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Homework set #1: fin/534 | Business & Finance homework help

FIN 534 – Homework Set #1 © 2014 Strayer University. All Rights Reserved. This document contains Strayer University Confidential and […]

FIN 534 – Homework Set #1
© 2014 Strayer University. All Rights Reserved. This document contains Strayer University Confidential and Proprietary information 
and may not be copied, further distributed, or otherwise disclosed in whole or in part, without the expressed written permission of 
Strayer University.
FIN 534 Homework Set #1 Page 1 of 4
Directions: Answer the following questions on a separate document. Explain how you reached the answer 
or show your work if a mathematical calculation is needed, or both. Submit your assignment using the 
assignment link in the course shell. This homework assignment is worth 100 points.
Use the following information for Questions 1 through 8:
Assume that you recently graduated and have just reported to work as an investment advisor at the one 
of the firms on Wall Street. You have been presented and asked to review the following Income 
Statement and Balance Sheets of one of the firm’s clients. Your boss has developed the following set of 
questions you must answer.
Income Statements and Balance Sheet
Balance Sheet 2012 2013
Cash $9,000 $7,282 
Short-term investments 48,600 20,000
Accounts receivable 351,200 632,160
Inventories 715,200 1,287,360
Total current assets $1,124,000 $1,946,802 
Gross fixed assets 491,000 1,202,950
Less: Accumulated depreciation 146,200 263,160
Net fixed assets $344,800 $939,790 
Total assets $1,468,800 $2,886,592 
Liabilities and Equity
Accounts payable $145,600 $324,000 
Notes payable 200,000 720,000
Accruals 136,000 284,960
Total current liabilities $481,600 $1,328,960 
Long-term debt 323,432 1,000,000
Common stock (100,000 
shares) 460,000 460,000
Retained earnings 203,768 97,632
Total equity $663,768 $557,632 
Total liabilities and equity $1,468,800 $2,886,592 FIN 534 – Homework Set #1
© 2014 Strayer University. All Rights Reserved. This document contains Strayer University Confidential and Proprietary information 
and may not be copied, further distributed, or otherwise disclosed in whole or in part, without the expressed written permission of 
Strayer University.
FIN 534 Homework Set #1 Page 2 of 4
Income Statements 2012 2013
Sales $3,432,000 $5,834,400 
Cost of goods sold except depr. 2,864,000 4,980,000
Depreciation and amortization 18,900 116,960
Other expenses 340,000 720,000
Total operating costs $3,222,900 $5,816,960 
EBIT $209,100 $17,440 
Interest expense 62,500 176,000
EBT $146,600 ($158,560)
Taxes (40%) 58,640 -63,424
Net income $87,960 ($95,136)
Other Data 2012 2013
Stock price $8.50 $6.00 
Shares outstanding 100,000 100,000
EPS $0.88 ($0.95)
DPS $0.22 0.11
Tax rate 40% 40%
Book value per share $6.64 $5.58 
Lease payments $40,000 $40,000 FIN 534 – Homework Set #1
© 2014 Strayer University. All Rights Reserved. This document contains Strayer University Confidential and Proprietary information 
and may not be copied, further distributed, or otherwise disclosed in whole or in part, without the expressed written permission of 
Strayer University.
FIN 534 Homework Set #1 Page 3 of 4
Ratio Analysis 2012 2013
Current 2.3 1.5
Quick 0.8 0.5
Inventory turnover 4 4
Days sales outstanding 37.3 39.6
Fixed assets turnover 10 6.2
Total assets turnover 2.3 2
Debt ratio 35.60% 59.60%
Liabilities-to-assets ratio 54.80% 80.70%
TIE 3.3 0.1
EBITDA coverage 2.6 0.8
Profit margin 2.60% −1.6%
Basic earning power 14.20% 0.60%
ROA 6.00% −3.3%
ROE 13.30% −17.1%
Price/Earnings (P/E) 9.7 −6.3
Price/Cash flow 8 27.5
Market/Book 1.3 1.1
1. What is the free cash flow for 2013?
2. Suppose Congress changed the tax laws so that Berndt’s depreciation expenses doubled. No 
changes in operations occurred. What would happen to reported profit and to net cash flow?
3. Calculate the 2013 current and quick ratios based on the projected balance sheet and income 
statement data. What can you say about the company’s liquidity position in 2013?
4. Calculate the 2013 inventory turnover, days sales outstanding (DSO), fixed assets turnover, and 
total assets turnover. 
5. Calculate the 2013 debt ratio, liabilities-to-assets ratio, times-interest-earned, and EBITDA 
coverage ratios. What can you conclude from these ratios?
6. Calculate the 2013 profit margin, basic earning power (BEP), return on assets (ROA), and return 
on equity (ROE). What can you say about these ratios?
7. Calculate the 2013 price / earnings ratio, price / cash flow ratio, and market / book ratio.FIN 534 – Homework Set #1
© 2014 Strayer University. All Rights Reserved. This document contains Strayer University Confidential and Proprietary information 
and may not be copied, further distributed, or otherwise disclosed in whole or in part, without the expressed written permission of 
Strayer University.
FIN 534 Homework Set #1 Page 4 of 4
8. Use the extended DuPont equation to provide a summary and overview of company’s financial 
condition as projected for 2013. What are the firm’s major strengths and weaknesses?

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