***PLEASE ANSWER WITH FORMULAS INCLUDED***

Newman Industries is a leading supplier of cosmetics.

In the letter to stockholders as part of the 2008 annual report, President and CEO Jennifer White offered the following remarks:

Fiscal 2008 was clearly a mixed bag for Newman, the industry, and the economy as a whole.

Still, we finished with revenue growth of 15 percent—and that’s significant. We believe it’s a good indication that Newman continued to pull away from the pack and gain market share. For that, we owe a debt of gratitude to our employees worldwide, who aggressively brought costs down— even as they continued to bring exciting new products to market.

The statement would not appear to be telling you enough. For example, Chauhan says the year was a mixed bag with revenue growth of 15 percent. But what about earnings? You can delve further by examining the income statement in Exhibit 1. Also, for additional analysis of other factors, consolidated balance sheet(s) are presented in Exhibit 2 on page 92.

1. Referring to Exhibit 1, compute the annual percentage change in net income per common share-diluted (second numerical line from the bottom) for 2005–2006, 2006–2007, and 2007–2008.
2. Also in Exhibit 1, compute net income/net revenue (sales) for each of the four years. Begin with 2005.
3. What is the major reason for the change in the answer for Question 2 between 2007 and 2008? To answer this question for each of the two years, take the ratio of the major income statement accounts to net revenues (sales).

Cost of sales

Research and development

Selling, general and administrative expense

Provision for income tax

4. Compute return on stockholders’ equity for 2007 and 2008 using data from Exhibits 1 and 2.

Exhibit 1

5. Analyze your results to Question 4 more completely by computing ratios 1, 2a, 2b, and 3b (all from this chapter) for 2007 and 2008. Actually, the answer to ratio 1 can be found as part of the answer to question 2, but it is helpful to look at it again.

What do you think was the main contributing factor to the change in return on stockholders’ equity between 2007 and 2008? Think in terms of the Du Pont system of analysis.

6. The average stock prices for each of the four years shown in Exhibit 1 were as follows:
   2005. 11¼  
   2006. 16¾
   2007. 28½
   2008. 9½

1. Compute the price/earnings (P/E) ratio for each year. That is, take the stock price shown above and divide by net income per common stock-dilution from Exhibit 1.
2. Why do you think the P/E has changed from its 2007 level to its 2008 level? A brief review of P/E ratios can be found under the topic of Price-Earnings Ratio Applied to Earnings per Share in Chapter 2.

1.

A company's articles can contain provisions that cannot be altered

True

False

2.

In relation to a company's contractual capacity, the ultra vires doctrine has been abolished.

True

False

3.

Breach of any term in the statutory contract will allow either the company or a member to sue for breach of contract.

True

False

4.

Under the Companies Act 2006, you find the objects of a company set out in the Memorandum of Association.

True

False

5.

Companies incorporated under the Companies Act 2006 are not required to have a memorandum of association.

True

False

4. a. Calculate nominal GDP for 2014 and 2015.

b. Calculate the percentage change in GDP from 2014 to 2015, first using 2014 prices and then using 2015 prices.

c. Calculate the percentage change in real GDP from 2014 to 2015, using your answers from part (b).

d. What is the GDP deflator for 2015 if it equals 1.0 in 2014?

5 Given the information in the following table for three consecutive years in the U.S. economy, calculate the missing data.

6. Look at two scenarios, details of which are provided below, for monthly inventories and sales for a company producing cereal. In both scenarios, the company’s sales are the same.

a.Calculate the inventory investment during each month and the resulting stock of inventory at the beginning of the following month for both scenarios.

b.Does maintaining constant production lead to greater or lesser fluctuations in the stock of inventory? Explain.

Estimate how many deaths there are annually from tornado and drowning in the United States. Provide an actual number in your answer and explain statistically how you came to that answer.

Info:

DROWNINGS:

From 2005-2014, there were an average of 3,536 fatal unintentional drownings (non-boating related) annually in the United States — about ten deaths per day.¹ An additional 332 people died each year from drowning in boating-related incidents.

TORNADOS:

Backwoods American, Inc., produces expensive water-repellent, down-lined parkas. The co. implemented a TQM program in 2005. Following are the quality-related accounting data that have been accumulated for the 5-year period after the program's start.

• List some examples of each quality-related costs - i.e., of prevention, appraisal, and internal and external failure costs - that might result from the production of the parkas.
• The BA Inc produces 20,000 parkas annually. The quality management program implemented improved average percentage of good parkas produced by 2% each year beginning with 83% good quality parkas in 2005. Only 20% of poor quality parkas can be reworked (and made good). Compute the product yield for each of the 5 years.
• Assuming a rework cost of $12/parka, determine the manufacturing cost per good parka for each of the 5 years. What do these results imply about the co's quality management program?

