Question

1. Describe two types of business organizations in which you could obtain an ownership position while enjoying limited liability. Provide an example of a type of firm that you might find utilizing each business type.

2. Manitou Corp. had additions to retained earnings for the year just ended of $141,000. The firm paid out $189,000 in cash dividends, and it has ending total equity of $5.44 million. The company currently has 120,000 shares of common stock outstanding. Calculate a) Earnings Per Share (EPS), b) Book Value Per Share (BVPS), c) Price Earnings Ratio (P/E), d) Dividend Per Share, e) Market to Book Ratio.

3. Teeswater Corp. shows the following information on its 2015 statement of comprehensive income: sales = $235,000; costs = $141,000; other expenses = $7,900; depreciation expense = $17,300; interest expense = $12,900; taxes = $19,565; dividends = $12,300. In addition, you’re told that the firm issued $6,100 in new equity during 2015 and redeemed $4,500 in outstanding long-term debt. Calculate a) Cash Flow from Assets b) Operating Cash Flow c) Cash Flow to Creditors d) Cash Flow from Debtors e) Addition to Net Working Capital.

Answer 1

Answer-

1-A limited liability company (LLC) is a hybrid type of legal structure that provides the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership.

The “owners” of an LLC are referred to as “members.” Depending on the state, the members can be a single individual (one owner), two or more individuals, corporations or other LLCs.

Cooperative

A cooperative is a business or organization owned by and operated for the benefit of those using its services. They’re common in healthcare, retail, agriculture, art and restaurant industries. Profits and earnings generated by the cooperative are distributed among the members, also known as user-owners.Their liability is also limited.

2-

Net Income = Cash Dividends + Addition to retained Earnings = $141,000 + $189,000 = $330,000

Earnings per share = Net Income / number of shares outstanding = $330,000 / 120,000 = 2.75

Book value per share = Total Equity / number of shares outstanding = $5,440,000 / 120,000 = $45.33

Price Earnings ratio = Market price per share / Earnings per share = MPS / 2.75 =

Dividend per share = Dividends / number of shares outstanding = $189000/120,000 = 1.575

Market to book ratio = Market price per share / Book value per share = MPS / $45.33

(Market price per share not provided in the question. if you have the figure substitute it with MPS)

3-

Part a:
EBIT=Sales-Cost-Other expenses-Depreciation expense
=235000-141000-7900-17300=$68800

Operating cash flow (OCF) =EBIT-Tax expense + Depreciation expense
=68800-19565+17300=$66535

Part b:
Cash flow to creditors=Interest expense-Net new borrowings
=12900-(-4500)
=$17400

Part c:
Cash flow to shareholders=Dividend paid in year 2018-Net new equity
=12300-6100=$6200

Part d:
Cash flow from assets=Cash flow to creditors + Cash flow to shareholders
=17400+6200=$23600

Addition to NWC=OCF - Cash flow from assets - Net capital spending
=66535-23600-(25000+17300)=$635

Here, Net capital spending is (increase in net fixed assets + depreciation)