Corporate Tax Liability and Balance Sheet Analysis

Ratio analysis provides useful information for a companys operations and financial conditions. Conducting analysis in a mechanical, unthinking manner is dangerous, but when the ratio analysis is used with good judgment, it can provide useful insights into a firms operations and identify the right questions to ask.

In this competency assessment, you address the time value of money also known as discounted cash flow analysis. This type of analysis is crucial to being able to viably analyze financial statements.

Problems:

1. Complete problem: Total Net Operating Capital
   • XYZ, Inc. reported $20 million in operating current assets, $25 million in net fixed assets, and $6 million in operating current liabilities. How much total net operating capital does XYZ, Inc. have?
   • Show your work.
2. Complete problem: Balance Sheet Analysis
   • Complete the balance sheet and sales information in the table that follows for XYZ, Inc., using the following financial data:
   • Show your work.

Total assets turnover: 1.5 Gross profit margin on sales: (Sales Cost of goods sold)/Sales = 25% Total liabilities-to-assets ratio: 40% Quick ratio: 0.80 Days sales outstanding (based on 365-day year): 36.5 days Inventory turnover ratio: 3.75

Partial Income Statement Information

	Sales
	Costs of goods sold

Balance Sheet Information

	Cash				Accounts payable
	Accounts receivable				Long-term debt		50,000
	Inventories				Common Stock
	Fixed Assets				Retained earnings		100,000
	Total Assets		$400,000		Total liabilities and equity

1. Complete problem: Yield to Maturity for Annual Payments XYZ Corporations bonds have 14 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 10%. The bonds sell at a price of $950. What is their yield to maturity? Show your work.
2. Complete problem: Required Rate of Return Show your work. Suppose rRF = 6%; rM = 10%; and rA = 14%
   1. Calculate Stocks As beta.
   2. If Stock As beta were 2.0, then what would be As new required rate of return?
3. Complete problem: Portfolio Beta You have a $2 million portfolio consisting of a $100,000 investment in each of 20 different stocks. The portfolio has a beta of 1.1. You are considering selling $100,000 worth of one stock with a beta of 0.9 and using the proceeds to purchase another stock with a beta of 1.4. What will the portfolios new beta be after these transactions? Show your work.

Prepare this Assignment by responding to the problems as an Excel or Microsoft Word, showing all necessary formulas and steps. List each question, followed by your answer.