1) Pat gave 5,000 shares of stock in Coyote Corporation (a publicly traded corporation) to her church (a qualified charitable organization) in the current year. The stock was worth $180,000 and she had acquired it as an investment four years ago at a cost of $120,000. She reported AGI of $300,000 for the year. In completing her current income tax return, how much is her current-year charitable contribution deduction?

2)

Brad, who would otherwise qualify as Faye’s dependent, had gross income of $9,000 during the

year. Faye, who had AGI of $120,000, paid the following medical expenses this year:

What is the total medical expense deduction for Faye?

3)

Corey is the city sales manager for “RIBS,” a national fast food franchise. Every working day,

Corey drives his car as follows:

Corey renders an adequate accounting to his employer. What are Corey’s reimbursable miles?

Write an analysis in which you address the following: • Select two publicly-traded companies within the same industry and present the DuPont analysis for each of these companies. Explain how the debt has served to influence the ROE DuPont performance results for each, and then describe how volatility plays a role in the debt choices in the context of this DuPont analysis. • Consider each of the following capital structure theories: the tradeoff theory, the signaling theory, the debt financing to constrain the manager’s argument, and the pecking order hypothesis. Briefly describe each of these, and then order them in terms of which theory you believe to be most persuasive down to which you believe to be least persuasive. Form arguments defending your rankings and reference and discuss related academic studies to support your position.

MNO, Inc., a publicly traded manufacturing firm in the United States, has provided the following financial information in its application for a loan. The market value of equity is 1.58 times the book value of debt. Retained earnings are 5.27% of total assets. Sales are 52% of total assets. Earnings before interest and taxes are 32.87% of total assets. Finally, Working capital is 34.25% of total assets.

a) What is the Altman discriminant function value for MNO, Inc.?

b) Should you approve MNO, Inc.'s application to your bank for a $5,000,000 capital expansion loan?

c) If sales for MNO were 38% of total assets and the market value of equity was only half of book value, would your credit decision change?

It has been argued by some, including Milton Friedman, that insider trading of publicly traded stocks should be allowed. The rationale is that trading stock with inside information can actually lead to trading based on more timely, accurate information about the financial health of companies. (Links to an external site.)

Those with inside information, in other words, would move the market toward a more efficient allocation of capital, more quickly, because insiders would know when to buy and sell at a price that reflects the true value of the stock based on a company's performance.

In an short essay develop an criticism of this efficiency-based defense of insider trading; specifically, what reasons are there to reject this line of thinking?

1.Measuring Systematic Risk: Beta Coefficients

The management of a publicly traded firm is interested in determining the firm’s cost of equity capital using the security market line (SML) version of the capital asset pricing model (CAPM). Management has measured the weekly returns for the market (S&P 500), its own stock, and the risk-free rate. The returns were annualized. The annualized percentage returns for each of the last 20 weeks are provided.

1a.       See data in Excel file provided with this assignment. Using Excel, determine the excess rate of return on the firm’s stock (firm return less risk-free return) and the excess rate of return on the market (market return less the risk-free return). Put the two new variables (the excess return on the firm and the excess return on the market) that you have created into separate columns. (5 points)

1b.       Determine the alpha and beta coefficients for this stock by running a simple linear regression. Use the file from part (1a) and regress the excess rate of return for the firm against the excess rate of return for the market. The “excess rate of return for the firm” data is the Input Y Range (dependent variable) and the “excess rate of return for the market” is the Input X Range (In Excel, the Data Analysis menu is under Tools (older version of Excel) or Data (newer version)). If you include the row with the variable name in your Input Y Range and your Input X Range, check the box LABELS, and Excel will automatically name your variables in the Excel output. Hint: the alpha coefficient estimate is the estimated intercept coefficient. The beta coefficient is the estimated coefficient for the independent or X variable, the excess rate of return for the market. (10 points)

1c.       Assuming that the market return for the coming year is expected to be 12 percent and that the risk-free rate is expected to be 8 percent, use market model (your regression model) to estimate the expected rate of return to the firm’s shareholders for the coming year. (Hint: You will first need to calculate the expected excess rate of return for the market. To calculate the expected excess rate of return to the firm’s shareholders, you will then plug into the regression model estimated in part (1b). You will also use the coefficient estimates estimated in part (1b).) (10 points)