Question
Problem 2 Financial Analysis (18 Points) The XYZ Company just completed its first year of operations. Financial data (rounded to the nearest thousand) is as
Problem 2 Financial Analysis (18 Points)
The XYZ Company just completed its first year of operations. Financial data (rounded to the nearest thousand) is as follows at and for the year ended December 31, 2016:
Total Assets ($100,000 current) $500,000
Total Liabilities ($200,000 current) $200,000
Common stock ($1 par, 100,000 issued and outstanding at par) (1)
Paid-in capital in excess of par $150,000
Retained Earnings (1)
Net income for the year ended December 31, 2016 $55,000
Dividends declared and paid $5,000
Estimated market price of common stock $10
1) Please solve the missing components of the balance sheet. How much is total stockholders equity? (3)
2) Compute the current ratio. Why is maximizing the current ratio not an efficient objective for the Company? (3)
3) Why would computing efficiency ratios such as Accounts Receivable Turnover or Inventory Turnover be important to the Company. Are higher or lower turnovers preferred to the Company? Why? (3)
4) Which would be higher? The Rate of return on Assets or the Rate of Return on Equity? Why? (3)
5) What is the Companys dividend yield? Is it higher or lower than the current markets (S&P 500) approximate dividend yield? (3)
6) What is the Companys Earnings per Share (EPS)? Is it higher or lower than the current markets (S&P 500) approximate EPS? (3)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started