Williamson Industries has $5 billion in sales and $1.004 billion in fixed assets. Currently, the company's fixed assets are operating at 95% of capacity.
In: Finance
The Jimenez Corporation's forecasted 2020 financial statements follow, along with some industry average ratios.
Jimenez Corporation: Forecasted Balance Sheet as of December 31, 2020
| Assets | |
| Cash | $ 73,000 |
| Accounts receivable | 439,000 |
| Inventories | 893,000 |
| Total current assets | $1,405,000 |
| Fixed assets | 431,000 |
| Total assets | $1,836,000 |
| Liabilities and Equity | |
| Accounts payable | $ 332,000 |
| Notes payable | 120,000 |
| Accruals | 150,000 |
| Total current liabilities | $ 602,000 |
| Long-term debt | 403,700 |
| Common stock | 575,590 |
| Retained earnings | 254,710 |
| Total liabilities and equity | $1,836,000 |
| Jimenez Corporation: Forecasted Income Statement for 2020 | ||
| Sales | $4,290,000 | |
| Cost of goods sold | 3,701,000 | |
| Selling, general, and administrative expenses | 397,456 | |
| Earnings before interest and taxes (EBIT) | $ 191,544 | |
| Interest expense | 50,000 | |
| Earnings before taxes (EBT) | $ 141,544 | |
| Taxes (25%) | 35,386 | |
| Net income | $ 106,158 | |
| Jimenez Corporation: Per Share Data for 2020 | ||
| EPS | $ 4.62 | |
| Cash dividends per share | $ 0.95 | |
| P/E ratio | 5.0 | |
| Market price (average) | $23.08 | |
| Number of shares outstanding | 23,000 | |
Industry Ratiosa |
||
| Quick ratio | 1.0 | |
| Current ratio | 2.7 | |
| Inventory turnoverb | 7.0 | |
| Days sales outstandingc | 32.0 | days |
| Fixed assets turnoverb | 13.0 | |
| Total assets turnoverb | 2.6 | |
| Return on assets | 9.1 | % |
| Return on equity | 18.2 | % |
| Profit margin on sales | 3.5 | % |
| Debt-to-assets ratio | 21.0 | % |
| Liabilities-to-assets ratio | 50.0 | % |
| P/E ratio | 6.0 | |
| Market/Book ratio | 3.5 | |
| Notes: | ||
| aIndustry average ratios have been stable for the past 4 years. | ||
| bBased on year-end balance sheet figures. | ||
| cCalculation is based on a 365-day year. | ||
Calculate Jimenez's 2020 forecasted ratios, compare them with the industry average data, and comment briefly on Jimenez's projected strengths and weaknesses. Assume that there are no changes from the prior period to any of the operating balance sheet accounts. Do not round intermediate calculation. Round your answers to two decimal places.
| Ratios | Firm | Industry | Comment |
| Quick ratio | 1.0 | -Select-StrongWeakItem 2 | |
| Current ratio | 2.7 | -Select-StrongWeakItem 4 | |
| Inventory turnover | 7.0 | -Select-PoorHighItem 6 | |
| Days sales outstanding | days | 32 days | -Select-PoorHighItem 8 |
| Fixed assets turnover | 13.0 | -Select-PoorHighItem 10 | |
| Total assets turnover | 2.6 | -Select-PoorHighItem 12 | |
| Return on assets | % | 9.1% | -Select-BadGoodItem 14 |
| Return on equity | % | 18.2% | -Select-BadGoodItem 16 |
| Profit margin on sales | % | 3.5% | -Select-BadGoodItem 18 |
| Debt-to-assets ratio | % | 21.0% | -Select-LowHighItem 20 |
| Liabilities-to-assets ratio | % | 50.0% | -Select-LowHighItem 22 |
| P/E ratio | 6.0 | -Select-PoorHighItem 24 | |
| Market/Book ratio | 3.5 | -Select-PoorHighItem 26 |
So, the firm appears to be -Select-badlywellItem 27 managed.
In: Finance
2) You win the lottery! Your choices are
a) If the interest rate is 0.1% compounded annually, which would you prefer?
b) If the interest rate is 4% compounded annually, which would you prefer?
c) At what annual interest rate would you be indifferent between the two?
(Hint: build a spreadsheet to compute the present value of each of the $1 million payments.)
