Financial management

please find the attached home work

Chapter 2 Financial Statements, Cash Flow, and Taxes Answers and Solutions: 2 - 1 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MINI CASE Page 84 Jenny Cochran, a recent graduate of the University of Tennessee with four years of banking experience, was recently brought in as assistant to the chairman of the board of Computron Industries, a manufacturer of computer components. The company doubled its plant capacity, opened new sales offices outside its home territory, and launched an expensive advertising campaign. Computron's results were not satisfactory, to put it mildly. Its board of directors, which consisted of its president and vice-president plus its major stockholders (who were all local business people), was most upset when directors learned how the expansion was going. Suppliers were being paid late and were unhappy, and the bank was complaining about the deteriorating situation and threatening to cut off credit. As a result, Chuck Edwards, Computron's president, was informed that changes would have to be made, and quickly, or he would be fired. Also, at the board's insistence Jenny Cochran was brought in and given the job of assistant to Gary Meissner, a retired banker who was Computron's chairman and largest stockholder. Meissner agreed to give up a few of his golfing days and to help nurse the company back to health, with Cochran's help. Cochran began by gathering financial statements and other data. Assume that you are Cochran's assistant, and you must help her answer the following questions for Meissner. Mini Case: 2 - 2 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Balance Sheets Assets Cash Short-term investments. Accounts receivable Inventories total current assets Gross fixed assets Less: accumulated depreciation net fixed assets Total assets Liabilities and equity Accounts payable Notes payable Accruals total current liabilities Long-term debt Common stock (100,000 shares) Retained earnings total equity Total liabilities and equity $ $ $ $ 2012 9,000 48,600 351,200 715,200 1,124,000 491,000 146,200 344,800 1,468,800 2013 $ 7,282 20,000 632,160 1,287,360 $ 1,946,802 1,202,950 263,160 $ 939,790 $ 2,886,592 2010 2011 $ 145,600 $ 324,000 200,000 720,000 136,000 284,960 $ 481,600 $ 1,328,960 323,432 1,000,000 460,000 460,000 203,768 97,632 $ 663,768 $ 557,632 $ 1,468,800 $ 2,886,592 Mini Case: 2 - 3 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Income Statements Sales Cost of goods sold Other expenses Depreciation total operating costs EBIT Interest expense Pretax earnings Taxes (40%) Net income Other data Stock price Shares outstanding EPS DPS $ $ $ $ $ $ $ 2013 $ 5,834,400 4,980,000 720,000 116,960 $ 5,816,960 $ 17,440 176,000 $ (158,560) (63,424) $ (95,136) 2011 $ 2012 3,432,000 2,864,000 340,000 18,900 3,222,900 209,100 62,500 146,600 58,640 87,960 2012 $ 6.00 100,000 $ (0.951) $ 0.110 8.50 100,000 0.880 0.220 Mini Case: 2 - 4 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Statement of Cash Flows Operating activities Net income Adjustments: noncash adjustments: depreciation changes in working capital: change in accounts receivable change in inventories change in accounts payable change in accruals Net cash provided by operating activities $ (95,136) 116,960 (280,960) (572,160) 178,400 148,960 $ (503,936) Investing activities Cash used to acquire fixed assets Cash due to change in short term investments Net cash provided by operating activities $ (711,950) $ 28,600 $ (683,350) Financing activities change in notes payable change in long-term debt change in common stock payment of cash dividends Net cash provided by financing activities $ 520,000 $ 676,568 $ $ (11,000) $ 1,185,568 Summary Net change in cash Cash at beginning of year Cash at end of year $ $ (1,718) 9,000 7,282 Mini Case: 2 - 5 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. a. What effect did the expansion have on sales and net income? What effect did the expansion have on the asset side of the balance sheet? What effect did it have on liabilities and equity? Answer: b. What do you conclude from the statement of cash flows? Answer: c. What is free cash flow? Why is it important? What are the five uses of FCF? Answer: Mini Case: 2 - 6 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. d. What is Computron's net operating profit after taxes (NOPAT)? What are operating current assets? What are operating current liabilities? How much net operating working capital and total net operating capital does Computron have? Answer: Mini Case: 2 - 7 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part