a. 1. Copy the Big Rock Candy Mountain Mining financial statements from Problem 1 in Chapter 2 into a new workbook. Set up a ratio worksheet similar to the one in Exhibit 3-6, page 99, and calcu- late all of the ratios for the firm. b. Identify areas of concern, if any, using the ratios. Identify areas that have shown improvement, if any. c. In 2020 the ROE increased. Explain, in words, why this increase occurred using the DuPont method from equation (3-29). Now use the extended DuPont method from equation (3-33). d. Big Rock Candy Mountain Mining has shown an accounting profit in each of the past two years. Calculate the economic profit for these compare it to net income. The WACC is 9%. years and e. Using Altman's model for privately held firms, calculate the Z-score for Big Rock Candy Mountain Mining. Does it appear that the firm is in imminent danger of bankruptcy? Big Rock Candy Mountain Mining Co. Income Statements For the Years 2019 and 2020 2020 2019 Sales $412,500 $398,600 Cost of Goods 318,786 315,300 Gross Profit 93,714 83,300 Depreciation 29,800 29,652 Selling & Admin. Expense 26,250 24.550 Other Operating Expense 1.210 1,245 Net Operating Income 36,454 27,853 Interest Expense 8,582 8,457 Earnings Before Taxes 27,872 19,396 Taxes 6,968 4,849 Net Income 20,904 14,547 Notes: Tax Rate Shares Earnings per Share 25.00% 52,100 $0.40 25.00% 52,100 $0.28 2019 Big Rock Candy Mountain Mining Co. Balance Sheet For the Year Ended December 31, 2020 2020 Assets Cash $16,435 Marketable Securities 3,656 Accounts Receivable 45,896 Inventory 52.397 Total Current Assets 118,384 Gross Fixed Assets 436,573 Accumulated Depreciation 87.450 Net Plant & Equipment 349,123 Total Assets 467.507 Liabilities & Owner's Equity Accounts Payable $37.752 Accrued Expenses 3.183 Total Current Liabilities 40,935 Long-term Debt 170,562 Total Liabilities 211,497 Common Stock ($1.00 par) 58,664 Additional Paid-in-Capital 136,807 Retained Earnings 60,539 Total Owner's Equity 256,010 Total Liab. & Owner's Equity 467,507 $11,596 619 47.404 54,599 114,218 397,023 57,650 339,373 453,591 $36,819 3,085 39.904 178,581 218,485 58,664 136,807 39,635 235,106 453,591 EBIT EBT NI Sales X X Sales EBIT Total Assets Extended DuPont ROE = Total Debt 1 Total Assets a. 1. Copy the Big Rock Candy Mountain Mining financial statements from Problem 1 in Chapter 2 into a new workbook. Set up a ratio worksheet similar to the one in Exhibit 3-6, page 99, and calcu- late all of the ratios for the firm. b. Identify areas of concern, if any, using the ratios. Identify areas that have shown improvement, if any. c. In 2020 the ROE increased. Explain, in words, why this increase occurred using the DuPont method from equation (3-29). Now use the extended DuPont method from equation (3-33). d. Big Rock Candy Mountain Mining has shown an accounting profit in each of the past two years. Calculate the economic profit for these compare it to net income. The WACC is 9%. years and e. Using Altman's model for privately held firms, calculate the Z-score for Big Rock Candy Mountain Mining. Does it appear that the firm is in imminent danger of bankruptcy? Big Rock Candy Mountain Mining Co. Income Statements For the Years 2019 and 2020 2020 2019 Sales $412,500 $398,600 Cost of Goods 318,786 315,300 Gross Profit 93,714 83,300 Depreciation 29,800 29,652 Selling & Admin. Expense 26,250 24.550 Other Operating Expense 1.210 1,245 Net Operating Income 36,454 27,853 Interest Expense 8,582 8,457 Earnings Before Taxes 27,872 19,396 Taxes 6,968 4,849 Net Income 20,904 14,547 Notes: Tax Rate Shares Earnings per Share 25.00% 52,100 $0.40 25.00% 52,100 $0.28 2019 Big Rock Candy Mountain Mining Co. Balance Sheet For the Year Ended December 31, 2020 2020 Assets Cash $16,435 Marketable Securities 3,656 Accounts Receivable 45,896 Inventory 52.397 Total Current Assets 118,384 Gross Fixed Assets 436,573 Accumulated Depreciation 87.450 Net Plant & Equipment 349,123 Total Assets 467.507 Liabilities & Owner's Equity Accounts Payable $37.752 Accrued Expenses 3.183 Total Current Liabilities 40,935 Long-term Debt 170,562 Total Liabilities 211,497 Common Stock ($1.00 par) 58,664 Additional Paid-in-Capital 136,807 Retained Earnings 60,539 Total Owner's Equity 256,010 Total Liab. & Owner's Equity 467,507 $11,596 619 47.404 54,599 114,218 397,023 57,650 339,373 453,591 $36,819 3,085 39.904 178,581 218,485 58,664 136,807 39,635 235,106 453,591 EBIT EBT NI Sales X X Sales EBIT Total Assets Extended DuPont ROE = Total Debt 1 Total Assets