1. An analyst has gathered the following information about Barnstabur, Inc., for the year: Reported net income of $30,000.5,000 shares of common stock and 2,000 shares of 8%,$90 par preferred stock outstanding during the whole year. During the year, Barnstabur issued at par, $60,000 of 6.0% convertible bonds, with each of the 60 bonds convertible into 110 shares of the Barnstabur common stock. If Barnstabur's effective tax rate is 40%, what will Barnstabur report for diluted earnings per share (EPS)? 2. Protocol, Inc.'s net income for 2005 was $4,800,000. Protocol had 800,000 shares of common stock outstanding for the entire year. The tax rate was 40 percent. The average share price in 2005 was $37.00. Protocol had 5,000 8 percent $1,000 par value convertible bonds that were issued in 2004 . Each bond is convertible into 25 shares of common stock. Protocol, Inc.'s basic and diluted earnings per share for 2005 were closest to: EPS=fSharesEAT-PrejerStockdividand Diluted EPS = 3. Define internal and external sources of liquidity. What is a material deficiency in liquidity? If a firm has a material deficiency in liquidity what should be reported in the management discussion and analysis? 4. Using the following information analyze the accounts receivable and the allowance for doubtful accounts for this company: Exhibit 1 presents a statement of cash flows for Starbucks for 2006, 2007, and 2008. Required a. Explain why equity in income of investees appears as a subtraction when net income is converted to cash flow from operations. b. Compute the amount of cash received from investees as dividends each year. To answer this question, you need to refer to the income statement of Starbucks in Exhibit 2 c. Explain why stock-based compensation appears as an addition to net income to compute cash flow from operations. d. Discuss the relation between net income and cash flow from operations for each of the three years. e. Discuss the relation between cash flows from operating, investing, and financing activities for each of the three years. f. Refer to the income statement for Starbucks in Exhibit 1.27 in Chapter 1 (Integrative Case 1.1). Compute the amount of EBITDA for 2006, 2007, and 2008. g. Discuss the relationships among net income, non-working capital adjustments, working capital adjustments, operating cash flows, and EBITDA for the three years. Are the patterns similar or different? What are the primary determinants of the differences between the summary measures net income, operating cash flows, and EBITDA? h. Explain why the amount on the income statement differs from the amount on the statement of cash flows each year Starbucks Corporation Comparative Statements of Cash Flows (amounts in millions): \begin{tabular}{|c|c|c|c|c|c|} \hline Fiscal Year Ended: & & \begin{tabular}{l} Sept. 28, \\ 2008 \end{tabular} & & \begin{tabular}{l} Sept. 30, \\ 2007 \\ \end{tabular} & \begin{tabular}{c} Oct. 1, \\ 2006 \end{tabular} \\ \hline \multicolumn{6}{|l|}{ OPERATING ACTIVITIES } \\ \hline Net earnings & $ & 315.5 & \$ & 672.6 & S 564.3 \\ \hline \multicolumn{6}{|l|}{\begin{tabular}{l} Adjustments to reconcile net earnings to net cash provided \\ by operating activities: \end{tabular}} \\ \hline Cumulative effect of accounting change for FIN 47 , net of taxes & & - & & - & 17.2 \\ \hline Depreciation and amortization & & 604.5 & & 491.2 & 412.6 \\ \hline Provision for impairments and asset disposals & & 325.0 & & 26.0 & 19.6 \\ \hline Deferred income taxes, net & & (117.1) & & (37.3) & (84.3) \\ \hline Equity in & & (61.3) & & (65.7) & (60.6) \\ \hline Distributions of in & & 52.6 & & 65.9 & 49.2 \\ \hline Stock-based compensation & & 75.0 & & 103.9 & 105.7 \\ \hline Tax benefit from exer & & 3.8 & & 7.7 & 1.3 \\ \hline Excess tax benefit fro & & (14.7) & & (93.1) & (117.4) \\ \hline Other & & (0.1) & & 0.7 & 2.0 \\ \hline \multicolumn{6}{|l|}{ Cash provided (used) by changes in operating assets and liabilities: } \\ \hline Inventories & & (0.6) & & (48.6) & (85.5) \\ \hline Accounts payable & & (63.9) & & 36.1 & 105.0 \\ \hline Accrued taxes & & 7.3 & & 86.4 & 132.7 \\ \hline Deferred revenue & & 72.4 & & 63.2 & 56.6 \\ \hline Other operating assets and liabilities & & 60.3 & & 22.2 & 13.2 \\ \hline Net Cash Provided by Operating Activities & $ & 1,258.7 & s & 1,331.2 & $1,131.6 \\ \hline \end{tabular} INVESTING ACTIVITIES \begin{tabular}{|c|c|c|c|} \hline Purchase of available-for-sale securities & (71.8) & S (237.4) & $(639.2) \\ \hline Maturity of available-for-sale securities & 20.0 & 178.2 & 269.1 \\ \hline Sale of available-for-sale securities & 75.9 & 47.5 & 431.2 \\ \hline Acquisitions, net of cash acquired & (74.2) & (53.3) & (91.7) \\ \hline \begin{tabular}{l} Net purchases of equity, other investments, \\ and other assets \end{tabular} & (52.0) & (56.6) & (39.2) \\ \hline Net additions to property, plant, and equipment & (984.5) & (1,080.3) & (771.2) \\ \hline Net Cash Used by Investing Activities & $(1,086.6) & S(1,201.9) & $(841.0) \\ \hline FINANCING ACTIVITIES & & & \\ \hline Repayments of commercial paper & $(66,068.0) & $(16,600.9) & - \\ \hline Proceeds from issuance of commercial paper & 65,770.8 & 17,311.1 & - \\ \hline Repayments of short-term borrowings & (228.8) & (1,470.0) & $(993.1) \\ \hline Proceeds from short-term borrowings & 528.2 & 770.0 & 1,416.1 \\ \hline Proceeds from issuance of common stock & 112.3 & 176.9 & 159.2 \\ \hline \end{tabular} \begin{tabular}{|c|c|c|c|} \hline Fiscal Year Ended: & \begin{tabular}{c} Sept. 28, \\ 2008 \\ \end{tabular} & \begin{tabular}{c} Sept. 30, \\ 2007 \\ \end{tabular} & \begin{tabular}{c} Oct. 1, \\ 2006 \end{tabular} \\ \hline Excess tax benefit from exercise of stock options & 14.7 & 93.1 & 117.4 \\ \hline Principal payments on long-term debt & (0.6) & (0.8) & (0.9) \\ \hline Proceeds from issuance of long-term debt & - & 549.0 & - \\ \hline Repurchase of common stock & (311.4) & (996.8) & (854.0) \\ \hline Other & (1.7) & (3.5) & \\ \hline Net Cash Used by Financing Activities & $(184.5) & $(171.9) & $(155.3) \\ \hline Effect of exchange rate changes on cash and cash equivalents & 0.9 & 11.3 & 3.5 \\ \hline Net increase (decrease) in cash and cash equivalents & $(11.5) & $(31.3) & 5138.8 \\ \hline \multicolumn{4}{|l|}{ CASH AND CASH EQUIVALENTS } \\ \hline Beginning of period & 281.3 & 3126 & 173.8 \\ \hline End of the Period & $269.8 & $281.3 & $312.6 \\ \hline \end{tabular} Exhibit 2: Starbucks Corporation Comparative Income Statements (amounts in millions except per share figures