FIN 515 Week 1 Problem Set Answers

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Answer the following questions and solve the following problems in the space provided. When you are done, save the file in the format flastname_Week_1_Problem_Set.docx, where flastname is your first initial and you last name, and submit it to the appropriate dropbox.

Chapter 1 (page 19)

1. What is the most important difference between a corporation and all other organizational forms?

2. What does the phrase limited liability mean in a corporate context?

3. Which organizational forms give their owners limited liability?

4. What are the main advantages and disadvantages of organizing a firm as a corporation?

5. Explain the difference between an S corporation and a C corporation.

Chapter 2

The following is provided for use in answering the next set of questions. You may also find table 2.5 on page 53 of your text and all questions on pages 5657.

29. In fiscal year 2011, Starbucks Corporation (SBUX) had revenue of $11.70 billion, gross profit of $6.75 billion, and net income of $1.25 billion. Peets Coffee and Tea (PEET) had revenue of $372 million, gross profit of $72.7 million, and net income of $17.8 million.

a. Compare the gross margins for Starbucks and Peets.

b. Compare the net profit margins for Starbucks and Peets.

c. Which firm was more profitable in 2011?

31. See Table 2.5 showing financial statement data and stock price data for Mydeco Corp.

a. How did Mydecos accounts receivable days change over this period?

b. How did Mydecos inventory days change over this period?

c. Based on your analysis, has Mydeco improved its management of its working capital during this time period?

32. See Table 2.5 showing financial statement data and stock price data for Mydeco Corp.

a. Compare Mydecos accounts payable days in 2009 and 2013.

b. Did this change in accounts payable days improve or worsen Mydecos cash position in 2013?

33. See Table 2.5 showing financial statement data and stock price data for Mydeco Corp.

a. By how much did Mydeco increase its debt from 2009 to 2013?

b. What was Mydecos EBITDA/Interest coverage ratio in 2009 and 2013? Did its coverage ratio ever fall below 2?

c. Overall, did Mydecos ability to meet its interest payments improve or decline over this period?

42. For fiscal year 2011, Starbucks Corporation (SBUX) had total revenues of $11.70 billion, net income of $1.25 billion, total assets of $7.36 billion, and total shareholders equity of $4.38 billion.

a. Calculate the Starbucks ROE directly, and using the DuPont Identity.

b. Comparing with the data for Peets in Problem 41, use the DuPont Identity to understand the difference between the two firms ROEs.