New Kelp City Corporation Income Statement For the Year Ended Dec. 31, 2015

Net Sales

$ 10,000

Cost of Goods Sold

3,000

Gross Profit

7,000

Depreciation

200

S&A Expenses

300

Operating Income (EBIT)

6,500

Interest Expense

584

Income before Taxes

5,916

Income Taxes (35%)

2,071

Net Income

$ 3,845

Earnings per Share (3,000 shares)

$ 1.28

Balance Sheet Dec. 31, 2015

Assets:

Cash

$ 350

Marketable Securities

300

Accounts Receivable

400

Inventory

680

Prepaid Expenses

200

Total Current Assets

1,930

Fixed Assets, Gross

63,000

Less Accumulated Depreciation

(42,000)

Fixed Assets, Net

21,000

Total Assets

$ 22,930

Liabilities and Equity:

Accounts Payable

$ 740

Notes Payable

630

Accrued Expenses

350

Total Current Liabilities

1,720

Long-Term Debt

6,000

Total Liabilities

7,720

Common Stock

3,000

Capital in Excess of Par

6,610

Retained Earnings

5,600

Total Common Equity

15,210

Total Liabilities and Equity

$ 22,930

5-17. What is the current ratio of Barnacle Bay Corporation, given the following information from its end of 2015 balance sheet?

Current Assets	$ 5,000
Long-Term Liabilities	18,000
Total Liabilities	20,000
Total Equity	30,000

Du Pont Equation

5-18. Atlantis, Inc., manufactures windmills. What is Atlantis total asset turnover if its return on assets is 12 percent and its net profit margin is 4 percent? Use the following information to answer questions 5-19 to 5-25. In 2015, Patrick Star opened a small sporting goods retail store called Patrick Stars Sports Stuff (PSSS). It immediately became very popular, and growth was only limited by the amount of capital Patrick could generate through profits and loans. Patricks financial manager advised him to incorporate. His manager said that by selling stock, Patrick would have the necessary capital to expand his business at an accelerated pace. Answer the following questions relating to Patricks Sports Stuff.

Profitability Ratios

5-19. The management team at PSSS is looking toward the future. They want to maintain a gross profit margin of 50 percent. If the estimate for net sales in 2016 is $5 million, how much gross profit will be necessary in 2016 to maintain this ratio?

Profitability Ratios

5-20. Using the data in 5-19, if the management team estimated $200,000 in selling and administration expenses and $50,000 in depreciation expenses for 2016, with net sales of $5 million, what operating profit margin can they expect?

Profitability Ratios

5-21. What must net income be in 2016 if PSSS also wants to maintain a net profit margin of 20 percent on net sales of $5 million?

Modified Du Pont Equation

5-22. What will PSSSs return on assets be if its total assets at the end of 2016 are estimated to be $20 million? Net sales are $5 million, and the net profit margin is 20 percent in that year.

Profitability Ratios

5-23. PSSS management knows the astute owners of PSSS stock will sell their stock if the return on stockholders equity investment (return on equity ratio) drops below 10 percent. Total stockholders equity for the end of 2016 is estimated to be $15 million. How much net income will PSSS need in 2016 to fulfill the stockholders expectation of the return on equity ratio of 10 percent?

Liquidity Ratios

5-24. Of the $20 million in total assets estimated for the end of 2016, only $2 million will be classified as noncurrent assets. If current liabilities are $4 million, what will PSSSs current ratio be?

Liquidity Ratios

5-25. Inventory on the balance sheet for the end of 2016 is expected to be $3 million. With total assets of $20 million, noncurrent assets of $2 million, and current liabilities of $4 million, what will be the value of PSSSs quick ratio?

Debt Ratios

5-26. Given $20 million in total assets, $14 million in total stockholders equity, and a debt to total asset ratio of 30 percent for Plankton Corporation, what will be the debt to equity ratio?