Hi, Im not sure how to do question 1 and 3. Can you please help? Thanks

Jim Harrod knew that service, above all, was important to his customers. Jim and Becky Harrod had opened their first store in Omaha, Nebraska in 1991. Harrod's carried a full line of sporting goods including everything from baseball bats and uniforms to fishing gear and hunting equipment. By the year 2006, there were twelve Harrod stores producing $5 million in total sales and generating a profit of over $200,000 per year. In January of 2007, Becky, who served as the company's chief financial officer, walked into Jim's office and said, \"I've had it with the First National Bank of Omaha. It is willing to renew our loan and line of credit, but the bank wants to charge us 2 percentage points over prime. The prime rate is the rate at which banks make loans to their most creditworthy customers. It was 4.75 percent at the time Becky had visited the bank, so that the total rate on the loan would be 7.25 percent. It was not so much the total rate that Becky objected to, as the fact that Harrod's was being asked to pay 2 percent over prime. She felt that Harrod's was a strong enough company that one percent over prime should be all that the bank required. Her banker told her he would review the firm's financial statements with her next week and reconsider the premium Harrod's was being asked to pay over prime. While Becky knew the bank \"crunched all the numbers,\" she decided to do some additional financial analysis on her own. She had a bachelor's degree in finance with a 3.3 GPA. She began by examining Figures 1, 2, and 3. Figure 1 Harrod's Sporting Goods Income Statement (2004-2006) 2004 2005 Sales .................................................. $4,269,871 $4,483,360 Cost of goods sold............................. 2,991,821 2,981,434 2006 $5,021,643 3,242,120 Gross Profit ....................................... 1,278,050 Selling and administrative expense... 865,450 1,501,926 1,004,846 1,779,523 1,175,100 Operating profit................................. 412,600 Interest expense................................. 115,300 Extraordinary loss ............................. __ 497,080 122,680 __ 604,423 126,241 170,000 Net income before taxes ................... 297,300 Taxes................................................. 104,100 Net income........................................ $ 193,200 374,400 131,300 $ 243,100 308,182 107,864 $ 200,318 Figure 2 Harrod's Sporting Goods Balance Sheet (2004-2006) 2004 2005 Cash .......................................................... $ 121,328 $ 125,789 Marketable securities ................................ 56,142 66,231 Accounts receivable .................................. 341,525 216,240 Inventory................................................... 972,456 1,250,110 Total current assets ............................. 1,491,451 1,658,370 Net plant and equipment .........................1,678,749 1,702,280 2006 $ 99,670 144,090 398,200 1,057,008 1,698,968 1,811,142 Total assets................................................ $3,170,200 Liabilities and Stockholders' Equity Accounts payable ...................................... $ 539,788 Notes payable............................................ 160,540 Total current liabilities........................ 700,328 Long-term liabilities ................................. 1,265,272 Total liabilities .................................... 1,965,600 Common stock .......................................... 367,400 Retained earnings*.................................... 837,200 Total Stockholders' equity.................. 1,204,600 Total liabilities and stockholders' equity .. $3,170,200 $3,360,650 $3,510,110 $ 576,910 180,090 757,000 1,292,995 2,049,995 368,000 942,665 1,310,655 $3,360,650 $ 601,000 203,070 804,070 1,372,240 2,176,310 368,000 965,800 1,333,800 $3,510,110 Figure 3 Harrod's Sporting Goods Selected Industry Ratios for 2006 1. Net income/Sales 2a. Net income/Total Assets 2b. Sales/Total Assets 3a. Net income/Stockholder's Equity 3b. Debt/Total Assets 4. Sales/Receivables 5. Sales/Inventory 6. Sales/Fixed Assets 4.51% 5.10% 1.33 x 9.80% 0.48 5.75 x 3.01 x 3.20 x Questions 1. 2. 3. Compute the profitability ratios, including the a and b components (DuPont Methods) of ratios 2 and 3 as shown in the textbook. The profitability ratios should be shown for all three years. Write a brief one-paragraph description of any trends that appear to have taken place over the three-year time period. In examining the income statement in Figure 1, note that there was an extraordinary loss of $170,000 in 2006. This might have represented uninsured losses from a fire, a lawsuit settlement, etc. It probably does not represent a recurring event or affect the earnings capability of the firm. For that reason, the astute financial analyst might add back in the extraordinary loss to gauge the true operating earnings of the firm. Since it was a tax-deductible item, we must first multiply by (1-tax rate) before adding it back in.* The tax rate was 35 percent for the year.* $170,000 Extraordinary loss .65 (1-tax rate) $110,500 Aftertax addition to profits from eliminating the extraordinary loss from net income The more representative net income number for 2003 would now be: Initially reported (Figure 1) $200,318 Adjustment for extraordinary loss being eliminated +110,500 Adjusted net income $310,818 Based on the adjusted net income figure of $310,818, re compute the profitability ratios for 2006 (include part a and b for ratios 2 and 3). 4. Now with the adjusted net income numbers as part of the ratios for 2006, write a brief oneparagraph description of trends that appear to have taken place over the three-year time period (refer back to the data in Question 1 for 2004 and 2005). 5. Once again, using the revised profitability ratios for 2006 that you developed in Question 3, write a complete one paragraph analysis of the company's profitability ratios compared to the industry ratios (figure 3). Make sure to include asset turnover and debt to total assets as supplemental material in your analysis. Harrod's has a superior sales to total assets ratio compared to the industry. For 2006, compute ratios 4, 6 and 7 as described in the text and compare them to industry data to see why this is so. Write a brief one-paragraph description of the results. Note: for ratio 4, only half the sales are on credit terms. Conclusion: Based on your analysis in answering Questions 4 and 5, do you hink that Becky Harrod has a legitimate complaint about being charged 2 percent over prime instead of one percent over prime? There is no absolute right answer to this question, but use your best judgment 6. 7