FIN104 Tutorial Questions - Week 3
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FIN104 Tutorial Questions - Week 3
1. Financial Statements. Henry Josstick has just started his first accounting course and has pre- pared the following balance sheet and income statement for Omega Corp. Unfortunately, although the data for the individual items are correct, he is very confused as to whether an item should go in the balance sheet or income statement and whether it is an asset or liability. Help him by rearranging the items and filling in the blanks. (CH3.Q8)
What is the correct total for the following?
a. Current assets
b. Net fixed assets
c. Total assets
d. Current liabilities
e. Total liabilities
f.Total liabilities and shareholders’ equity
g. EBIT
h. Taxable income
i. Net income
2. Balance Sheet. Balance sheet items are usually entered in order of declining liquidity. Place each of the terms below in the appropriate place in the following balance sheet (CH3.Q2).
Accounts payable |
Total current assets |
Net fixed assets |
Accounts receivable |
Debt due for repayment |
Total current liabilities |
Cash and marketable securities |
Inventories |
Equity |
Long-term debt |
Assets |
Liabilities and equities |
. |
. |
. |
. |
. |
. |
. |
. |
. |
. |
Total Asset |
Total liabilities and equities |
3. Financial Statements. South Sea Baubles has the following (incomplete) balance sheet and income statement (CH3.Q6).
BALANCE SHEET AT END OF YEAR (Figures in $ millions) |
|||||
Assets |
2018 |
2019 |
Liabilities and Shareholder's equity |
2018 |
2019 |
Current Assets |
90 |
140 |
Current liabilities |
50 |
60 |
Net fixed assets |
800 |
900 |
Long-term debt |
600 |
750 |
|
INCOME STATEMENT, 2019 (Figures in $ millions) |
Revenue |
$1,950 |
Cost of goods sold |
1,030 |
Depreciation |
350 |
Interest expense |
240 |
a. What is shareholders ‘equity in 2018?
b. What is shareholders ’equity in 2019?
c. What is net working capital in 2018?
d. What is net working capital in 2019?
e. What are taxes paid in 2019? Assume the firm pays taxes equal to 21% of taxable income.
f. What is cash provided by operations during 2019? Pay attention to changes in net working capital, using Table 3.4 as a guide.
g. Net fixed assets increased from $800 million to $900 million during 2019. What must have been South Sea’s gross investment in fixed assets during 2019?
h. If South Sea reduced its outstanding accounts payable by $35 million during the year, what must have happened to its other current liabilities?
4. Market Value Added. Here is a simplified balance sheet for Locust Farming (CH4.Q1):
Current assets |
$42,524 |
Current liabilities |
$29,755 |
Long-term assets |
46,832 |
Long-term debt |
27,752 |
|
|
Other liabilities |
14,317 |
|
|
Equity |
17,532 |
Total |
$89,356 |
Total |
$89,356 |
Locust has 657 million shares outstanding with a market price of $83 a share.
a. Calculate the company’s market value added.
b. Calculate the market-to-book ratio.
c. How much value has the company created for its shareholders as a percent of shareholders’equity, that is, as a percent of the net capital contributed by shareholders)?
5. Financial Ratios. Here are simplified financial statements for Phone Corporation in 2017(CH4.Q7):
Calculate the following financial ratios for Phone Corporation
using the methodologies listed
for each part:
a. Return on equity (use average balance sheet figures)
b. Return on assets (use average balance sheet figures)
c. Return on capital (use average balance sheet figures)
d. Days in inventory (use start-of-year balance sheet figures)
e. Inventory turnover (use start-of-year balance sheet figures)
f. Average collection period (use start-of-year balance sheet figures)
g. Operating profit margin
h. Long-term debt ratio (use end-of-year balance sheet figures)
i. Total debt ratio (use end-of-year balance sheet figures)
j. Time’s interest earned
k. Cash coverage ratio
l. Current ratio (use end-of-year balance sheet figures)
m. Quick ratio (use end-of-year balance sheet figures)
6. Financial Ratios. Consider this simplified balance sheet for Geomorph Trading, (CH4.Q8)
Current assets |
$100 |
Current liabilities |
$60 |
Long-term assets |
500 |
Long-term debt |
280 |
|
|
Other liabilities |
70 |
|
|
Equity |
190 |
Total |
$600 |
Total |
$600 |
a. What is the company’s debt-equity ratio?
b. What is the ratio of total long-term debt to total long-term capital?
c. What is its net working capital?
d. What is its current ratio?
2022-05-31