

a. The New York Stock Exchange is an auction market, and it has a physical location.

b. Home mortgage loans are traded in the money market.

c. If an investor sells shares of stock through a broker, then it would be a primary market transaction.

d. Capital markets deal only with common stocks and other equity securities.

e. While the distinctions are blurring, investment banks generally specialize in lending money, whereas commercial banks generally help companies raise capital from other parties.

18) Which of the following statements is correct?

a. The term "IPO" stands for Introductory Price Offered, and it is the price at which shares of a new company are offered to the public.

b. IPO prices are generally established by the market, and buyers of the new stock must pay the price that prevails at the close of trading on the day the stock is offered to the public.

c. In a "Dutch auction," investors who want to buy shares in an IPO submit bids indicating how many shares they want to buy and the price they are willing to pay. The company determines how many shares it wants to sell. The highest price that enables the company to sell the desired number of shares is the price that all buyers must pay.

d. It is possible that the price set in an IPO is so high that investors will refuse to buy the number of shares that the company wants to sell. In this situation, the IPO is said to be oversubscribed.

e. It is possible that the price set in an IPO is so low that investors will want to buy more shares than the company wants to sell. In that case, the company will have to issue more shares than it wants to sell.

19) The stock market is thought to be efficient because:

a. There are many brokers working the exchange floors

b. Computers can make very fast calculations these days

c. There are many stock analysts following the same stocks

d. Stocks are available and are very inexpensive

e. Speed trading is now an acceptable trading technique

20) If the stock is priced correctly but with better management the firm could be worth even more, then the firm would be:

a. A potential target for a stock investor

b. A potential target for a private equity firm

c. A potential target for a bond fund

d. A potential target for the SEC

e. A potential target for share repurchases

Question

Analysis of Financial Statements

Balance Sheets

EXHIBITS: INPUT DATA (XYZ)

Table 1 Balance Sheets

Assets	2013E	2012	2011
cash	$ 85,632	$7,282	$57,600
Acount Receivable	878,000	632,160	351,200
Inventories	1,716,480	1,287,360	715,200
Total current assets	$2,680,112	$1,926,802	$ 1,124,000
Gross fixed assets	1,197,160	1,202,950	491,000
Less: accumulated depreciation	380,120	263,160	146,200
Net fixed assets	$ 817,040	$ 939,790	$ 344,800
Total assets	$3,497,152	$2,866,592	$ 1,468,800


Liabilities and equity
Accounts payable	$ 436,800	$ 524,160	$ 145,600
Notes payable	300,000	636,808	200,000
Accruals	408,000	489,600	136,000
Total current liabilities	$1,144,800	$1,650,568	$ 481,600
Long term bonds	400,000	723,432	323,432
Total debt	$1,544,800	$2,374,000	$ 805,032
Common stock (100,000 shares)	1,721,176	460,000	460,000
Retained earnings	231,176	32,592	203,768
Total common equity	$1,952,352	$ 492,592	$ 663,768
Total liabilities and equity	$3,497,152	$2,866,592	$ 1,468,800

Analysis of Financial Statements

Income Statements

Table 2

Income Statements

	2013E	2012	2011
Sales	$7,035,600	$6,034,000	$ 3,432,000
Cost of goods sold	5,875,992	5,528,000	2,864,000
Other expenses	550,000	519,988	358,672
Total operating exp. excl. depreciation and amortization	$6,425,992	$6,047,988	$ 3,222,672
EBITDA	$ 609,608	$(13,988)	$ 209,328
Depreciation and amortization	116,960	116,960	18,900
Earnings before interest and taxes (EBIT)	$492,648	$(130,948)	$190,428
Interest expense	70,008	136,012	43,828
Earnings before taxes (EBT)	$ 422,640	$ (266,960)	$ 146,600
Taxes (40%)	169,056	(106,784)	58,640
Net Income	$ 253,584	$ (160,176)	$ 87,960
Earnings per share (EPS)	$ 1.014	$ (1.602)	$ 0.880
Dividends per share (DPS)	$ 0.220	$ 0.110	$ 0.220
Book value per share (BVPS)	$ 7.809	$ 4.926	$ 6.638
Stock price	$ 12.17	$ 2.25	$ 8.50
Shares outstanding	250,000	100,000	100,000
Tax rate	40.00%	40.00%	40.00%
Lease payments	$ 40,000	$ 40,000	$ 40,000
Sinking fund payments	0	0	0

Analysis of Financial Statements

Ratio Analysis

	2013E	2012	2011	Industry Average
Current ratio	*	1.2	2.3	2.7
Quick ratio	*	0.4	0.8	1.0
Inventory turnover	*	4.7	4.8	6.1
Days sales outstanding (DSO)	*	38.2	37.4	32.0
Fixed assets turnover	*	6.4	10.0	7.0
Total assets turnover	*	2.1	2.3	2.6
Debt-to- assets ratio	*	82.8%	54.8%	50.0%
Times interest earned (TIE)	*	-1.0	4.3	6.2
Operating margin	*	-2.2%	5.6%	7.3%
Profit margin	*	-2.7%	2.6%	3.5%
Basic earning power (BEP)	*	-4.6%	13.0%	19.1%
Return on assets(ROA)	*	-5.6%	6.0%	9.1%
Return on equity (ROE)	*	-32.5%	13.3%	18.2%
Price/earnings (P/E)	*	-1.4	9.7	14.2
Market/book (M/B)	*	0.5	1.3	2.4
Book value per share (BVPS)	*	$4.93	$6.64	n.a.

Requiremnts:

Note: Question 1 through 5 has been answered completley, thank you very much. Please I am waiting for the question 6 and 7.

6. Use the extended DuPont equation to provide a summary and overview of XYZâs financial condition as projected for 2013.

7. Use the following simplified 2013 balance sheet to show, in general terms, how an improvement in the DSO would tend to affect the stock price. For example, if the company could improve its collection procedures and thereby lower its DSO from 45.6 days to the 32-day industry average without affecting sales, how would that change âripple throughâ the financial statements (shown in thousands below) and influence the stock price?

Accounts receivable $878 Debt $1,545

Other current assets 1,802

Net fixed assets 817 Equity 1,952

Total assets $3,497 Liabilities plus equity $3,497

First, we need to calculate XYZâs daily sales.

Daily sales = Sales / 365

Daily sales = $7,035,600 / 365

Daily sales = $19,275.62

Target A/R = Daily sales Ã Target DSO

Target A/R = $19,276 Ã 32

Target A/R = $616,820

Freed-up cash = old A/R â new A/R

Freed-up cash = $878,000 â $616,820

Freed-up cash = $261,180

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.

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FIN 300 Study Guide - Final Guide: Fixed Asset, Balance Sheet, Annual Percentage Rate

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