Finance 5th Edition By Besley Brigham Edition By Besley-Books Pdf

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Chapter 2 CFIN5, 1 NI EBT 1 0 4, Net income 240 000. Thus EBT 400 000, 1 Tax rate 1 0 40, Taxes 400 000 240 000 160 000. 2 EBIT EBT Interest 400 000 0 400 000, 3 Sales EBIT Operating expenses excluding depreciation Depreciation. 400 000 500 000 100 000 1 000 000, To show that this is the correct result let s start with sales equal to 1 000 000 and compute the net. Sales 1 000 000, Operating expenses excluding depreciation 500 000.
Depreciation 100 000, EBIT 400 000, Interest 0, Earnings before taxes EBT 400 000. Taxes 40 160 000, Net income 240 000, Net cash flow Net income Depreciation 240 000 100 000 340 000. 2 7 a Current 3 5 Current assets 73 500, ratio Current liabilities Current liabilities. Current liabilities 21 000, Current assets Inventory 73 500 Inventory. b Quick 3 0, Current liabilities 21 000, Inventory 73 500 3 0 21 000 10 500.
Sales Sales, 2 8 a Total assets turnover 2 0, Total assets 150 000. Sales 2 0 150 000 300 000, Net income Net income, b Return on assets 0 06. Total assets 150 000, Net income 0 06 150 000 9 000. Net income 9 000, Net profit margin 0 03 3 0, Sales 300 000. 2017 Cengage Learning All Rights Reserved May not be scanned copied or duplicated or posted to a publicly accessible website in whole or in. Chapter 2 CFIN5, 2 9 a ROA Net income Net income 0 05.
Total assets 300 000, Net income 0 05 300 000 15 000. Net income 15 000, b Return on equity Common equity 300 000 200 000 0 15 15 0. Alternative solution, Return on equity Net income ROA Total assets. Common equity Common equity, 0 05 300 000 0 05 3 0 0 15 15 0. 300 000 200 000, 2 10 a Debt ratio 40, Proportion of firm Common equity Common equity.
1 0 40 0 6 60, financed with common stock, Total assets 750 000. Common equity 750 000 0 6 450 000, b ROA Net income Sales Net income. Total assets Total assets Sales, Net income, Net income 0 06. 0 02 2 0 Net profit margin, Alternative solution, Total assets Sales Sales 3 0. turnover Total assets 750 000, Sales 3 750 000 2 250 000.
ROA Net income Net income 0 06, Total assets 750 000. Net income 0 06 750 000 45 000, Net profit Net income 45 000 0 02 2 0. margin Sales 2 250 000, 2 11 a Total assets turnover Sales Sales 2 5. Total assets 10 000, 2017 Cengage Learning All Rights Reserved May not be scanned copied or duplicated or posted to a publicly accessible website in whole or in. Chapter 2 CFIN5, Sales 2 5 10 000 25 000, Net income Net income.
b Return on assets 0 04, Total assets 10 000, Net income 0 04 10 000 400. Net income 400, Net profit margin 0 016 1 6, Sales 25 000. Alternative solution, Return on assets Sales Net income. Total assets Sales, Net income, 0 04 Sales, Net income 0 04. 0 016 1 6 Net profit margin, 2 12 1 Current ratio Current assets 5 0 340 000.
Current liabilities Current liabilities, Current liabilities 340 000 5 0 68 000. 2 Quick ratio Current assets Inventories 1 8 340 000 Inventories. Current liabilities 68 000, Inventories 340 000 1 8 68 000 217 600. 3 Current assets Cash Equivalents Accounts receivable Inventories. 340 000 43 000 Accounts receivable 217 600 Accounts. receivable 340 000 43 000 217 600 79 400, Cost of goods sold CGS. 4 Inventory turnover 7 0, Inventory 217 600, CGS 7 217 600 1 523 200. 5 CGS 0 80 Sales thus Sales 1 904 000, Accounts receivable 79 400.
6 DSO 15 days, Sales 360 1 904 000 360, 2 13 a TIE EBIT INT so find EBIT a. Interest 200 000 x 0 06 12 000, 2017 Cengage Learning All Rights Reserved May not be scanned copied or duplicated or posted to a publicly accessible website in whole or in. Chapter 2 CFIN5, Net income 540 000 x 0 04 21 600, Taxable income EBT 21 600 1 T 21 600 1 0 4 36 000. EBIT 36 000 12 000 48 000, TIE 48 000 12 000 4 0 x. b For TIE to equal 6 0 EBIT 6 0 12 000 72 000, When EBIT 72 000 Net income 72 000 12 000 1 0 40 36 000.
