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5/14/2017 1. Assignment Print View Award: 8.33 points Construct a balance sheet for Galactic Enterprises given the following data: $ Cash balances Inventories Net plant and equipment Accounts receivable Accounts payable Longterm debt What is shareholders' equity? Shareholders' equity $ 25,000 30,000 140,000 35,000 24,000 130,000 76000 References Worksheet Difficulty: Basic 2. Award: 8.33 points The following table gives abbreviated balance sheets and income statements for Starbucks (figures in $ millions). Balance Sheet Assets Current assets: Cash and marketable securities Accounts receivable Inventories Other current assets Total current assets Fixed assets: Net fixed assets Other longterm assets Total assets Liabilities and Shareholders' Equity http://ezto.mheducation.com/hm.tpx End of Year 1,844 948 1,091 285 4,169 3,519 3,064 10,752 Start of Year 3,234 839 1,111 288 5,471 3,201 2,845 11,517 1/9 5/14/2017 Assignment Print View Current liabilities: Accounts payable Other current liabilities Total current liabilities Longterm debt Other longterm liabilities Total liabilities Total shareholders' equity Total liabilities and shareholders' equity 2,244 795 3,039 2,048 394 5,481 5,272 10,752 1,940 3,438 5,378 1,299 360 7,037 4,480 11,517 Income Statement Net sales Cost of goods sold Selling, general, and administrative expenses Depreciation Earnings before interest and taxes (EBIT) Interest expense Taxable income Tax Net income Dividends Addition to retained earnings 16,448 6,859 5,655 710 3,224 64 3,160 1,092 2,068 783 1,285 Assume a tax rate of 35%. Calculate the following using balancesheet figures from the start of the year: a. Calculate the return on assets. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Return on assets .803 % b. Calculate the operating profit margin. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Operating profit margin % c. Calculate the salestoassets ratio. (Round your answer to 2 decimal places.) Salestoassets ratio d. Calculate the inventory turnover. (Round your answer to 2 decimal places.) Inventory turnover e. Calculate the debtequity ratio. (Round your answer to 2 decimal places.) Debtequity ratio f. Calculate the current ratio. (Round your answer to 3 decimal places.) Current ratio g. Calculate the quick ratio. (Round your answer to 4 decimal places.) Quick ratio rev: 09_13_2016_QC_CS60807 http://ezto.mheducation.com/hm.tpx 2/9 5/14/2017 Assignment Print View References Worksheet Difficulty: Basic 3. Award: 8.33 points The following table gives abbreviated balance sheets and income statements for Starbucks. At the end of fiscal 2014, Starbucks had 748 million shares outstanding with a share price of $81.25. The company's weightedaverage cost of capital was about 9%. Assume a tax rate of 35%. Balance Sheet Assets Current assets: Cash and marketable securities Accounts receivable Inventories Other current assets Total current assets Fixed assets: Net fixed assets Other longterm assets Total assets Liabilities and Shareholders' Equity Current liabilities: Accounts payable Other current liabilities Total current liabilities Longterm debt Other longterm liabilities Total liabilities Total shareholders' equity Total liabilities and shareholders' equity End of Year 1,844 948 1,091 285 4,169 3,519 3,064 10,752 2,244 795 3,039 2,048 394 5,481 5,272 10,752 Start of Year 3,234 839 1,111 288 5,471 3,201 2,845 11,517 1,940 3,438 5,378 1,299 360 7,037 4,480 11,517 Income Statement Net sales Cost of goods sold Selling, general, and administrative expenses Depreciation Earnings before interest and taxes (EBIT) Interest expense Taxable income Tax Net income Dividends Addition to retained earnings 16,448 6,859 5,655 710 3,224 64 3,160 1,092 2,068 783 1,285 (figures in $ millions) a. Calculate the market value added. (Do not round intermediate calculations. Enter your answer in millions rounded to 1 decimal place.) Market value added $ 60,775 million http://ezto.mheducation.com/hm.tpx 3/9 5/14/2017 Assignment Print View b. Calculate the markettobook ratio. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Markettobook ratio 11.53 c. Calculate the economic value added. (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) Economic value added $ 1473 million d. Calculate the return on startoftheyear capital. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Return on capital .283 % References Worksheet Difficulty: Basic 4. Award: 8.33 points Indicate whether the following statements are true or false. Assume the firm carries inventory. a. A company's debt-equity ratio is always less than 1. True False b. The quick ratio is always less than the current ratio. True False c. The return on equity is always less than the return on assets. True False References Worksheet Difficulty: Basic http://ezto.mheducation.com/hm.tpx 4/9 5/14/2017 5. Assignment Print View Award: 8.33 points Keller Cosmetics maintains an operating profit margin of 8% and a salestoassets ratio of 3. It has assets of $500,000 and equity of $300,000. Interest payments are $30,000 and the tax rate is 35%. a. What is the return on assets? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Return on assets % b. What is the return on equity? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Return on equity % References Worksheet Difficulty: Basic 6. Award: 8.33 points A firm has a longterm debt-equity ratio of .4. Shareholders' equity is $1 million. Current assets are $200,000, and total assets are $1.5 million. If the current ratio is 2.0, what is the ratio of debt to total longterm capital? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Debt to longterm capital % References Worksheet Difficulty: Basic 7. Award: 8.33 points http://ezto.mheducation.com/hm.tpx 5/9 5/14/2017 Assignment Print View Magic Flutes has total receivables of $3,000, which represent 20 days' sales. Total assets are $75,000. The firm's operating profit margin is 5%. Assume a 365day year. a. What is the firm's salestoassets ratio? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Salestoasset ratio b. What is the firm's return on assets? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Return on assets % References Worksheet Difficulty: Basic 8. Award: 8.33 points Consider this simplified balance sheet for Geomorph Trading: Current assets Longterm assets $ 100 500 $ 600 $ 60 280 70 190 $ 600 Current liabilities Longterm debt Other liabilities Equity a. Calculate the ratio of debt to equity. (Round your answer to 2 decimal places.) Debt to equity ratio b1. What are Geomorph's net working capital and total longterm capital? Net working capital Total longterm capital $ $ b2. Calculate the ratio of debt to total longterm capital. (Round your answer to 2 decimal places.) Debt to total longterm capital References Worksheet http://ezto.mheducation.com/hm.tpx Difficulty: Basic 6/9 5/14/2017 Assignment Print View 9. Award: 8.33 points Airlux Antarctica has current assets of $300 million, current liabilities of $200 million and a cash ratio of .05. How much cash and marketable securities does it hold? (Enter your answer in millions.) Cash and marketable securities $ million References Worksheet Difficulty: Basic 10. Award: 8.33 points On average, it takes Microlimp's customers 60 days to pay their bills. Assume Microlimp has annual sales of $500 million, what is the average value of unpaid bills? Assume a 365day year. (Enter your answer in millions rounded to 3 decimal places.) Accounts receivable $ million References Worksheet Difficulty: Basic 11. Award: 8.33 points Sara Togas sells all its output to Federal Stores. The following table shows selected financial data, in millions, for the two firms: Federal Stores Sara Togas http://ezto.mheducation.com/hm.tpx Sales $100 20 Interest Payment $4 1 Net Income $10 4 Assets at Start of Year $50 20 7/9 5/14/2017 Assignment Print View a. Calculate the salestoassets ratio, the operating profit margin, and the return on assets for the two firms. (Do not round intermediate calculations. Round the salestoassets ratio answers to 2 decimal places. Enter the operating profit margin and return on assets answers as a percent rounded to 2 decimal places.) Federal Stores Salestoassets ratio Operating