In: Finance
Commonwealth Construction (CC) needs $2 million of assets to get started, and it expects to have a basic earning power ratio of 35%. CC will own no securities, so all of its income will be operating income. If it so chooses, CC can finance up to 45% of its assets with debt, which will have an 10% interest rate. If it chooses to use debt, the firm will finance using only debt and common equity, so no preferred stock will be used. Assuming a 35% tax rate on all taxable income, what is the difference between CC's expected ROE if it finances these assets with 45% debt versus its expected ROE if it finances these assets entirely with common stock? Round your answer to two decimal places.
In: Finance
The following are the cash flows of two projects:
Year Project A Project B
0 -250 -250
1 130 150
2 130 150
3 130 150
4 130
If the opportunity cost is 10%, what is the profitability index for each project?
Project Profitability Index
A
B
In: Finance
Assume you have recently graduated with your business degree, and landed a new position at a company you had been researching during your senior year in college. You have been offered a lump-sum, sign-on bonus of $5,000. You also recently purchased a new condominium and vehicle. These items, in addition to your student loans, comprise your personal debt. Consider your debt reduction and investment earnings potential, as well as any applicable taxes. Assume that tax rates are stable over the next 10 years, and inflation is low (<1% per year) and does not change. Would you personally choose to invest the $5,000 sign-on bonus, or use it to pay down your debt? Regardless of your decision to either invest or pay down debt, be specific regarding the type of investment or debt payment you would make. Provide specific rationale for your decision. You may develop a quantitative example to support your rationale.
In: Finance
You shorted 1,000 shares of WDC at $55.6. Show your account equity position value. If the stock price fell to $40 in 6 months and the company paid $2.8 in dividends, what is your dollar gain and percentage gain? What if the price went up t $68 a share?(please show me how to do it in excel.)
In: Finance
| Just Dew It Corporation reports the following balance sheet information for 2014 and 2015. |
| JUST DEW IT CORPORATION 2014 and 2015 Balance Sheets |
||||||||||||||||
| Assets | Liabilities and Owners’ Equity | |||||||||||||||
| 2014 | 2015 | 2014 | 2015 | |||||||||||||
| Current assets | Current liabilities | |||||||||||||||
| Cash | $ | 10,620 | $ | 13,275 | Accounts payable | $ | 52,560 | $ | 60,750 | |||||||
| Accounts receivable | 21,420 | 29,925 | Notes payable | 19,260 | 24,075 | |||||||||||
| Inventory | 67,860 | 82,575 | ||||||||||||||
| Total | $ | 99,900 | $ | 125,775 | Total | $ | 71,820 | $ | 84,825 | |||||||
| Long-term debt | $ | 36,000 | $ | 27,000 | ||||||||||||
| Owners’ equity | ||||||||||||||||
| Common stock and paid-in surplus | $ | 45,000 | $ | 45,000 | ||||||||||||
| Retained earnings | 207,180 | 293,175 | ||||||||||||||
| Net plant and equipment | $ | 260,100 | $ | 324,225 | Total | $ | 252,180 | $ | 338,175 | |||||||
| Total assets | $ | 360,000 | $ | 450,000 | Total liabilities and owners’ equity | $ | 360,000 | $ | 450,000 | |||||||
|
Prepare the 2014 and 2015 common-size balance sheets for Just Dew It. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) |
| 2014 | 2015 | ||||||||||||
| Assets | |||||||||||||
| Current assets | |||||||||||||
| Cash | $ | 10,620 | % | $ | 13,275 | % | |||||||
| Accounts receivable | 21,420 | % | 29,925 | % | |||||||||
| Inventory | 67,860 | % | 82,575 | % | |||||||||
| Total | $ | 99,900 | % | $ | 125,775 | % | |||||||
| Fixed assets | |||||||||||||
| Net plant and equipment | $ | 260,100 | % | $ | 324,225 | % | |||||||
| Total assets | $ | 360,000 | % | $ | 450,000 | % | |||||||
| Liabilities and Owners’ Equity | |||||||||||||
| Current liabilities | |||||||||||||
| Accounts payable | $ | 52,560 | % | $ | 60,750 | % | |||||||
| Notes payable | 19,260 | % | 24,075 | % | |||||||||
| Total | $ | 71,820 | % | $ | 84,825 | % | |||||||
| Long-term debt | $ | 36,000 | % | $ | 27,000 | % | |||||||
| Owners' equity | |||||||||||||
| Common stock and paid-in surplus | $ | 45,000 | % | $ | 45,000 | % | |||||||
| Accumulated retained earnings | 207,180 | % | 293,175 | % | |||||||||
| Total | $ | 252,180 | % | $ | 338,175 | % | |||||||
| Total liabilities and owners' equity | $ | 360,000 | % | $ | 450,000 | % | |||||||
In: Finance
The 2017 balance sheet of Kerber’s Tennis Shop, Inc., showed $2.6 million in long-term debt, $740,000 in the common stock account, and $5.95 million in the additional paid-in surplus account. The 2018 balance sheet showed $3.8 million, $965,000, and $8.05 million in the same three accounts, respectively. The 2018 income statement showed an interest expense of $200,000. The company paid out $570,000 in cash dividends during 2018. If the firm's net capital spending for 2018 was $670,000, and the firm reduced its net working capital investment by $155,000, what was the firm's 2018 operating cash flow, or OCF?
