5. This problem should be solved using the following data:

Cash payments for interest $(12)

Retirement of common stock (32)

Cash payments to merchandise suppliers (85)

Purchase of land (8)

Sale of equipment 30 Payments of dividends (37)

Cash payment for salaries (35)

Cash collection from customers 260 Purchase of equipment (40)

a. What are cash flows from operating activities?

b. Using the data above, calculate cash flows from investing activities.

c. Using the data above, calculate cash flows from financing activities.

6. Janet Ludlow is a recently hired analyst. After describing the electric toothbrush industry, her first report focuses on two companies, QuickBrush Company and SmileWhite Corporation, and concludes:

QuickBrush is a more profitable company than SmileWhite, as indicated by the 40%

sales growth and substantially higher margins it has produced over the last few years.

SmileWhite’s sales and earnings are growing at a 10% rate and produce much lower margins. We do not think SmileWhite is capable of growing faster than its recent growth rate of 10% whereas QuickBrush can sustain a 30% long-term growth rate.

a. Criticize Ludlow’s analysis and conclusion that QuickBrush is more profitable, as defined by return on equity (ROE), than SmileWhite and that it has a higher sustainable growth rate. Use only the information provided in Tables 19A and 19B. Support your criticism by calculating and analyzing:

• The five components that determine ROE.

• The two ratios that determine sustainable growth: ROE and plowback.

b. Explain how QuickBrush has produced an average annual earnings per share (EPS) growth rate of 40% over the last 2 years with an ROE that has been declining. Use only the information provided in Table 19A.