FINAL We have the following information about a firm in 2014: 162 20 (20) Income Statement Sales Cost of goods sold Selling, general, and administrative cost Research & Development Depreciation Interest Taxes Net Income Earnings per share Common shares outstanding (millions) Balance Sheet Current Assets Cash Account Receivables Inventories Other Current Assets Total Current Assets Long Term Assets Land Building Equipment Goodwill & Intangible Assets Other Long-Term Assets Total Long-Term Assets Total Assets Current Liabilities Account Payable Short Term Debt Other current liabilities Total Current Liabilities Long Term Liabilities Long Term Debt Deferred Taxes Total Long-Term Liabilities Total Liabilities Shareholder's Equity Total Liabilities and Equity 2013 2014 2013 2014 Cash Flow 674 802 From operation (300) (395) Net Income 174.6 (60) (60) Depreciation 30 (8) (7) (30) Other non-cash items (16) (19) Cash effect of change in (108) (116.4) Account Receivables (0.3) (5.3) 162 174.6 Account Payable (0.5) 4.7 1.92 2 Inventory (1) 84 87 Total Change from operation 179.2 200.2 From investing Capital expenditure (4) (14) Acquisition (2) (7) 150 350 Other investing activities 40 70 Total Change from investing (6) (21) 60 94 From financing Dividend paid (100) (140.2) 281 531 Sale/purchase stock Increase borrowing 5.5 24.9 360 328 Total Change from financing (94.5) (115.3) 250 200 Total change in cash 78.7 63.9 30 34 Required rate of return on equity 16% 14 14 Required rate of return on debt: 5% 20 13 Required rate of return on preferred stocks: 8% 674 589 955 1120 Target capital structure: 64% common stock, 34% debt and 2% preferred stocks Taxes: 35% 15 55 30 67 a Compute the ROE directly 18.7 17.4 b/ Calculate the components of the Dupont system 57 133 c/What is the expected sustainable growth rate for the firm? 280 290 d/ Assume that the firm increases Selling & Administration by $5 million, what are the new 280 290 components of the Dupont system? 337 423 e/What is the new growth if we increase 618 697 the dividend by S4 million? 955 1120 FINAL We have the following information about a firm in 2014: 162 20 (20) Income Statement Sales Cost of goods sold Selling, general, and administrative cost Research & Development Depreciation Interest Taxes Net Income Earnings per share Common shares outstanding (millions) Balance Sheet Current Assets Cash Account Receivables Inventories Other Current Assets Total Current Assets Long Term Assets Land Building Equipment Goodwill & Intangible Assets Other Long-Term Assets Total Long-Term Assets Total Assets Current Liabilities Account Payable Short Term Debt Other current liabilities Total Current Liabilities Long Term Liabilities Long Term Debt Deferred Taxes Total Long-Term Liabilities Total Liabilities Shareholder's Equity Total Liabilities and Equity 2013 2014 2013 2014 Cash Flow 674 802 From operation (300) (395) Net Income 174.6 (60) (60) Depreciation 30 (8) (7) (30) Other non-cash items (16) (19) Cash effect of change in (108) (116.4) Account Receivables (0.3) (5.3) 162 174.6 Account Payable (0.5) 4.7 1.92 2 Inventory (1) 84 87 Total Change from operation 179.2 200.2 From investing Capital expenditure (4) (14) Acquisition (2) (7) 150 350 Other investing activities 40 70 Total Change from investing (6) (21) 60 94 From financing Dividend paid (100) (140.2) 281 531 Sale/purchase stock Increase borrowing 5.5 24.9 360 328 Total Change from financing (94.5) (115.3) 250 200 Total change in cash 78.7 63.9 30 34 Required rate of return on equity 16% 14 14 Required rate of return on debt: 5% 20 13 Required rate of return on preferred stocks: 8% 674 589 955 1120 Target capital structure: 64% common stock, 34% debt and 2% preferred stocks Taxes: 35% 15 55 30 67 a Compute the ROE directly 18.7 17.4 b/ Calculate the components of the Dupont system 57 133 c/What is the expected sustainable growth rate for the firm? 280 290 d/ Assume that the firm increases Selling & Administration by $5 million, what are the new 280 290 components of the Dupont system? 337 423 e/What is the new growth if we increase 618 697 the dividend by S4 million? 955 1120