In: Finance
|
Klingon Widgets, Inc., purchased new cloaking machinery three years ago for $6.5 million. The machinery can be sold to the Romulans today for $4.15 million. Klingon's current balance sheet shows net fixed assets of $2.8 million, current liabilities of $2 million, and net working capital of $470,000. If all the current assets were liquidated today, the company would receive $2.05 million cash
|
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The Financial Advisor’s Investment Case Inferior Investment Alternatives
Although investing requires the individual to bear risk, the risk can be controlled through the construction of diversified portfolios and by excluding any portfolio that offers an inferior return for a given amount of risk. While this concept seems obvious, one of your clients, Laura Spegele, is considering purchasing a stock that you believe will offer an inferior return for the risk she will bear. To convince her that the acquisition is not desirable, you want to demonstrate the trade-off between risk and return.
While it is impractical to show the trade-off for all possible combinations, you believe that illustrating several combinations of risk and return and applying the same analysis to the specific investment should be persuasive in discouraging the purchase. Currently, U.S. Treasury bills offer 7 percent. Three possible stocks and their betas are as follows:
|
Security |
Expected Return |
Beta |
|---|---|---|
|
Stock A |
9% |
0.6 |
|
Stock B |
11 |
1.3 |
|
Stock C |
14 |
1.5 |
1. What will be the expected return and beta for each of the following portfolios?
a) Portfolios 1 through 4: All of the funds are invested solely in one asset (the corresponding three stocks or the Treasury bill).
b) Portfolio 5: One-quarter of the funds are invested in each alternative.
c) Portfolio 6: One-half of the funds are invested in stock A and one-half in stock C.
d) Portfolio 7: One-third of the funds are invested in each stock.
2. Are any of the portfolios inefficient?
3. Is there any combination of the Treasury bill and stock C that is superior to portfolio 6 (i.e., half the funds in stock A and half in stock C)?
4. Since your client’s suggested stock has an anticipated return of 12 percent and a beta of 1.4, does that information argue for or against the purchase of the stock?
5. Why is it important to consider purchasing an asset as part of a portfolio and not as an independent act?
In: Finance
Suppose that today (January 1) you deposited $1000 into a savings that pays 8 percent.
a. If the bank compounds interest annually, how much will you have in your account three years from today?
b. What would your balance be in three years if the bank used quarterly compounding rather than annual compounding?
c. Suppose you deposited the $1000 in four payments of $250 each on January 1 of the next four years, beginning one year from today. How much would you have in your account in four years when the last deposit is made assuming that interest is 8 percent compound annually?
d. Suppose you deposited four equal payments in your account beginning next January 1, assuming an 8 percent interest rate, how large would each of your payments have to be for you to obtain the same ending balance as you calculating in part a?
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"You are invited to speak to a group of young professionals who are interested in joining the financial industry. The organizer requests that you speak on the importance of financial regulation. Using at least two real world historical situations, explain why it is important for financial institutions to be regulated."
In: Finance
In: Finance
DEF Manufacturing Company has considered investing in two independent projects, which both will result in a cost of $1,500,000. Each project is expected to last 6 years. Project A ‘s annual cash flows are listed as follows: Year 1: $265,000; Year 2: $265,000; Year 3: $265,000 Year 4: $525,000; Year 5: $449,000; Year 6: $820,000. Project B annual cash flows are listed as follows: Year 1: $220,000; Year 2: $449,000; Year 3: $525,000; Year 4: $765,000; Year 5: $765,000; Year 6: $765,000. DEF’s cost of capital is 12%.
A) Calculate each project’s NPV.
B) Compute each project’s IRR.
C) Calculate Payback Period for both projects
D) As the financial analyst evaluating this project, would you accept/reject one or accept or reject
both? Would your answer change if the projects were mutually exclusive?
In: Finance