Chapter 4 Exercise and Problems: #'s 1, 5, and 13 1. Samantha Knight is applying for a small-business loan. She provides the bank with the following information: cash in checking accounts, $5,000; cash in savings, $10,350; home market value, $145,500; first mortgage on house, $25,000; home equity loan limit, $70,000; home equity loan, $10,000; automobile market value, $19,000; automobile loan outstanding, $15,000; credit card debt, $1,500. a. Calculate the debt-to-asset ratio. b. Calculate the debt-to-equity ratio. c. What percentage of Samantha's assets are owned by others? 5. Given the balance sheet for Moderately Large Corporation (Table 4-4) answer the following: a. For each year calculate the following ratios: current, quick, debt-to-asset and debt-to-equity. b. In a written explanation, state what each of these ratios mean. c. Compare the ratios for the two-year period and determine if the MLC is sufficiently liquid. d. How well is the MLC managing its debt? 13. The Handy Dandy Corporation has an income statement that indicates that Operating Income is $2,375,486 and Net Profit is $1,375,486. In 2011, the corporation had 1 million shares of common stock outstanding; in 2012, they had 3 million shares of common stock outstanding. What is this corporation's approximate earnings per share? Chapter 5: Exercise and Problems: #'s 1-3 1. The Handy Doll Manufacturing Company has the following information. The average doll sales price is $12.00, raw materials for a doll are $4, and it takes 15 minutes to assemble a doll. Production labor is paid $8.00 per hour. Operating expenses are as follows: salaries, $2,500 per week; insurance, $1,200 per quarter; rent, $1,500 per month; and utilities, $800 per month. How many dolls must be sold per month to break even? How many dollars in sales does this represent? What is the contribution margin for each doll sold? ItemCostTime Sales price per doll$12.00 Variable Costs Raw materials 4.00 per doll Labor 8.00 per hour15 minutes per doll Labor2.00 per doll Fixed Costs Salaries$2,500 per week Insurance 1,200per quarter Rent1,500per month Utilities 800per month Fixed costs per month are Total variable costs per unit are Break even = FC/(P-VC) = The contribution margin is 2. For the company in question 1, if the goal is to make a profit of $5,000 per month, how many dolls must be sold? 3. Joan purchases a 30 year Federal Government bond for $10,000 that pays 4 percent annual interest. Jim purchases $20,000 worth of 30 year Corporate bonds that pay 7 percent annual interest. Joan's goal is to earn $400 per year on her investment, and Jim's goal is to earn $1,400 per year on his investment. a. Is Joan or Jim more efficient? Why? b. Is Joan or Jim more effective? Why? 4. Sam quit a $30,000-a-year job with a local heating and air conditioning firm to go into business for himself. After his first year in business, his accountant showed him an income statement, which indicated Sam's firm had a profit of $40,000. During this year Sam had drawn a salary of $20,000. a. What were Sam's accounting profit, and entrepreneurial profit? b. Explain the difference between accounting profit and entrepreneurial profit. 5. Wanda wants to open a Health Food Store. Her monthly expenses are rent $3,500, utilities of $1,000, insurance of $500, and payroll of $4,250. She estimates that her cost of goods is approximately 65 percent of sales. Wanda would like to make $4,000 a month for herself. A. What is Wanda's contribution margin? B. How much does she need in monthly sales to break even? C. How much does she need in monthly sales to make a profit of $4,000? D. Construct a break-even chart for Wanda's health food store. Chapter 6 1. What is the purpose of pro forma financial statements? 2. Compare judgmental, time series, and causal forecasting models. 3. Gary Fisher owns five successful health clubs. He believes that he can put a health club in a new community that currently has no such facility. His research indicates that communities such as this can support two health clubs. a. What type of information should Gary gather when selecting a specific site for his health club? b. What type of forecasting model should Gary use to determine the new location for a health club