Rutgers Rotisserie had the following balance sheet at beginning 2019:

Restaurant building250,000

Restaurant equipment, including furniture25,000

Food ingredients plus paper goods, etc.5,000

Cash2,000

Owners' Equity200,000

Bank Loan82,000

RR prepared and served 10,000 meals during 2019 for which it received an average of 30/meal.

Its labor, intermediate goods, gas and electricity, rent totaled 225,000.

Ignore any depreciation for now.

The interest rate on its loan is 7.5%.The cash on its balance sheet represents the average balance on its checking account, which pays 0 interest.

Rutgers Rotisserie's tax rate is 22%.

What are RR's before and after-tax profits for the year?Its ROE?Coverage ratio?

Follow the cash and calculate the cash flow for the year.

II

Continuing with the above, assume Rutgers Rotisserie kept all its 2019 rather than distributing to its owners.This is known as "retained earnings" and is equivalent to the existing owners adding equity to RR's balance sheet.Assume these earnings are deposited into RR's checking account.

Show the new balance sheet as of beginning 2020.

If 2020 turns out to be exactly the same as 2019. what are after-tax profits?ROE?What happened?

III

Redo the calculations in I above, with the following change: Rutgers Rotisserie depreciates its real estate over 20 years, its other fixed assets over 10 years.

IV

Return to the situation as depicted in I (i.e., no depreciation).In addition to the numbers as presented there, during the year RR purchases $10,000 of additional equipment.(It neither borrows the funds nor issues new equity to do so.)It decides on a payout ratio of two-thirds.

Recalculate RR's before and after-tax profits for the year, its ROE, coverage ratio and change in cash between the start and end of the year.Show the new balance sheet.

V

Return again to the beginning situation in I and the figures as given there.However, the number of meals served declines 10% with unchanged average price per meal and operating costs.Still, RR decides to pay the same dollar amount of dividends as it did in IV above.If necessary, RR draws from its bank credit line (i.e., increases bank borrowing).

What are RR's profits for the year, ROE, retained earnings and change in cash between the start and end of the year?Show the new balance sheet.

VI

Return yet again to the situation in I.Among the 10,000 meals sold, 50 were an end-of-semester party for Rutgers Fundamentals of Finance students.Professor Dym asked if he could pay in January 2021, and RR reluctantly agreed.Dividend payout ratio is two-thirds.All else is the same.

What are RR's profits for the year, ROE, retained earnings and change in cash between the start and end of the year?Then calculate Coverage Ratio using EBIT.

Show the new balance sheet.How is the balance sheet affected when Dym finally pays his bill (hah!)?