财务管理基础斯坦利课后答案Chapter

PAGE/NUMPAGESChapter2DiscussionQuestions2-1.Discusssomefinancialvariablesthataffecttheprice-earningsratio.Theprice-earningsratiowillbeinfluencedbytheearningsandsalesgrowthofthefirm,theriskorvolatilityinperformance,thedebt-equitystructureofthefirm,thedividendpaymentpolicy,thequalityofmanagement,andanumberofotherfactors.Theratiotendstobefuture-oriented,andthemorepositivetheoutlook,thehigheritwillbe.2-2.Whatisthedifferencebetweenbookvaluepershareofcommonstockandmarketvaluepershare?Whydoesthisdisparityoccur?Bookvaluepershareisarrivedatbytakingthecostoftheassetsandsubtractingoutliabilitiesandpreferredstockanddividingbythenumberofcommonsharesoutstanding.Itisbasedonthehistoricalcostoftheassets.Marketvaluepershareisbasedoncurrentassessedvalueofthefirminthemarketplaceandmaybearlittlerelationshiptooriginalcost.Besidesthedisparitybetweenbookandmarketvaluecausedbythehistoricalcostapproach,othercontributingfactorsarethegrowthprospectsforthefirm,thequalityofmanagement,andtheindustryoutlook.Totheextentthesearequitenegativeorpositive,marketvaluemaydifferwidelyfrombookvalue.2-3.Explainhowdepreciationgeneratesactualcashflowsforthecompany.Theonlywaydepreciationgeneratescashflowsforthecompanyisbyservingasataxshieldagainstreportedincome.Thisnon-cashdeductionmayprovidecashflowequaltothetaxratetimesthedepreciationcharged.Thismuchintaxeswillbesaved,whilenocashpaymentsoccur.2-4.Whatisthedifferencebetweenaccumulateddepreciationanddepreciationexpense?Howaretheyrelated?Accumulateddepreciationisthesumofallpastandpresentdepreciationcharges,whiledepreciationexpenseisthecurrentyear'scharge.Theyarerelatedinthatthesumofallpriordepreciationexpenseshouldbeequaltoaccumulateddepreciation(subjecttosomedifferentialrelatedtoassetwrite-offs).2-5.Howistheincomestatementrelatedtothebalancesheet?Theearnings(lessdividends)reportedintheincomestatementistransferredtotheownershipsectionofthebalancesheetasretainedearnings.Thus,whatweearnintheincomestatementbecomespartoftheownershipinterestinthebalancesheet.2-6.Commentonwhyinflationmayrestricttheusefulnessofthebalancesheetasnormallypresented.Thebalancesheetisbasedonhistoricalcosts.Whenpricesarerisingrapidly,historicalcostdatamaylosemuchoftheirmeaning–particularlyforplantandequipmentandinventory.2-7.Explainwhythestatementofcashflowsprovidesusefulinformationthatgoesbeyondincomestatementandbalancesheetdata.Theincomestatementandbalancesheetarebasedontheaccrualmethodofaccounting,whichattemptstomatchrevenuesandexpensesintheperiodinwhichtheyoccur.However,accrualaccountingdoesnotattempttoproperlyassessthecashflowpositionofthefirm.Thestatementofcashflowsfulfillsthisneed.2-8.Whatarethethreeprimarysectionsofthestatementofcashflows?Inwhatsectionwouldthepaymentofacashdividendbeshown?Thesectionsofthestatementofcashflowsare:CashflowsfromoperatingactivitiesCashflowsfrominvestingactivitiesCashflowsfromfinancingactivitiesThepaymentofcashdividendsfallsintothefinancingactivitiescategory.2-9.Whatisfreecashflow?Whyisitimportanttoleveragedbuyouts?Freecashflowisequaltocashflowfromoperatingactivities:Minus:Capitalexpendituresrequiredtomaintaintheproductivecapacityofthefirm.Minus:Dividends(requiredtomaintainthepayoutoncommonstockandtocoveranypreferredstockobligation).Theanalystorbankernormallylooksatfreecashflowtodeterminewhetherthereareinsufficientexcessfundstopaybacktheloanassociatedwiththeleveragedbuy-out.2-10.Whyisinterestexpensesaidtocostthefirmsubstantiallylessthantheactualexpense,whiledividendscostit100percentoftheoutlay?Interestexpenseisataxdeductibleitemtothecorporation,whiledividendpaymentsarenot.Thenetcosttothecorporationofinterestexpenseistheamountpaidmultipliedbythedifferenceofoneminustheapplicabletaxrate.Forexample,$100ofinterestexpensecoststhecompany$65aftertaxeswhenthecorporatetaxrateis35percent.(e.g.$100x(1–.35)=$65).Problems2-1.RockwellPaperCompanyhadearningsaftertaxesof$580,000intheyear2003with400,000sharesoutstanding.OnJanuary1,2004,thefirmissued35,000newshares.Becauseoftheproceedsfromthesenewsharesandotheroperatingimprovements,earningsaftertaxesincreasedby25percent.a.Computeearningspersharefortheyear2003.b.Computeearningspersharefortheyear2004.Solution:RockwellPaperCompanya.Year2003b.Year20042-2.Giventhefollowinginformation,prepare,ingoodform,anincomestatementfortheGoodmanSoftware,Inc.Sellingandadministrativeexpense$50,000Depreciationexpense80,000Sales400,000Interestexpense30,000Costofgoodssold150,000Taxes18,550Solution:GoodmanSoftware,Inc.Sales$400,000Costofgoodssold150,000GrossProfit250,000Sellingandadministrativeexpense50,000Depreciationexpense80,000Operatingprofit120,000Interestexpense30,000Earningsbeforetaxes90,000Taxes18,550Earningsaftertaxes$71,4502-3.a.KevinBaconandPorkCompanyhadsalesof$240,000andcostofgoodssoldof$108,000.Whatisthegrossprofitmargin(ratioofgrossprofittosales)?b.Iftheaveragefirmintheporkindustryhadagrossprofitof60percent,howisthefirmdoing?Solution:KevinBaconandPortCompanya.Sales$240,000Costofgoodssold180,000Grossprofit$132,000b.Withagrossprofit55percent,thefirmisunder-performingtheindustryaverageof60percent.2-4.PrepareingoodformanincomestatementforVirginiaSlimWear.Takeyourcalculationsallthewaytocomputingearningspershare.Sales$600,000Sharesoutstanding100,000Costofgoodssold200,000Interestexpense30,000Sellingandadministrativeexpense40,000Depreciationexpense20,000Preferredstockdividends80,000Taxes100,000Solution:VirginiaSlimWearIncomeStatementSales$600,000Costofgoodssold200,000Grossprofit400,000Sellingandadministrativeexpense40,000Depreciationexpense20,000Operatingprofit340,000Interestexpense30,000Earningsbeforetaxes310,000Taxes100,000Earningsaftertaxes210,000Preferredstockdividends80,000Earningsavailabletocommonstockholders130,000Sharesoutstanding100,000Earningspershare$1.302-5.LasarTechnology,Inc.hadsalesof$500,000,costofgoodssoldof$180,000,sellingandadministrativeexpenseof$70,000,andoperatingprofitof$90,000.Whatwasthevalueofdepreciationexpense?Setthisproblemupasapartialincomestatement,anddeterminedepreciationexpenseastheplugfigure.Solution:LasarTechnology,Inc.Sales$500,000Costofgoodssold180,000GrossProfit$320,000Sellingandadministrativeexpense70,000DepreciationExpense(plugfigure)160,000Operatingprofit$90,0002-6.TheReidBookCompanysold1,500financetextbooksfor$100eachtoHighTuitionUniversityin2004.ThesebookscostReid$74toproduce.Reidspent$4,000(sellingexpense)toconvincetheuniversitytobuyitsbooks.Inaddition,Reidborrowed$50,000onJanuary1,2004,onwhichthecompanypaid10percentinterest.BothinterestandprincipaloftheloanwerepaidonDecember31,2004.Reid’staxrateis25percent.Depreciationexpensefortheyearwas$8,000.DidReidBookCompanymakeaprofitin2004?Pleaseverifywithanincomestatementpresentedingoodform.Solution:ReidBookCompanySales(1,500booksat$100each)$150,000Costofgoodssold(1,500booksat$74each)111,000Grossprofit$39,000Sellingexpense4,000Depreciationexpense8,000Operatingprofit$27,000Interestexpense5,000Earningsbeforetaxes$22,000Taxes@25%5,500Earningsaftertaxes$16,5002-7.CarrAutoWholesalershadsalesof$900,000in2004andtheircostofgoodssoldrepresented65percentofsales.Sellingandadministrativeexpenseswere9percentofsales.Depreciationexpensewas$10,000andinterestexpensefortheyearwas$8,000.Thefirm'staxrateis30percent.a.Computeearningsaftertaxes.b.AssumethefirmhiresMs.Hood,anefficiencyexpert,asaconsultant.Shesuggeststhatbyincreasingsellingandadministrativeexpensesto12percentofsales,salescanbeincreasedto$1,000,000.Theextrasaleseffortwillalsoreducecostofgoodssoldto60percentofsales(therewillbealargermakeupinpricesasaresultofmoreaggressiveselling).Depreciationexpensewillremainat$10,000.However,moreautomobileswillhavetobecarriedininventorytosatisfycustomers,andinterestexpensewillgoupto$15,000.Thefirm'staxratewillremainat30percent.ComputerevisedearningsaftertaxesbasedonMs.Hood'ssuggestionsforCarrAutoWholesalers.Willherideasincreaseordecreaseprofitability?Solution:CarrAutoWholesalersIncomeStatementa.Sales$900,000Costofgoodsold(65%ofsales)585,000Grossprofit315,000Sellingandadministrativeexpense(9%ofsales)81,000Depreciation10,000Operatingprofit224,000Interestexpense8,000Earningsbeforetaxes216,000Taxes@30%64,800Earningsaftertaxes$151,2002-7Continuedb.Sales$1,000,000Costofgoodssold(60%ofsales)600,000Grossprofit400,000Sellingandadministrativeexpense(12%ofsales)120,000Depreciation10,000Operatingprofit270,000Interestexpense15,000Earningsbeforetaxes255,000Taxes@30%76,500Earningsaftertaxes$178,500Ms.Hood’sideaswillincreaseprofits.2-8.Classifythefollowingbalancesheetitemsascurrentornoncurrent.RetainedearningsAccountspayablePrepaidexpensesPlantandequipmentInventoryCommonstockBondspayableAccruedwagespayableAccountsreceivableCapitalinexcessofparPreferredstockMarketablesecuritiesSolution:Retainedearnings–noncurrentAccountspayable–currentPrepaidexpense–currentPlantandequipment–noncurrentInventory–currentCommonstock–noncurrentBondspayable–noncurrentAccruedwagespayable–currentAccountsreceivable–currentCapitalinexcessofpar–noncurrentPreferredstock–noncurrentMarketablesecurities–current2-9.Arrangethefollowingincomestatementitemssotheyareintheproperorderofanincomestatement:TaxesSharesoutstandingInterestexpenseDepreciationexpensePreferredstockdividendsOperatingprofitSalesGrossprofitEarningspershareEarningsbeforetaxesCostofgoodssoldEarningsaftertaxesEarningsavailabletocommonstockholdersSellingandadministrativeexpensesSolution:SalesCostofgoodssoldGrossprofitSellingandadministrativeexpenseDepreciationexpenseOperatingprofitInterestexpenseEarningsbeforetaxesTaxesEarningsaftertaxesPreferredstockdividendsEarningsAvailabletoCommonStockholdersSharesOutstandingEarningspershare2-10.Identifywhethereachofthefollowingitemsincreasesordecreasescashflow:IncreaseinaccountsreceivableIncreaseinnotespayableDepreciationexpenseIncreaseininvestmentsDecreaseinaccountspayableDecreaseinprepaidexpensesIncreaseininventoryDividendpaymentIncreaseinaccruedexpensesSolution:Increaseinaccountsreceivable–decreasescashflow(use)Increaseinnotespayable–increasescashflow(source)Depreciationexpense–increasescashflow(source)Increaseininvestments–decreasescashflow(use)Decreaseinaccountspayable–decreasescashflow(use)Decreaseinprepaidexpense–increasescashflow(source)Increaseininventory–decreasescashflow(use)Dividendpayment–decreasescashflow(use)Increaseinaccruedexpenses–increasescashflow(source)2-11.Elitetrailorparkshasanoperatingprofitof$200,000.Interestexpensefortheyearwas$10,000;preferreddividendspaidwere$18,750;andcommondividendspaidwere$30,000.Thetaxwas$61,250.Thefirmhas20,000sharesofcommonstockoutstanding.a.CalculatetheearningspershareandthecommondividendspershareforElitetrailorparks.b.Whatwastheincreaseinretainedearningsfortheyear?Solution:EliteTrailorParksa.Operatingprofit(EBIT)$200,000Interestexpense10,000Earningsbeforetaxes(EBT)$190,000Taxes61,250Earningsaftertaxes(EAT)$128,750Preferreddividends18,750Availabletocommonstockholders$110,000Commondividends30,000Increaseinretainedearnings$80,000b.Increaseinretainedearnings=$80,0002-12.JohnsonAlarmSystemshad$800,000ofretainedearningsonDecember31,2004.Thecompanypaiddividendsof$60,000in2004andhadretainedearningsof$640,000onDecember31,2003.HowmuchdidJohnsonearnduring2004,andwhatwouldearningspersharebeif50,000sharesofcommonstockwereoutstanding?Solution:JohnsonAlarmSystemsRetainedearnings,December31,2004$800,000Less:Retainedearnings,December31,2003640,000Changeinretainedearnings$160,000Add:Commonstockdividends60,000Earningsavailabletocommonstockholders$220,000Earningspershare2-13.NovaElectricsanticipatedcashflowfromoperatingactivitiesof$6millionin2005.Itwillneedtospend$1.2milliononcapitalinvestmentsinordertoremaincompetitivewithintheindustry.Commonstockdividendsareprojectedat$.4millionandpreferredstockdividendsat$.55million.a.Whatisthefirm'sprojectedfreecashflowfortheyear2005?b.Whatdoestheconceptoffreecashflowrepresent?Solution:NovaElectronicsa.Cashflowfromoperationsactivities$6.00million-CapitalExpenditures1.20-Commonstockdividends.40-Preferredstockdividends.55Freecashflow$3.85millionb.Freecashflowrepresentsthefundsthatareavailableforspecialfinancialactivities,suchasaleveragedbuyout,increaseddividends,commonstockrepurchases,acquisitions,orrepaymentofdebt.2-14.Fillintheblankspaceswithcategories1through7below:1.Balancesheet(BS).5.Currentliabilities(CL).2.Incomestatement(IS).6.Long-termliabilities(LL).3.Currentassets(CA).7.Stockholders'equity(SE).4.Fixedassets(FA).IndicateWhetherItemisonBalanceSheet(BS)orIncomeStatement(IS)______________________________________________________________________________________________________________________________IfonBalanceSheet,DesignateWhichCategory______________________________________________________________________________________________________________________________ItemAccountsreceivableRetainedearningsIncometaxexpenseAccruedexpensesCashSellingandadministrativeexpensesPlantandequipmentOperatingexpenseMarketablesecuritiesInterestexpenseSalesNotespayable(6months)Bondspayable,maturity2001CommonstockDepreciationexpenseInventoriesCapitalinexcessofparvalueNetincome(earningsaftertaxes)IncometaxpayableSolution:1.BalanceSheet(BS)2.IncomeStatement(IS)3.CurrentAssets(CA)4.FixedAssets(FA)5.CurrentLiabilities(CL)6.Long-TermLiabilities(LL)7.StockholdersEquity(SE)2-14.ContinuedIndicateWhethertheitemisonIncomeStatementorBalanceSheetIftheItemisonBalanceSheet,DesignateWhichCategoryItemBSCAAccountsReceivableBSSERetainedEarningsISIncomeTaxExpenseBSCLAccruedExpensesBSCACashISSellingandAdministrativeExpensesBSFAPlant&EquipmentISOperatingExpensesBSCAMarketableSecuritiesISInterestExpenseISSalesBSCLNotesPayable(6months)BSLLBondspayable(Maturity2009)BSSECommonStockISDepreciationExpenseBSCAInventoriesBSSECapitalinexcessofparvalueISNetIncome(EarningsafterTaxes)BSCLIncometaxpayable2-15.TheRogersCorporationhasagrossprofitof$880,000and$360,000indepreciationexpense.TheEvansCorporationalsohas$880,000ingrossprofit,with$60,000indepreciationexpense.Sellingandadministrativeexpenseis$120,000foreachcompany.Giventhatthetaxrateis40percent,computethecashflowforbothcompanies.Explainthedifferenceincashflowbetweenthetwofirms.Solution:RogersCorporation–EvansCorporationRogersEvansGrossprofitSellingandadm.expenseDepreciationOperatingprofitTaxes(40%)EarningsaftertaxesPlusdepreciationexpenseCashFlow$880,000120,000360,000$880,000120,00060,000$400,000160,000$700,000280,000$240,000$360,000$420,000$60,000$600,000$480,000Rogershad$300,000moreindepreciationwhichprovided$120,000(0.40x$300,000)moreincashflow.2-16.Arrangethefollowingitemsinproperbalancesheetpresentation.Accumulateddepreciation$200,000Retainedearnings110,000Cash5,000Bondspayable142,000Accountsreceivable38,000Plantandequipment—originalcost720,000Accountspayable35,000Allowanceforbaddebts6,000Commonstock$1par,150,000sharesoutstanding150,000Inventory66,000Preferredstock,$50par,1,000sharesoutstanding50,000Marketablesecurities15,000Investments20,000Notespayable83,000Capitalpaidinexcessofpar(commonstock)88,000Solution:AssetsCurrentAssets:CashMarketablesecuritiesAccountsreceivableLess:AllowanceforbaddebtsInventoryTotalCurrentAssetsOtherAssets:InvestmentsFixedAssts:PlantandequipmentLess:AccumulateddepreciationNetplantandequipmentTotalAssets$38,0006,000$720,000200,000$5,00015,00032,00066,000$118,00020,000520,000$658,0002-16.ContinuedLiabilitiesandStockholders'EquityCurrentLiabilities:AccountspayableNotespayableTotalcurrentliabilitiesLong-termLiabilitiesBondspayableTotalLiabilitiesStockholders'Equity:Preferredstock,$50par,1,000sharesoutstandingCommonstock,$1par,150,000sharesoutstandingCapitalpaidinexcessofpar(commonstock)RetainedearningsTotalStockholders'EquityTotalLiabilitiesandStockholders'Equity$35,00083,000$118,000142,000$260,00050,000150,00088,000110,000$398,000$658,0002-17.HortonElectronicshascurrentassetsof$320,000andfixedassetsof$640,000.Currentliabilitiesare$90,000andlong-termliabilitiesare$160,000.Thereis$90,000inpreferredstockoutstandingandthefirmhasissued40,000sharesofcommonstock.Computebookvalue(networth)pershare.Solution:HortonEnergyCompanyCurrentassetsFixedassetsTotalassets–Currentliabilities–Long-termliabilitiesStockholders'equity–PreferredstockobligationNetworthassignedtocommonCommonsharesoutstandingBookvalue(networth)pershare$320,000640,000$960,00090,000160,000$710,00090,000$620,00040,000$15.502-18.TheHoltzmanCorporationhasassetsof$400,000,currentliabilitiesof$50,000,andlong-termliabilitiesof$100,000.Thereis$40,000inpreferredstockoutstanding;20,000sharesofcommonstockhavebeenissueda.Computebookvalues(