Air World Transportation (AWT), is a small but thriving manufacturer of private passenger Aircraft Company in the United States, had two of the most successful years in its history in 2018 and 2019. The company's sales of more than $57.3 million and profitability of almost $7.7 million were unprecedented; AWT had also issued more than two million dollars of common stock to retire $3.23 million of its long-term debt in 2019, both of which contributed to its low leverage.

Becoming and remaining financially sound was a difficult task in the Aircraft industry because of the typically long-life spans and "hit-or-miss" nature of the aircraft. Now, in January 2020, AWT's management was undergoing a financial policy review to determine whether the company could use its financial resources more efficiently and yet remain conservative.



Chris Andrews was hired recently by Air World Transportation Inc., to assist the company with its financial policy and to evaluate the company's performance. Chris graduated from college five years ago with a finance degree. He has been employed in the finance department of a Fortune 500 company since then.

Air World Transportation (AWT) was founded 10 years ago by two college engineers, John Saxton and Ted Parker. The Company has manufactured and sold light airplanes over this period and the company's products have received high reviews for safety and reliability. The company has a niche market in that it sells primarily to individuals who own and fly their own airplanes. The company has two models; the Birdie, which sells for $1,530,000, and the Eagle, which sells for $1,780,000. In 2018 the company sold 10 of each aircraft but was more successful of selling 20 of the Birdie and 15 of the Eagles.

Although the company manufactures aircraft, its operations are different from commercial aircraft companies. In contrast to commercial airplane companies that take one and one-half to two years to manufacture an airplane, the company can complete the manufacture of an airplane in less than six months. Below are the financial Statements for 2018-2019.



 *Company paid 40% in taxes 2018 and 20% in 2019

  Part I- Using the financial statements calculate answer the following questions:



1.      Explain the effect of capital restructuring on EPS in 2018 and 2019?

2.      Explain the effect of government tax policy change of 2018 on net income of the company?

3.      What are net profit margin and its effect on return on equity for 2018 and 2019?

4.      What are the DuPont identities in 2018 and 2019?

5.      What are interest coverage ratios in 2018 and 2019?

6.      What are the total debt ratios in 2018 and 2019?

7.      What are the total debt-to-equity ratios in 2018 and 2019?

8.      What are the long-term debt-to-equity ratios in 2018 and 2019?

9.      Explain the effect of debt retirement on financial policy of the company?

Income Sales COGS Other expenses Depreciation EBIT Interest Taxable income Taxes* Net income Dividends Add to RE 2018 $33,100,000 $22,224,580 $3,867,500 $1,366,680 $5,641.240 $478,240 $5,163,000 $2,065,200 $3,097,800 $560,000 $2,537,800 2019 $57,300,000 $38,473,367 $6,695,098 $2,365,884 $9,765,651 $179,789 $9,585,862 $1,917,172 $7,668,689 $2,684,041 $4,984,648