Assignment 1

1.

Financial Statement Analysis

Dewitt Manufacturing Inc. has the balance sheet amounts shown below. Dewitt is financed
with only debt and common equity (no preferred stock).
Cash and cash equivalents
$100,000
Retained earnings
$900,000
Accounts receivable
$180,000
Accounts payable
$200,000
Notes payable
$150,000
Long-term debt
$550,000
Inventories
$220,000
Net fixed assets
$1,800,000
Common stock (50,000 shares)
$500,000
a. Construct the balance sheet for Dewitt Manufacturing Inc.
b. What is the firms net working capital? Net operating working capital?

2.

Dustin Metals Inc. has the following income statement amounts:

$85,000
$140,000
$230,000
$725,000

a. Construct the income statement for Dustin Metals Inc. Assume Dustin has a 35%
corporate tax rate.
b. Assume Dustin Metals had 20,000 shares of common stock outstanding during the
year. What is the earnings per share, EPS?
3.

Branston-Cooper Inc. recently reported EBIT of $12.5 million and net income of $6 million.
The firms tax rate was 40%. What was its interest expense?

4.

Peabody Marine Inc. reported EBITDA of $150 million, interest expense of $40 million, and
net income of $36 million. Its tax rate was 40%. What was its depreciation expense?

5.

In its recent financial statements, Bellamy Inc. reported $160 million of net income and
$960 million of retained earnings. The previous years retained earnings were $860 million.
Compute the dividends paid to shareholders during the year.

6.

MX Foods reported $325 million for total common equity on its most recent balance sheet.
The firm has 20 million shares of common stock outstanding which sell at a price of $30 per
share. What is the market value added, MVA, for MX Foods?

7.

On its most recent balance sheet, Hinton Corp. reported $324.5 million of retained
earnings. Hintons only issuance of common stock resulted in 12 million shares being sold
at a price of $15 per share. Hintons common stock is currently selling at a price of $50 per
share. What is the firms market value added (MVA)?

8.

Ronstadt Energy Corp. reported $460 million of net fixed assets on its 2011 balance sheet.
If Ronstadt reports $38.5 million of depreciation expense on its 2012 income statement,
and its capital spending for 2012 was $46.2 million, what amount of net fixed assets will
Ronstadt report on its 2012 balance sheet?

Assignment 1

9.

Financial Statement Analysis

Diamonex Corp. issued 10,000 shares of common stock (an IPO) three years ago at a price
of $8 per share. One year later they issued 10,000 shares of common stock at $30 per
share. They have no other stock issues. The total net income reported on the firms income
statement over the past three years is $729,000. Diamonex paid no dividends during the
first two years, but paid a $2.50 per share dividend last year to its common shareholders.
The firm has not repurchased any shares of common stock. What is the book value of
equity that Diamonex reported on its most recent balance sheet?

10. Womax Corp. had $55,000 in cash at year-end 2011 and $25,000 in cash at year-end 2012.
The firm invested in property, plant, and equipment totaling $250,000. Cash flow from
financing activities totaled +$170,000.
a. What was the cash flow from operating activities?
b. If accounts payable increased by $25,000, receivables increased by $60,000,
inventories increased by $40,000, and depreciation expense was $10,000, what was
the firms net income?
11. Apex Mining Corp. just reported net income of $5 million. Apex reported depreciation
expense of $230,000, purchased $5.5 million of machinery, and paid $750,000 in dividends
to its common shareholders during the year. Apex issued long-term debt of $1 million at a
6% interest rate during the year. Accounts receivable and inventories both increased by
$40,000, accounts payable increased by $50,000, and notes payable increased by$120,000.
Apex had $100,000 in cash at the end of the prior year. Construct the Statement of Cash
Flows for Apex for the year just ended.
12. Bailey Corporations financial statements are below.
a. What was net operating working capital for 2013 and 2014?
b. What was Baileys 2014 free cash flow?

Income Statement for Year Ending December 31, 2014

$ 214,000
170,000
$ 44,000
5,000
$ 39,000
1,750
$ 37,250
14,900
$ 22,350
$ 11,175

Assignment 1

Financial Statement Analysis

Balance Sheets as of December 31

2013

Assets
Cash and equivalents
Accounts receivable
Inventories
Total current assets
Net plant and equipment
Total assets

$ 14,000
30,000
28,125
$ 72,125
50,000
$ 122,125

$ 13,000
25,000
21,000
$ 59,000
47,000
$ 106,000

Liabilities and Equity

$ 10,800
6,700
7,600
$ 25,100
15,000
$ 40,100
50,000
32,025
$ 82,025
$ 122,125

9,000
5,150
6,000
$ 20,150
15,000
$ 35,150
50,000
20,850
$ 70,850
$ 106,000

13. Hermann Industries is forecasting the income statement shown below. The CEO would like
to see higher sales and a forecasted net income of $2,500,000. Assume that operating costs
(excluding depreciation and amortization) are 55% of sales and that depreciation and
amortization and interest expense will increase by 10%. The tax rate, which is 40%, will
remain the same. What level of sales would generate $2,500,000 in net income?
Sales
Operating costs excluding depreciation and amortization
EBITDA
Depreciation and Amortization
EBIT
Interest
EBT
Taxes (40%)
Net Income
14. Financial information for Panther Corporation is shown below.
a. What was net operating working capital for 2013 and 2014?
b. What was the 2014 free cash flow?
c. How would you explain the large increase in 2014 dividends?

$ 8,000,000
4,400,000
$ 3,600,000
800,000
$ 2,800,000
600,000
$ 2,200,000
880,000
$ 1,320,000

Assignment 1

Financial Statement Analysis

Income Statement for Year Ending December 31

2013

Sales
Operating costs excluding depreciation and amortization
EBITDA
Depreciation and Amortization
Earnings before interest and taxes
Interest
Earnings before taxes
Taxes (40%)
Net Income

$ 1,200.0
1,020.0
$ 180.0
30.0
$ 150.0
21.7
$ 128.3
51.3
$ 77.0

$ 1,000.0
850.0
$ 150.0
25.0
$ 125.0
20.2
$ 104.8
41.9
$ 62.9

Common dividends

60.5

46.4

Balance Sheets as of December 31

2013

Assets
Cash and equivalents
Accounts receivable
Inventories
Total current assets
Net plant and equipment
Total assets

$ 12.0
180.0
180.0
$ 372.0
300.0
$ 672.0

$ 10.0
150.0
200.0
$ 360.0
250.0
$ 610.0

Liabilities and Equity

$ 108.0
67.0
72.0
$ 247.0
150.0
$ 397.0
50.0
225.0
$ 275.0
$ 672.0

$ 90.0
51.5
60.0
$ 201.5
150.0
$ 351.5
50.0
208.5
$ 258.5
$ 610.0

Assignment 1

Financial Statement Analysis

Answers to Selected Problems

$2.5 million
$50 million
$60 million
$275 million
$95.5 million
$467.7 million
$1,059,000
a. $50,000
a. NOWC = $44,000 and $53,725
$12,681,482
b. $58,000,000

b.
b.

$115,000
FCF2012 = $10,675