AFM 472 Study Guide - Final Guide: Income Statement, Current Liability, Current Asset
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VERY important to have accuracy forthese..thanks
Ryan's Cars had the following accounts andamounts in its financial statements on December 31, 2010. Assumethat all balance sheet items reflect account balances at December31, 2010, and that all income statement items reflect activitiesthat occurred during the year then ended.
Interest expense | $ | 34,000 |
Paid-in capital | 87,000 | |
Accumulated depreciation | 32,000 | |
Notes payable (long-term) | 289,000 | |
Rentexpense | 71,000 | |
Merchandise inventory | 834,000 | |
Accounts receivable | 186,000 | |
Depreciation expense | 12,000 | |
Land | 123,000 | |
Retained earnings | 426,480 | |
Cash | 139,000 | |
Costof goods sold | 1,759,000 | |
Equipment | 65,000 | |
Income tax expense | 231,480 | |
Accounts payable | 101,000 | |
Sales revenue | 2,519,000 | |
Required: | |
(a) | Calculate the difference between current assets and currentliabilities for Ryan's Cars at December 31, 2010. (Omit the "$" sign in yourresponse.) |
Difference | $ |
(b) | Calculate the total assets at December 31, 2010. (Omit the "$" sign in yourresponse.) |
Total assets | $ |
(c) | Calculate the earnings from operations (operating income) for theyear ended December 31, 2010. (Omitthe "$" sign in your response.) |
Operating income | $ |
(d | Calculate the net income (or loss) for the year ended December 31,2010. (Omit the "$" sign in yourresponse.) Select one (Net income/Net loss) $________
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Part A: Weighted Average Cost of Capital (WACC)
1. Go to http://thatswacc.com/[1] and enter the ticker symbol for the stock you selected and click on the tab entitled âCalculate WACC.â
2. Complete the following tables:
Name of Company/Stock | The Coca Cola Company |
Ticket Symbol | KO |
From the http://thatswacc.com/ results for your company:
WACC | 7.81% |
Cost of Debt, iD | 1.99% |
Corporate Tax Rate, TC | 23.98% |
Total Debt, D | 44,213,000,000 |
Total Equity, E | 201,070,000,000 |
Total Firm Value, V | 244,049,000,000 |
Cost of Equity, iE | 9.16% |
CAPM Components
Beta, β | 0.77 |
Historical market return, iM | Assume 11% |
Risk-free rate, iF | Assume 3% |
3. Using data in the table confirm the accuracy of the siteâs WACC calculation:
Weight of Equity | .8197469861 |
Weighted Average Cost of Equity | .0750888239 or 7.51% |
Weight of Debt | .1802530139 |
Pre-Tax Weighted Average Cost of Debt | .003587035 or .36% |
After-Tax Weighted Cost of Debt | .0027265178 or .27% |
Weighted Average Cost of Capital | .0078540019 or 7.78% |
Part B: Dividend Payout and Growth Ratios:
Internal growth rate = (ROA â RR) / [1-(ROA â RR)]
where RR = Retention ratio = (Addition to retained earnings)/Net income
The internal growth rate measures the amount of growth a firm can sustain if it uses only internal financing (retained earnings) to increase assets
Sustainable growth rate= (ROE â RR) / [1-(ROE â RR)]
If the firm uses retained earnings to support asset growth, the firmâs capital structure will change over time, i.e., the share of equity will increase relative to debt
To maintain the same capital structure managers must use both debt and equity financing to support asset growth
The sustainable growth rate measures the amount of growth a firm can achieve using internal equity and maintaining a constant debt ratio
1. For the firm selected for Part A, calculate its internal growth rate for the last fiscal year:
ROA= 8.16% RR= .22 Net Income for December 2015 = 7,351,000
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2. Calculate the firmâs sustainable growth rate for the last fiscal year:
ROE= 28.77% RR= .22 Net Income for December 2015 = 7,351,000
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Part C
1. Consider your results for Parts A and B. If the chosen firm grows at its internal growth rate, increasing assets only with its retained earnings, how will this likely affect its WACC? Show calculations.
Hi Everyone, I just need help on Part C question 1. I'm confused about the calculations they are asking for to the show the work needed to answer that question. If someone could explain their calculations for the question, I would really appreciate it!
Above I listed all of my work and calculations that I've done for Part A and Part B.