(Related to Checkpoint 15.1) (Calculating debt ratio) Webb Solutions, Inc. has the following financial structure:
Accounts payable
$490,000
Short-term debt
240,000
Current liabilities
$730,000
Long-term debt
731,000
Shareholders' equity
493,000
Total
$1,954,000
a. Compute Webb's debt ratio and interest-bearing debt ratio.
b. If the market value of Webb's equity is
$2 comma 039 comma 0002,039,000
and the value of the firm's debt is equal to its book value, assuming excess cash is zero, what is thedebt-to-enterprise-value ratio for Webb?
c. If you were a bank loan officer who was analyzing whether or not to loan more money to Webb, which of the ratios calculated in parts a and b is most relevant to your analysis?
a. Webb's debt ratio is
(Round to one decimal place.)
Webb's interest-bearing debt ratio is
(Round to one decimal place.)
b. Webb's debt-to-enterprise-value ratio is
(Round to one decimal place.)
c. If you were a bank loan officer who was analyzing whether or not to loan more money to Webb, which of the ratios calculated in parts a and b is most relevant to your analysis? (Select the best choice below.)
A.
None of these three ratios can measure Webb's ability to repay the loan.
B.
The most relevant of the three debt-related ratios we have calculated is the second, the interest-bearing debt ratio.
C.
The most relevant of the three debt-related ratios we have calculated is the third, the debt-to-enterprise-value ratio.
D.
The most relevant of the three debt-related ratios we have calculated is the first, the debt ratio.
In: Finance
Which of the following is NOT a red flag of related party transaction that may be a sham?
|
The CEO of a privately-held company sold a plot of land to the company. It will be used for the company's new distribution center. The purchase price was based on an independent appraisal. The transaction was approved by independent board members. |
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|
The CEO of a privately-held company sold a plot of land to the company. The land is a summer vacation home that the CEO uses for corporate entertaining. The CEO's family uses the property for vacations in the summer. The agreements state that the purchase price is fair market value. The sale price was within the CEO's authority, so no board vote was taken on the transaction. |
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Company A has invested in a joint venture with Company B. The Joint Venture is a separate legal entity. Company A sells products to the Joint Venture company. At the same time, the Joint Venture Company also provides services to the Company A. The sales to the Joint Venture are more profitable than most of Company A's business. |
||
|
A software company sells English-language publishing software. Near the end of the quarter, they entered into a partnership agreement with a Bulgarian distributor. The distributor will provide a substantial up front payment for the rights to sell the software in Bulgaria. The sale is material to the quarterly results. |
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|
All of these are red flags of potential sham transactions. |
In: Accounting
1 Which of the following is true about a public company?
select two answers .s
It is owned by the people who run it on a day-to-day basis.
It is a firm that has sold its stock by making it available to be bought and sold by outside investors.
It is owned by shareholders.
It is the same as a partnership.
2 What are the benefits of issuing stock for a small and growing firm?
it increases its visibility in the financial markets
it allows it access to large amounts of financial capital for expansion
it wouldn't have to worry about repaying the money obtained through selling stock
all of the above
Which of the following describe situations where a firm may not be able to use its own profits as a source of financial capital?
select two answeres
A large company as been operating for about fifty years and has seen a steady growth in profits each year.
A new technology company is just starting and still developing its product.
A company has been suffering low profits for the past few years and even lost money in the most recent fiscal quarter.
A large, established firm saw lower profits this year compared to previous years. However, the company is still financially sound and is not currently interested in any major expansion.
In: Economics
Thalassines Kataskeves, S.A., of Greece makes marine equipment. The company has been experiencing losses on its bilge pump product line for several years. The most recent quarterly contribution format income statement for the bilge pump product line follows:
|
Thalassines Kataskeves, S.A. Income Statement—Bilge Pump For the Quarter Ended March 31 |
||||||
| Sales | $ | 500,000 | ||||
| Variable expenses: | ||||||
| Variable manufacturing expenses | $ | 137,000 | ||||
| Sales commissions | 42,000 | |||||
| Shipping | 17,000 | |||||
| Total variable expenses | 196,000 | |||||
| Contribution margin | 304,000 | |||||
| Fixed expenses: | ||||||
| Advertising (for the bilge pump product line) | 30,000 | |||||
| Depreciation of equipment (no resale value) | 114,000 | |||||
| General factory overhead | 32,000 | * | ||||
| Salary of product-line manager | 125,000 | |||||
| Insurance on inventories | 5,000 | |||||
| Purchasing department | 48,000 | † | ||||
| Total fixed expenses | 354,000 | |||||
| Net operating loss | $ | (50,000 | ) | |||
*Common costs allocated on the basis of machine-hours.