Because NI 0 04 Sales Sales 36 000 0 04 900 000, Check When Sales 900 000 NI 900 000 x 0 04 36 000 EBT. 36 000 1 0 40 60 000, EBIT 60 000 12 000 72 000, TIE 72 000 12 000 6 0. 2 14 We are given Common equity 35 000 000 Common shares outstanding 7 000 000. Market price per share 8 Net income 14 000 000, a EPS 14 000 000 7 000 000 2. P E ratio 8 2 4 0, b Book value per share 35 000 000 7 000 000 5. M B ratio 8 5 1 6, 2 15 We are given ROE 15 TA turnover Sales Total assets 2 0x.
Debt Ratio 60, a From DuPont equation ROE ROA x Equity multiplier. 0 15 ROA x Total assets Common equity, Recognize that Total assets Common equity is simply the inverse of the proportion of the firm that is financed. with equity The proportion of the firm that is financed with equity equals 1 Debt ratio Thus. 1 Debt ratio, ROA 0 15 2 5 0 06 6 0, 2017 Cengage Learning All Rights Reserved May not be scanned copied or duplicated or posted to a publicly accessible website in whole or in. Chapter 2 CFIN5, b ROA Net profit margin x Total assets turnover. 0 06 Net profit margin x 2 0, Net profit margin 0 06 2 0 0 03 3 0.
Alternative solution, TA turnover Sales Total assets 2 0x thus Sales 2 0 Total assets. ROE Net income Common equity Net income 1 0 6 Total assets 0 15 thus Net. income 0 15 0 4 Total assets 0 06 Total assets, PM Net income 0 06 Total assets 0 06 0 03 3 0. Sales 2 0 Total assets 2 0, 2 16We are given ROA 8 Total assets 440 000. Debt Ratio 20, Net income Net income, a ROA 0 08, Total assets 440 000. Net income 0 08 440 000 35 200, b From DuPont equation ROE ROA x Equity multiplier.
Total assets 1 1, Equity multiplier 1 25, Common equity 1 Debt ratio 1 0 20. Thus ROE 0 08 x 1 25 0 10 10 0, Alternative solution. Common equity 440 000 1 0 2 352 000, ROE Net income 35 200 0 10 10 0. Common equity 352 000, 2 17We are given ROA 4 Current assets 260 000. Net income 140 000 Long term debt 1 755 000, assets financed with equity 35.
1 ROA Net income 140 000 0 04 Total assets 140 000 0 04 3 500 000. Total assets Total assets, 2 Total liabilities Total assets Debt ratio 3 500 000 1 0 35 2 275 000. 3 Current liabilities Total liabilities Long term debt 2 275 000 1 755 000 520 000. 2017 Cengage Learning All Rights Reserved May not be scanned copied or duplicated or posted to a publicly accessible website in whole or in. Chapter 2 CFIN5, Current assets 260 000, 4 Current ratio 0 5. Current liabilities 520 000, 2 18 We are given ROA 3 ROE 5 Total assets 100 000. Net income Net income, a ROA 0 03 Net income 100 000 0 03 3 000. Total assets 100 000, Net income 3 000, b ROE Common equity Common eqiuty 0 05 CE 3 000 0 05 60 000.
Debt ratio Total liabilities 100 000 60 000 0 40 40. Total assets 100 000, 2 19We are given assets financed with equity 60 Current ratio 5 0. Total assets turnover 4 0 Current assets 150 000, Sales 1 800 000. Current assets 150 000, 1 Current ratio 5 0, Current liabilities Current liabilities. Current liabilities 150 000 5 30 000, Sales 1 800 000. 2 Total assets turnover 4 0, Total assets Total assets.
Total assets 1 800 000 4 0 450 000, 3 Total liabilities 450 000 1 0 60 180 000. 4 Long term liabilities 180 000 30 000 150 000, 2 20 We are given P E ratio 15 0 Price per share 30. Fixed assets turnover 8 0 Current ratio 5 0, Current liabilities 300 000 Net profit margin 0 04. Shares of common 60 000, Pr ice per share 30, 1 P E ratio 15 0 EPS 30 15 2. Net income 60 000 2 120 000, 2 Net profit margin Net income 120 000 0 04 Sales 120 000 0 04 3 000 000.
