You were provided with the following balance sheet for Golden Cup firm for the year ended Dec 31st, 2015.

Consolidated Balance sheet Golden Cup.

As of Dec 31st, 2015

Assets

Accounts Receivables

Inventory

Total Current Assets

Fixed Assets

Property, Plant, and Equipment Goodwill

Total Fixed Assets Total Assets

Liabilities + Owners Equity Current Liabilities

Current Assets Cash

40,000 4,000 14,000 58,000

Accounts Payable Notes Payable Accrue Wages

Total Current Liabilities

Long term debt

12,000 6,000 1000 19,000

40,000

40,000 39,000 79,000 138,000

56,000

Owners' equity

24,000 80,000

Common Shares

Retained Earnings Total Owners equity

138,000 Liabilities + O.E

In addition to that, you know the following facts about firm's operations throughout the year:

• Golden Cup revenues for the year includes the following: Domestic revenues $160,000. International revenues $80,000. Out of Golden Cup's sales, cost of sales and direct labor is 50% of annual revenues.
• Because of the strong competition that it faces, Golden Cup has a generous marketing plan. Golden Cup signed a contract with the marketing planet Inc. by which the marketing agency will be responsible for Golden Cup marketing for five years period started this year. The contract costs Golden Cup $100,000 that were paid up front, however the company thinks this plan will affect its sales evenly over the five years period. Golden Cup also spends $30,000 in the form of general and administrative expenses per year. Golden Cup depreciable assets historical value is $40,000 and is depreciated on a straight line basis over 10 years.
• Golden Cup pays interest rate of 10% on its Long-term debt outstanding.
• Out of the year's net income, Golden Cup is planning to repay $30,000 to its shareholders in the form of cash dividends. The company currently has 60,000 shares outstanding 1- Please set up income statement for Golden Cup: Consolidated Income Statement Golden Cup.
• As of Dec 31st, 2015 Revenues
• (-) Cost of goods sold
• Gross margin
• (-) Marketing expenses
• (-) General and administrative expenses (-) Depreciation
• EBIT
• (-) Interest expenses
• EBT
• (-) Tax expenses
• Net income Dividends
• Additions to Retained Earnings Please use the U.S corporate tax rates to calculate Golden Cup tax liability. a- What is the marginal tax rate of Golden Cup? b- What is the average tax rate of Golden Cup?

4- Mr. David decision to increase inventory holdings resulted from the consistent pressure of Golden Cup's Board of Directors to increase amount of inventories. Mr. David's own opinion was that Golden cup is holding enough inventory to keep the business running without costing the company lots of money on inventory carrying costs. On the other hand, BOD believes that in such a dynamic industry, holding more inventory is necessary to keep smooth business operations.

a- How long does it currently take the company to turnover its inventory?

b- Do you agree with Mr. David's opinion? Or, With the BOD? And why? Knowing that industry average inventory turnover is 8.

5- Assuming that the entire debt taken will be invested in assets (half on inventory and half on land). The BOD believes this step will increase sales by $20,000 next year which they think certainly justifies the decision to increase inventory. Mr. David argues that this sales increase is not enough to balance the drop in firm's total asset utilization.

a- what is the current total asset utilization?

b- What is the new total assets utilization?

c- Do you agree with Mr. David? Or with the BOD?

6- If you are given the following information about the year ended 2014 (previous year). Total assets = $120,000, Total Equity = $70,000, Sales = 150,000, Net income = $35,000

a- Calculate Golden Cup's profitability for year ended 2014. b- Calculate Golden Cup's profitability for year ended 2014.

c- Based on your knowledge of determinants of corporate profitability (DuPont identity), did any significant change happen to Golden Cup's profitability? Did it increase or decrease? What is the underlying reason behind the change, if any?

7- Ms. Janet McInish is currently considering selling her stock ownership. She strongly believes that the share is overpriced and is going to experience a price drop soon. In order to better understand the current situation of Golden Cup stock, she was advised to use the price earnings ratio. Giving that the total market value of Ms. Janet Golden Cup's shares is $120,000.

a- If Ms. Janet believes that any stock that has a P/E ratio that is more than 20% of the industry average to be overpriced, do you recommend Ms. Janet to sell her shares knowing that industry average P/E ratio is 10?