†Common costs allocated on the basis of sales dollars.
Discontinuing the bilge pump product line would not affect sales of other product lines and would have no effect on the company’s total general factory overhead or total Purchasing Department expenses.
Required:
What is the financial advantage (disadvantage) of discontinuing the bilge pump product line?
In: Accounting
Thalassines Kataskeves, S.A., of Greece makes marine equipment. The company has been experiencing losses on its bilge pump product line for several years. The most recent quarterly contribution format income statement for the bilge pump product line follows: Thalassines Kataskeves, S.A. Income Statement—Bilge Pump For the Quarter Ended March 31 Sales $ 400,000 Variable expenses: Variable manufacturing expenses $ 130,000 Sales commissions 43,000 Shipping 16,000 Total variable expenses 189,000 Contribution margin 211,000 Fixed expenses: Advertising (for the bilge pump product line) 30,000 Depreciation of equipment (no resale value) 107,000 General factory overhead 45,000 * Salary of product-line manager 116,000 Insurance on inventories 8,000 Purchasing department 48,000 † Total fixed expenses 354,000 Net operating loss $ (143,000 ) *Common costs allocated on the basis of machine-hours. †Common costs allocated on the basis of sales dollars. Discontinuing the bilge pump product line would not affect sales of other product lines and would have no effect on the company’s total general factory overhead or total Purchasing Department expenses. Required: What is the financial advantage (disadvantage) of discontinuing the bilge pump product line?
In: Accounting
Thalassines Kataskeves, S.A., of Greece makes marine equipment. The company has been experiencing losses on its bilge pump product line for several years. The most recent quarterly contribution format income statement for the bilge pump product line follows:
| Thalassines Kataskeves, S.A. Income Statement—Bilge Pump For the Quarter Ended March 31 |
||||||
| Sales | $ | 450,000 | ||||
| Variable expenses: | ||||||
| Variable manufacturing expenses | $ | 123,000 | ||||
| Sales commissions | 51,000 | |||||
| Shipping | 13,000 | |||||
| Total variable expenses | 187,000 | |||||
| Contribution margin | 263,000 | |||||
| Fixed expenses: | ||||||
| Advertising (for the bilge pump product line) | 22,000 | |||||
| Depreciation of equipment (no resale value) | 105,000 | |||||
| General factory overhead | 31,000 | * | ||||
| Salary of product-line manager | 118,000 | |||||
| Insurance on inventories | 6,000 | |||||
| Purchasing department | 42,000 | † | ||||
| Total fixed expenses | 324,000 | |||||
| Net operating loss | $ | (61,000 | ) | |||
*Common costs allocated on the basis of machine-hours.
†Common costs allocated on the basis of sales dollars.
Discontinuing the bilge pump product line would not affect sales of other product lines and would have no effect on the company’s total general factory overhead or total Purchasing Department expenses.
Required:
What is the financial advantage (disadvantage) of discontinuing the bilge pump product line?
In: Accounting
Thalassines Kataskeves, S.A., of Greece makes marine equipment. The company has been experiencing losses on its bilge pump product line for several years. The most recent quarterly contribution format income statement for the bilge pump product line follows:
| Thalassines Kataskeves, S.A. Income Statement—Bilge Pump For the Quarter Ended March 31 |
||||||
| Sales | $ | 490,000 | ||||
| Variable expenses: | ||||||
| Variable manufacturing expenses | $ | 134,000 | ||||
| Sales commissions | 53,000 | |||||
| Shipping | 16,000 | |||||
| Total variable expenses | 203,000 | |||||
| Contribution margin | 287,000 | |||||
| Fixed expenses: | ||||||
| Advertising (for the bilge pump product line) | 29,000 | |||||
| Depreciation of equipment (no resale value) | 103,000 | |||||
| General factory overhead | 34,000 | * | ||||
| Salary of product-line manager | 123,000 | |||||
| Insurance on inventories | 11,000 | |||||
| Purchasing department | 46,000 | † | ||||
| Total fixed expenses | 346,000 | |||||
| Net operating loss | $ | (59,000 | ) | |||
*Common costs allocated on the basis of machine-hours.
†Common costs allocated on the basis of sales dollars.
Discontinuing the bilge pump product line would not affect sales of other product lines and would have no effect on the company’s total general factory overhead or total Purchasing Department expenses.