networth)pershare.b.Ifthereis$22,000inearningsavailabletocommonstockholdersandHoltzman’sstockhasaP/Eof18timesearningspershare,whatisthecurrentpriceofthestock?c.Whatistheratioofmarketvaluepersharetobookvaluepershare?Solution:HoltzmanCorporationa.TotalassetsCurrentliabilitiesLong-termliabilitiesStockholders'equityPreferredstockNetworthassignedtocommonCommonsharesoutstandingBookvalues(networth)pershareb.EarningsavailabletocommonSharesoutstandingEarningspershare$400,00050,000100,000$250,00040,000$210,00020,000$10.50$22,00020,000$1.10c.Marketvaluepershare(price)tobookvaluepershare$19.80/$10.50=1.892-19.BradleyGypsumCompanyhasassetsof$1,900,000,currentliabilitiesof$700,000,andlong-termliabilitiesof$580,000.Thereis$170,000inpreferredstockoutstanding;30,000sharesofcommonstockhavebeenissueda.Computebookvalues(networth)pershare.b.Ifthereis$42,000inearningsavailabletocommonstockholdersandBradley’sstockhasaP/Eof15timesearningspershare,whatisthecurrentpriceofthestock?c.Whatistheratioofmarketvaluepersharetobookvaluepershare?Solution:BradleyGypsumCompanya.TotalassetsCurrentliabilitiesLong-termliabilitiesStockholders'equityPreferredstockNetworthassignedtocommonCommonsharesoutstandingBookvalues(networth)pershareb.EarningsavailabletocommonstockholdersSharesoutstandingEarningspershare$1,900,000700,000580,000$620,000170,000$450,00030,000$15.00$42,00030,000$1.40c.Marketvaluepershare(price)tobookvaluepershare$21.00/$15.00=1.402-20.Inproblem19,ifthefirmsellsattwotimesbookvaluepershare,whatwilltheP/Eratiobe?Solution:BradleyGypsumCompany(continued)2-21.ForDecember31,2003,thebalancesheetoftheGardnerCorporationisasfollows:CurrentAssetsCash$15,000Accountsreceivable22,500Inventory37,500Prepaidexpenses18,000FixedAssetsPlantandequipment(gross)$375,000Less:AccumulatedDepreciation75,000Netplantandassets300,000Totalassets$393,000LiabilitiesAccountspayable$20,000Notespayable30,000Bondspayable75,000Stockholders'EquityCommonstock$112,500Paid-in-capital37,500Retainedearnings118,000TotalliabilitiesandStockholders'equity$393,000Salesfor2004were$330,000,withcostofgoodssoldwas60percentofsales.Sellingandadministrativeexpensewas$33,000.Depreciationexpensewas10percentofplantandequipment(gross)atthebeginningoftheyear.Interestexpenseforthenotespayablewas10percent,whileinterestonbondspayablewas12percent.ThesewerebasedonDecember31,2003,balances.Thetaxrateaveraged20percent.2-21.ContinuedTwothousanddollarsinpreferredstockdividendwerepaid,and$4,100individendswerepaidtocommonstockholders.Therewere10,000sharesofcommonstockoutstanding.Duringtheyear2004,thecashbalanceandprepaidexpensesbalancewereunchanged.Accountsreceivableandinventoryincreasedby20percent.AnewmachinewaspurchasedonDecember31,2004,atacostof$60,000.Accountspayableincreasedby30percent.Atyear-end,December31,2004,notespayableincreasedby$10,000andbondspayabledecreasedby$15,000.Thecommonstockandpaid-incapitalinexcessofparaccountsdidnotchange.a.Prepareanincomestatementfor2004.b.Prepareastatementofretainedearningsfor2004.c.PrepareabalancesheetasofDecember31,2004.Solution:GardnerCorporation2004IncomeStatementa.Sales$330,000Costofgoodsold(60%of$330,000)198,000Grossprofit132,000Sellingandadministrativeexpense33,000Depreciationexpense(10%x$375,000)37,500Operatingprofit(EBIT)61,500Interestexpense12,000(10%x30,000)+