Sales Sales, Fixed assets Sales 3 000 000, 3 8 0 Fixed assets 3 000 000 8 375 000. turnover Net fixed assets Fixed assets, 2017 Cengage Learning All Rights Reserved May not be scanned copied or duplicated or posted to a publicly accessible website in whole or in. Chapter 2 CFIN5, Current Current assets CA, 4 5 0 Current assets 300 000 5 1 500 000. ratio Current liabilities 300 000, 5 Total assets Fixed assets Current assets 375 000 1 500 000 1 875 000. Net income 120 000, a ROA 0 064 6 4, Total assets 1 875 000.
Total assets Sales 3 000 000, turnover Total assets 1 875 000. 2017 Cengage Learning All Rights Reserved May not be scanned copied or duplicated or posted to a publicly accessible website in whole or in. Chapter 2 CFIN5, ETHICAL DILEMMA, Hocus Pocus Look An Increase in Sales. Ethical dilemma, Dynamic Energy Wares DEW has decided to change the manner in which it distributes its products to large companies The. change in the distribution system comes at a time when DEW s profits are declining The declining profits might not be the sole. reason for the change but it appears to be the primary impetus for the decision It also appears that the new policy requiring. DEW s distributors to increase inventory levels before the end of the fiscal year will artificially inflate DEW s sales for the. current year However DEW s new policy does not require the distributors to pay for any increased inventory until next year. six months and any unsold inventory can be returned after nine months So if the demand for DEW s products actually is. decreasing the impact will appear on next year s financial statements If the financial manager actually intends to artificially. inflate DEW s profits this year she must realize that such actions eventually will catch up with her. Discussion questions, What is the ethical dilemma, Discussion about this question can be fueled by asking some additional questions Is it unethical for DEW to change its. distribution system if the reason is to artificially inflate profits Would it be unethical if the decision was made for the. purposes of eliminating inefficiencies in the distribution process. Should DEW change its distribution system, Most would agree that DEW should not change its distribution system if the intent is simply to artificially inflate earnings in.
the current period In fact empirical studies indicate that such actions are useless if the purpose is to make the company. look good to investors because investors as a whole generally recognize such tactics for what they really are smoke. screens On the other hand if the purpose for the change is to increase inventory efficiency then it probably is a wise. decision For example the change should decrease the cost of holding carrying inventory because the levels of. inventory held by DEW will decrease If such actions do not adversely affect demand for its products they should be. carried out, What should DEW do, It appears that DEW needs some changes because profits have been declining during the past year A quick temporary. fix is not an appropriate solution it just delays the inevitable DEW needs to come up with a solution that will stabilize or. improve earnings in the long run The fact that senior management has decided to form a task force to examine and. recommend ways to improve its market share is a step in the right direction Such action indicates that DEW wants to find. a long run solution to its declining profits, Discuss some additional steps actions DEW can take to improve its financial position and to remain competitive. Would you go to the distributors meeting What should you tell the distributors. If there is no penalty for declining to attend the distributors meeting most students would tell you they would prefer to. stay home But ask them what they would do if their boss the financial manager said they had to attend the meeting or. lose their well paying job Now you will find that some of the students change their minds. Redirect the discussion by asking the students what strategy they would follow if they actually did attend the distributors. meeting Would they try to mislead the distributors if they believed DEW s decision to change the. 2017 Cengage Learning All Rights Reserved May not be scanned copied or duplicated or posted to a publicly accessible website in whole or in part. Chapter 2 CFIN5, distribution system was made solely for the purpose of artificially increasing profits What tact would be taken if they. believed the decision ultimately would improve inventory efficiency for both DEW and the distributors How would. distributors concerns be handled The answers to these questions will be varied But you probably will find the discussion. has an underlying theme while many believe it is part of the business world most students will express discomfort with. the prospect of having to overtly mislead others, References. There have been many reports of firms that have followed a strategy similar to that described in this chapter s ethical dilemma. A couple of classic examples occurred in 1994 one involved Bausch Lomb Inc which is a well known eyewear company. the other involved PerSeptive Biosystems which produces instruments used in biotechnology analysis. In the last quarter of 1993 Bausch Lomb instituted a change in its distribution system that helped reduce inventories. significantly and allowed the company to post a 10 million gain for the quarter Midway through 1994 however Bausch. Lomb estimated its distributors had excess inventory equal to 75 million During the year the company had to repurchase. much of this excess inventory because it could not be sold by the distributors Because of the poor performance of Bausch. Lomb in 1994 the CEO s performance bonus was cut to zero Additional information concerning Bausch Lomb s decision to. change its distribution system can be found in the following articles. edition by besley brigham Chapter 2 Analysis of Financial Statements 2 1 Publically traded companies are required to provide adequate financial information to their shareholders

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