profit margin Return on assets Sara Togas % % % % b. Now assume that the two companies merge. If Federal continues to sell goods worth $100 million, how will the three ratios change? (Do not round intermediate calculations. Round the salesto assets ratio answer to 2 decimal places. Enter the operating profit margin and return on assets answers as a percent rounded to 2 decimal places.) Merged Firm Salestoassets ratio Operating profit margin Return on assets % % References Worksheet Difficulty: Intermediate 12. Award: 8.37 points Here are some data for five companies in the same industry: EBIT Interest expense A 10 5 B 30 15 Company Code C 100 50 D -3 2 E 80 1 a. Calculate a measure of timesinterestearned for the industry. (Round your answer to 2 decimal places.) Timesinterestearned b. Calculate a measure of timesinterestearned for each company. (A negative answer should be indicated by a minus sign. Round your answers to 1 decimal place.) Company Code A B C http://ezto.mheducation.com/hm.tpx TimesInterestEarned 8/9 5/14/2017 Assignment Print View D E c. Calculate the average of the timesinterestearned ratios for the individual companies. (Round your answer to 1 decimal place.) Average timesinterestearned ratio d. Does changing the method of calculation make a significant difference to the end result? Yes No References Worksheet Difficulty: Intermediate http://ezto.mheducation.com/hm.tpx 9/9 Solution to the questions Question 1 Galactic Enterprises Balance sheet As at the period ended Assets Cash balances 25,000 Inventories 30,000 Account receivables 35,000 Net plant and equipment 140,000 Total Assets 230,000 Liabilities and shareholders' equity Accounts payable 24,000 Long-term debt 130,000 Shareholders' equity Total Liabilities and shareholders' equity Shareholders' equity = 76,000 Question 2 a. b. c. d. e. f. g. Return on assets = 18.57% Operating profit margin = 19.60% Salestoassets ratio = 1.48 Inventory turnover = 6.23 times Debt equity ratio = 1.28 Current ratio = 1.15 Quick ratio = 0.88 Question 3 a. Market value added = $55,503 b. Markettobook ratio = 11.53 c. $1,473 million 76,000 230,000 d. 11.16% Question 4 a. False b. True c. False Question 5 Sales = 3*$500,000 = $1,500,000 Operating income = 0.08 * $1,500,000 = $120,000 IBT = $120,000 - 30,000 = $90,000 EAT = 0.65 *$90,000 = $58,500 a. Return on assets = $58,500/$500,000 =0.117 =11.70% b. Return on equity = $58,500/300,000 = 0.195 =19.50% Question 6 Debt to longterm capital Total debt = $1.5 million - 1 million = 0.5 million Current liabilities = $200,000/2 = $100,000 Long term liabilities = $500,000 - $100,000 = $400,000 Longterm capital = $400,000 + $1,000,000 = $1,400,000 Debt to longterm capital ratio = $500,000/$1,400,000 = 0.357142857 = 35.71% Question 7 a. Sales to assets ratio Sales = (365 *3000)/20 = $54,750 Total assets = $75,000 Salestoasset ratio = $54,750/$75,000 = 0.73 b. Return on assets Operating profit = 0.05 * 54,750 = $2,737.50 Return on assets = $2,737.50/$75,000 = 0.0365 = 3.65% Question 8 a. Debt to equity ratio Total debts = $60 + $280 + $70 = $410 Equity = $190 Debt to equity ratio = $410/$190 = 2.16 b-1. Net working capital Net working capital = current assets - current liabilities = $100 - $60 = $40 b-2. Total long-term capital Total long-term capital = long-term debt + equity = $280 + $190 = $370 Question 9 Cash and marketable securities = cash ratio * current liabilities = 0.05 * 200 million = 15 Million Question 10 Accounts receivable = (collection period * sales)/365 = (60 *$500M) /365 = 82.19 million Question 11 a. Federal stores Sara Togas Sales-to assets ratio 2.00 1.00 Operating profit margin 14.00% 25.00% Return on assets 20.00% 20.00% b. Sales-to assets ratio Operating profit margin Return on assets Merged Firm 1.71 15.83% 20.00% Question 12 a. Times-interest-earned = EBT / interest payable = 217/73 = 2.97 times b. Times-interest-earned of each company Company code TimesInterestEarned A 2.00 times B 2.00 times C 2.00 times D -1.50 times E 80.00 times c. Average of the TimesInterestEarned ratios for the individual companies. 2 + 2 + 2 - 1.5 + 80 = 84.50 = 84.50/ 5 = 16.9 d. Yes