Question (30 Marks) Part I Green Food shows the following information on its 2019 financial statements: Income Statement Sales $4.31 Green Food Statement of Financial Position ASSETS Liabilities & Owners Equity Current Assets Current Liabilities Cash S 398 Accounts Payable Accounts Notes Payable Receivable Inventory 422 Total Total S 1,408 Long term debt COGS Depreciation EBIT S 244 396 2,344 976 990 588 $ 640 S 857 241 749 Interest Taxable Income Taxes Net Income S 287 $ 462 and S 850 Owners' Equity Common Stock paid in surplus Retained Earnings Total Fixed Assets Net Plant & Equipment Total Assets 2.041 $ 2,891 $2.980 Dividends $ 150 $312 $4.388 Total Liabilities & Owners' Equity S4.388 Addition to RE During the year, the firm issued $260 in new equity, and repurchased 5380 outstanding long-term debt (a) What is the operating cash flow for the year? (2 marks) (b) What is the cash flow to creditors for the year? (2 marks) (2 marks) (e) What is the cash flow to stockholders for the year? (d) Calculate the following ratios of the company: (1) Current ratio (2 mark) (ii) Debt-to-equity ratio (2 mark) (ii) Time interest earned (2 mark) (e) Calculate the return of equity (ROE) of the company by using the Du Pont analysis. (4 marks) Part II a) What relationship does the agency theory examine in a firm? What is/are the associated problem/costs of agency theory that would arise and affect the value of a firm? Why is it more important in a public corporation than in a private corporation? (7 marks) Page 5 of 6 b) "The higher the standard deviation, the lower the risk premium should be"? Do you agree? Explain based on systematic risk principle under CAPM. (7 marks) Ouestion Marks) Part 1 Green Food shows the following information on its 2019 financial statements: S 1.0 Green Food Income Statement Statement of Financial Position ASSETS Liabilities & Owners Sales S4,31 Equity Current Assets Current Liabilities COGS 2.344 Cash $ 398 Accounts Payable $ 244 Depreciation 976 Accounts SRS Notes Payable EBIT 990 Receivable Inventory Total 5 600 Interest 241 Total Long term debe 5857 Taxable 749 Income Owners' Equity Taxes $ 287 Common Stock and $850 Net Income S 462 paid in surplus Fixed Assets Retained Earings 2,041 Net Plant & $2.980 Total 52,891 Dividends $ 150 Equipment Total Assets $4,388 Total Liabilities & 54.388 Addition to RE S312 Owners' Equity During the year, the firm issued S260 in new cquity, and repurchased $380 outstanding long-term debt (a) What is the operating cash flow for the year! (2 marks) (b) What is the cash flow to creditors for the year? (2 marks) (c) What is the cash flow to stockholders for the year? (2 marks) (d) Calculate the following ratios of the company (0 Current ratio (2 mark) (1) Debt-to-equity ratio (2 mark) (iii) Time interest carned (2 mark) (e) Calculate the return of equity (ROE) of the company by using the Du Pont analysis (4 marks) Part II a) What relationship does the agency theory examine in a firm? What is are the associated problem costs of agency theory that would arise and affect the value of a firm? Why is it more important in a public corporation than in a private corporation? (7 marks) Page 5 of 6 b) "The higher the standard deviation, the lower the risk premium should be"? Do you agree? Explain based on systematic risk principle under CAPM. (7 marks)