Required:
What is the financial advantage (disadvantage) of discontinuing the bilge pump product line?
In: Accounting
Thalassines Kataskeves, S.A., of Greece makes marine equipment. The company has been experiencing losses on its bilge pump product line for several years. The most recent quarterly contribution format income statement for the bilge pump product line follows:
| Thalassines Kataskeves, S.A. Income Statement—Bilge Pump For the Quarter Ended March 31 |
||||||
| Sales | $ | 430,000 | ||||
| Variable expenses: | ||||||
| Variable manufacturing expenses | $ | 133,000 | ||||
| Sales commissions | 52,000 | |||||
| Shipping | 21,000 | |||||
| Total variable expenses | 206,000 | |||||
| Contribution margin | 224,000 | |||||
| Fixed expenses: | ||||||
| Advertising (for the bilge pump product line) | 28,000 | |||||
| Depreciation of equipment (no resale value) | 118,000 | |||||
| General factory overhead | 30,000 | * | ||||
| Salary of product-line manager | 130,000 | |||||
| Insurance on inventories | 11,000 | |||||
| Purchasing department | 49,000 | † | ||||
| Total fixed expenses | 366,000 | |||||
| Net operating loss | $ | (142,000 | ) | |||
*Common costs allocated on the basis of machine-hours.
†Common costs allocated on the basis of sales dollars.
Discontinuing the bilge pump product line would not affect sales of other product lines and would have no effect on the company’s total general factory overhead or total Purchasing Department expenses.
Required:
What is the financial advantage (disadvantage) of discontinuing the bilge pump product line?
In: Accounting
Thalassines Kataskeves, S.A., of Greece makes marine equipment. The company has been experiencing losses on its bilge pump product line for several years. The most recent quarterly contribution format income statement for the bilge pump product line follows:
| Thalassines Kataskeves, S.A. Income Statement—Bilge Pump For the Quarter Ended March 31 |
||||||
| Sales | $ | 480,000 | ||||
| Variable expenses: | ||||||
| Variable manufacturing expenses | $ | 131,000 | ||||
| Sales commissions | 54,000 | |||||
| Shipping | 19,000 | |||||
| Total variable expenses | 204,000 | |||||
| Contribution margin | 276,000 | |||||
| Fixed expenses: | ||||||
| Advertising (for the bilge pump product line) | 26,000 | |||||
| Depreciation of equipment (no resale value) | 100,000 | |||||
| General factory overhead | 36,000 | * | ||||
| Salary of product-line manager | 127,000 | |||||
| Insurance on inventories | 12,000 | |||||
| Purchasing department | 45,000 | † | ||||
| Total fixed expenses | 346,000 | |||||
| Net operating loss | $ | (70,000 | ) | |||
*Common costs allocated on the basis of machine-hours.
†Common costs allocated on the basis of sales dollars.
Discontinuing the bilge pump product line would not affect sales of other product lines and would have no effect on the company’s total general factory overhead or total Purchasing Department expenses.
Required:
What is the financial advantage (disadvantage) of discontinuing the bilge pump product line?
In: Accounting
Thalassines Kataskeves, S.A., of Greece makes marine equipment. The company has been experiencing losses on its bilge pump product line for several years. The most recent quarterly contribution format income statement for the bilge pump product line follows:
| Thalassines Kataskeves, S.A. Income Statement—Bilge Pump For the Quarter Ended March 31 |
||||||
| Sales | $ | 440,000 | ||||
| Variable expenses: | ||||||
| Variable manufacturing expenses | $ | 127,000 | ||||
| Sales commissions | 45,000 | |||||
| Shipping | 20,000 | |||||
| Total variable expenses | 192,000 | |||||
| Contribution margin | 248,000 | |||||
| Fixed expenses: | ||||||
| Advertising (for the bilge pump product line) | 21,000 | |||||
| Depreciation of equipment (no resale value) | 107,000 | |||||
| General factory overhead | 47,000 | * | ||||
| Salary of product-line manager | 122,000 | |||||
| Insurance on inventories | 6,000 | |||||
| Purchasing department | 50,000 | † | ||||
| Total fixed expenses | 353,000 | |||||
| Net operating loss | $ | (105,000 | ) | |||
*Common costs allocated on the basis of machine-hours.
†Common costs allocated on the basis of sales dollars.
Discontinuing the bilge pump product line would not affect sales of other product lines and would have no effect on the company’s total general factory overhead or total Purchasing Department expenses.
Required:
What is the financial advantage (disadvantage) of discontinuing the bilge pump product line?
In: Accounting