Problem 4:

Your firm is considering the purchase of a small outfit whose original owner has died. The owners son has inherited the business and after three years has no idea what he is doing. You have come in to make an evaluation of the business by building its balance sheet. You have the last income statement available to you. From talking to the son, you find that the inventory usually lasts 45 days (days in inventory) and that customers usually pay their bills in 60 days (days in receivables). The son does not know how many shares of stock are outstanding, but he does know that he receives $0.05 annual dividends on his shares. From receipts, you find that all of the manufacturing facilities amount to $50,000.00 and are ten years old. The depreciation has been straight line based on a twenty-five year life span. Finally, youve decided to value the stock at $1.00 par and use industry ratios to finish the job. The industry Current Ratio is 2.70 and the industry Quick Ratio is 1.80. Assume a 360 day year.

Income Statement
Revenues:	$45,000.00
COGS:	$36,000.00
SGA:	$2,000.00
Depreciation:	$2,000.00
EBIT:	$5,000.00
Interest:	$1,600.00
EBT:	$3,400.00
Tax:	$1,020.00
EAT:	$2,380.00
Paid in Dividends:	$500.00
Paid to Retained Earnings:	$1,880.00

Assume that interest is only paid on long-term debt and is 8% annually and Cash is included with the Current and Quick Ratios

Balance Sheet:
	Assets:		L and E:
Cash:		Current Liabilities:
Accounts Receivable:		L-T Debt:
Inventory:		Total Liabilities:
Total Current Assets:
Fixed Assets:	$50,000.00	Stock ($1 Par):
Acc. Depreciation:		Retained Earnings:
Net Fixed Assets:		Total Equity:
Total Assets:		Total L and E: