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Question 1. (30 points total) Use this balance sheet and income statement from Carver Enterprises to
complete parts a and b:
a. (15 points) Prepare a common size balance sheet for Carver Enterprises. Complete the commonsize balance sheet: (Round to one decimal place.)
Common−Size Balance Sheet
Cash and marketable securities
2013
$
490
Accounts receivable
5,990
Inventories
9,550
%
Current assets
$
Net property plant and equipment
16,030
%
17,030
Total assets
$
33,060
%
Accounts payable
$
7,220
%
Short−term debt
Current liabilities
6,800
$
Long−term liabilities
Total liabilities
14,020
%
7,010
$
21,030
Total owners’ equity
12,030
Total liabilities and owners’ equity $
33,060
%
%
b. (15 points) Prepare a common-size income statement for Carver Enterprises. Complete the
common-size income statement: (Round to one decimal place.)
Common−Size Income Statement
Revenues
Cost of goods sold
Gross profit
Operating expenses
Net operating income
Interest expense
Earnings before taxes
Taxes
Net income
2013
$ 30,020
%
(19,950)
$ 10,070
%
(7,960)
$ 2,110
%
(940)
$ 1,170
%
(425)
$ 745
%
Question 2. (10 points total) Use this data table of Campbell Industries liabilities and owners' equity to
complete parts a and b.
a. (5 points) What percentage of the firm's assets does the firm finance using debt (liabilities)?
(Round to one decimal place.)
b. (
5
points) If Campbell were to purchase a new warehouse for $1.3 million and finance it entirely with
long-term debt, what would be the firm's new debt ratio? (Round to one decimal place.)
Question 3. (10 points total) (Liquidity analysis) Airspot Motors, Inc. has $2,433,200 in current assets
and $869,000 in current liabilities. The company's managers want to increase the firm's inventory, which
will be financed using short-term debt. How much can the firm increase its inventory without its current
ratio falling below 2.1 (assuming all other assets and current liabilities remain constant)? (Round to one
decimal place.)
Question 4. (10 points total) (Efficiency analysis) Baryla Inc. manufactures high quality decorator lamps
in a plant located in eastern Tennessee. Last year the firm had sales of $93 million and a gross profit
margin of 45 percent.
a. (5 points) How much inventory can Baryla hold and still maintain an inventory turnover ratio of at
least 6.3 times? (Round to one decimal place.)
b. (5 points) Currently, some of Baryla's inventory includes $2.3 million of outdated and damaged
goods that simply remain in inventory and are not salable. What inventory ratio must the good
inventory maintain in order to achieve an overall turnover ratio of at least 6.3 (including the
unsalable items)? (Round to one decimal place.)
Question 5. (15 points total) (Profitability and capital structure analysis) In the year that just ended,
Callaway Lighting had sales of $5,470,000 and incurred cost of goods sold equal to $4,460,000. The
firm's operating expenses were $128,000 and its increase in retained earnings was $42,000 for the year.
There are currently 99,000 common stock shares outstanding and the firm pays a $4.770 dividend per
share. The firm has $1,180,000 in interest-bearing debt on which it pays 7.7 percent interest.
a. (5 points) Assuming the firm's earnings are taxed at 35%, construct the firm's income statement.
Income Statement
Revenues
$
Cost of Goods Sold
Gross Profit
$
Operating Expenses
Net Operating Income
$
Interest Expense
Earnings before Taxes
Income Taxes
$
Net Income
$
b. (5 points) Calculate the firm's operating profit margin and net profit margin. (Round to one
decimal place.)
The operating profit margin is
The net income margin is
c.
%
%
(5 points) Compute the times interest earned ratio.
The times interest earned ratio is
%
What does this tell you about Callaway's ability to pay its interest expense? (Fill in the blank with
the times interest earned ratio from above and select the best choice.)
1) Callaway's operating income can fall as much as ______ times the interest expense and
the company would still be able to service its debt.
2) Callaway's interest expense is _______ times higher than its competitors.
3) Callaway's gross profit can fall as much as ______ times and still be able to service its
debt.
4) Callaway's operating income can fall as much as ______ times and still be able to repay
its debt.
Answer:
What is the fin's return on equity? (Select the best choice.)
1) The firm's return on equity is the same as the net profit margin, 9.4%.
2) The firm's return on equity is the sum of the operating profit margin and the net profit
margin, 25.5%.
3) There is not enough information to answer this question.
4) The firm's return on equity is the same as the operating profit margin, 16.1%.
Answer:
Question 6. (5 points total) (Market value analysis) Lei Materials' balance sheet lists total assets of
$1.16 billion, $132 million in current liabilities, $415 million in long-term debt, $613 million in common
equity, and 58 million shares of common stock. If Lei's current stock price is $52.08, what is the firm's
market-to-book ratio? (Round to one decimal place.)
Question 7. (5 points total) (DuPont analysis) Bryley, Inc. earned a net profit margin of 5.1 percent last
year and had an equity multiplier of 3.49. If its total assets are $109 million and its sales are $157 million,
what is the firm's return on equity? (Round to one decimal place.)
Question 8. (15 points total) (Calculating financial ratios) Use the balance sheet and income statement
for the J. P. Robard Mfg. Company to calculate the following ratios:
Current ratio (Round to two decimal places.)
Times interest earned (Round to two decimal places.)
Inventory turnover (Round to two decimal places.)
Total asset turnover (Round to two decimal places.)
Operating profit margin (Round to one decimal places.)
Operating return on assets (Round to one decimal places.)
Debt ratio (Round to one decimal places.)
Average collection period (Round to one decimal places.)
Fixed asset turnover (Round to two decimal places.)
Return on equity (Round to one decimal places.)
times
times
%
%
%
days
%