Refer to the following financial statements for the Glove World Company.

5-12 Glove World Company Income Statement For the Year Ended Dec. 31, 2015
Net Sales	$11,000
Operating Expenses	3,000
Operating Income (EBIT)	8,000
Balance Sheet Dec. 31, 2015
Assets:
Total Assets	$ 21,000
Liabilities and Equity:
Long-Term Debt	$ 6,000
Total Common Equity	$ 15,000
Total Liabilities and Equity	$ 21,000

a. Calculate the EVA for Glove World, assuming that the firm?s income tax rate is 35 percent, the weighted average rate of return expected by the suppliers of the firm?s capital is 12 percent, and the market price of the firm?s stock is $9. There are 3,000 shares outstanding.

b. Comment on your results. What does the EVA value that you calculated indicate?

c. Calculate the MVA for the Glove World Company.

d. Comment on your results. What does the MVA value that you calculated indicate?

Financial Relationships

5-15. From the values of the different ratios that follow, calculate the missing balance sheet items and complete the balance sheet.

Sales	$100,000
Average Collection Period	55 days
Inventory Turnover	15
Debt to Assets Ratio	.4 or 40%
Current Ratio	3
Total Asset Turnover	1.6
Fixed Asset Turnover	2.9

I attached a picture

Reef Cinema Corporation has a current market price for its stock of $40 per share. The latest annual report showed net income of $2,250,000 and total common stock equity of $15 million. The report also listed 1,750,000 shares of common stock outstanding. No common stock dividends are paid.

a. Calculate Reef Cinema?s earnings per share (EPS).

b. Calculate Reef Cinema?s price to earnings (P/E) ratio.

c. Calculate Reef Cinema?s book value per share.

d. What is Reef Cinema?s market to book ratio?

e. Based on this information, does the market believe that the future earning power of Reef Cinema Corporation justifies a higher value than could be obtained by liquidating the firm? Why or why not?

Develop a pro forma income statement and balance sheet for the White & Pinkman Corporation. The company?s 2015 financial statements are shown below. Base your forecast on the financial statements and the following assumptions:

? Sales growth is predicted to be 20 percent in 2016.

? Cost of goods sold, selling and administrative expense, all current assets, accounts payable, and accrued expenses will remain the same percentage of sales as in 2015.

? Depreciation expense, interest expense, gross plant and equipment, notes payable, long-term debt, and equity accounts other than retained earnings in 2016 will be the same as in 2015.

? The company?s tax rate in 2016 will be 40 percent.

? The same dollar amount of dividends will be paid to common stockholders in 2016 as in 2015.

? Bad debt allowance in 2016 will be the same percentage of accounts receivable as it was in 2015.

White & Pinkman Corporation Income Statement for 2015
Sales	$ 10,000,000
Cost of Goods Sold	4,000,000
Gross Profit	6,000,000
Selling and Administrative Expenses	800,000
Depreciation Expense	2,000,000
Earnings before Interest and Taxes (EBIT)	3,200,000
Interest Expense	1,350,000
Earnings before Taxes (EBT)	1,850,000
Taxes (40%)	740,000
Net Income (NI)	1,110,000
Earnings per Share (EPS) (1 million shares)	$ 1.11
Common Stock Dividends Paid	400,000
Addition to Retained Earnings	710,000

White & Pinkman Corporation Balance Sheet Dec. 31, 2015
Assets:
Current Assets:
Cash	$ 9,000,000
Marketable Securities	8,000,000
Accounts Receivable (Net)	1,000,000
Inventory	20,000,000
Prepaid Expenses	1,000,000
Total Current Assets	$ 39,000,000
Fixed Assets:	11,000,000
Plant and Equipment (Gross)	20,000,000
Less Accumulated Depreciation	(9,000,0000)
Plant and Equipment (Net)	11,000,000
Total Assets	$ 50,000,000
Liabilities and Equity:
Current Liabilities:
Accounts Payable	$ 12,000,000
Notes Payable	5,000,000
Accrued Expenses	3,000,000
Total Current Liabilities	$ 20,000,000
Bonds Payable (5%, due 2025)	20,000,000
Total Liabilities	$ 40,000,000
Common Stock (1 mil. shares, $1 par)	1,000,000
Capital in Excess of Par	4,000,000
Retained Earnings	5,000,000
Total Equity	10,000,000
Total Liabilities and Equity	$ 50,000,000

2. a. Calculate White & Pinkman?s additional funds needed, or excess financing. If additional funds are needed, add them to long-term debt to bring the balance sheet into balance. If excess financing is available, increase common stock dividends paid (and, therefore, decrease 2016 retained earnings) until the balance sheet is in balance.

b. Calculate White & Pinkman?s current ratio for the end of 2015 and 2016.

c. Calculate White & Pinkman?s total asset turnover and inventory turnover ratios for 2016.

d. Calculate White & Pinkman?s total debt to total assets ratio for 2015 and 2016. Assume there has been no additional long-term debt issued in 2016.

e. Calculate White & Pinkman?s net profit margin, return on assets, and return on equity ratios for 2015 and 2016.

3. Comment on White & Pinkman?s liquidity, asset productivity, debt management, and profitability based on the results of your ratio analysis in 2b through 2e.

4. What recommendations would you provide to management based on your forecast and analysis?

Calculate the expected rates of return for the low-, average-, and high-risk stocks:

a. Risk-free rate = 4.5 percent

b. Market risk premium = 12.5 percent

c. Low-risk beta = .5

d. Average-risk beta = 1.0

e. High-risk beta= 1.6

Financial Management

See attached picture Recalculate PSC?s business risk (coefficient of variation of operating income). How does this figure compare with the business risk calculated with variable cost only?