13 Chapter Understanding Financial Statements
13.1) (2) Income statement; (1) balance sheet; (3) cash flow statement; (4) operating activities; (5) investing activities, and (6) financing activities; (7) capital account (paid-in capital) 13.2) (7), (8), (1), (11), (3), (9) 13.3) (a) Current assets = $150,000 + $200,000 + $150,000 + $50,000 + $30,000 = $580,000 Current liabilities = $50,000 + $100,000 + $80,000 = $230,000 Working capital = $580,000 - $230,000 = $350,000 Shareholders equity = $100,000 + $150,000 + $150,000 + $70,000 = $470,000
(b) EPS = $500,000/10,000 = $50 per share (c) Par value = $15; capital surplus = $150,000/10,000 = $15; Market price = $15 + $15 = $30 per share 13.4) (a) Working capital = Current assets Current liabilities; Working capital requirements = Changes in current assets Changes in current liabilities; WC req. = (+$100,000 - $20,000) (+$30,000 - $40,000) = $90,000, indicating that additional financing is needed to fund the increase in current assets. (b) Taxable income = $1,500,000 - $650,000 - $150,000 - $20,000 = $680,000 (c) Net income = $680,000 - $272,000 = $408,000 (d) Net cash flow: Operating activities = net income + depreciation WC = $408,000 + $200,000 - $90,000 = $518,000 Investing activities = equipment purchase = ($400,000) Financing activities = borrowed fund = $200,000 Net cash flow = $518,000 - $400,000 + $200,000 = $318,000
13.5) (b) 13.6) (b) 13.7) (d)
Instructor Solutions Manual to accompany Fundamentals of Engineering Economics, Second Edition, by Chan S. Park. ISBN-13: 9780132209618. 2008 Pearson Education, Inc., Upper Saddle River, NJ. All rights reserved. This material is protected by Copyright and written permission should be obtained from the publisher prior to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by any means, electronic, mechanical, photocopying, recording, or likewise.
13.8) (b) ROE= Profit margin Asset turnover Financial leverage (a) 0.1668 (b) 0.1900 (c) 0.1447 (d) 0.1152 13.9) Income Statement:
A B C D E F
$900,000
$585,000
$315,000
$270,000
$108,000
$162,000
Balance Sheet: 0 $160,000
1 $120,000
2 $320,000
3 $600,000
4 $900,000
5 $1,500,000
6 $450,000
7 $700,000
8 $100,000
9 $700,000 $800,000
From Current ratio Total current assets = 2.4 $250,000 = $600,000 ----------------------------------- Plant and equipment, net = $1,500,000-$600,000=$900,000----------------------- 4 From Quick ratio Inventory = $600,000 - (1.12 $250,000) = $320,000 ----------------------------- From Inventory Turnover Net Revenue = (($320,000 +$280,000)/2) 6.0 =$1,800,000 Cost of goods sold = $1,800,000- $900,000= $900,000 ------- A From DSO Accounts receivable = 24.3333 ($1,800,000 365) = $120,000 ------------------ Cash = -(+) = $160,000 ----------------------------------------------------------- From interest expense of income statement
Instructor Solutions Manual to accompany Fundamentals of Engineering Economics, Second Edition, by Chan S. Park. ISBN-13: 9780132209618. 2008 Pearson Education, Inc., Upper Saddle River, NJ. All rights reserved. This material is protected by Copyright and written permission should be obtained from the publisher prior to any prohibited reproduction, storage 2 in a retrieval system, or transmission in any form or by any means, electronic, mechanical, photocopying, recording, or likewise.
Bond = $450,000 ----------------------------------- 250,000 + = $700,000 -------------------------- From Debt to Equity ratio Total Equity = $700,000 0.875 =$ 800,000 ------------- Total assets or Total liabilities and equity = + = $1,500,000 ------ From Return on total assets Net income F = 14% ($1,350,000) - ($45,000)(0.6)=$162,000 From F, D =F 0.6 = $270,000, E = D (0.4) =$108,000 C = D+45,000 = $315,000 B=$900,000-C = $585,000 From EPS Stock Outstanding = F 4.05 = 40,000 shares Common stock = $2.50 40,000 = $100,000 ------------------------------- Retained Earnings = - = $700,000 ------------------------------------9
13.10) Given Olsons EPS = $8 per share; Cash dividend = $4 per share; Book value per share = $80; Changes in the retained earnings = $24 million; Total debt = $240 million; Find debt ratio = total debt/total assets
Net Income = $8 X Where X = the number of outstanding shares EPS = Total shareholders' equity = $80 X Retained earnings = Net income Cash dividend; Net income = 8X from EPS relationship and the total cash dividend = 4X, so we rewrite 8X 4X = $24 million, or X = 6 million shares Book value =
From the book value per share, we know that total shareholders equity = 80X, or $480 million; Total assets Total = liabilities + Total shareholders equity = $240 million + $480 million = $720 million Debt ratio = $240 million/$720 million = 0.33
Instructor Solutions Manual to accompany Fundamentals of Engineering Economics, Second Edition, by Chan S. Park. ISBN-13: 9780132209618. 2008 Pearson Education, Inc., Upper Saddle River, NJ. All rights reserved. This material is protected by Copyright and written permission should be obtained from the publisher prior to any prohibited reproduction, storage 3 in a retrieval system, or transmission in any form or by any means, electronic, mechanical, photocopying, recording, or likewise.
13.11) (a) Debt ratio = Total debt $2,047,599 = = 123.46% Total assets $1,658,528 EBIT -$1,038,770 = = 1, 622.27% (b) Times-interest-earned ratio= Interest expense $64,032 Current assets $617,266 (c) Current ratio = = = 70.54% Current liabilities $875,065 Current assets - Inventory $617,266-34,502 = = 66.60% Current liabilities $875,065 Net sales $637,235 (e) Inventory turnover = = = 26.14 times avg. Inventory ($34,502+$14,256)/2 (d) Quick ratio = (f) DSO = A/R $71,014 = = 40.68 days avg. sales/day $637,235/365 Net sales $637,235 = = 0.3842 times Total assets $1,658,528
(g) Total assets turnover ratio =
(h) Profit margin on sales =
Net Income -$1,104,867 = = 173.38 % Net sales $637,235
(i) Return on total assets = Net Income+Interst expense(1-tax rate) -$1,104,867+64,032(0.6) = = 56.97% avg. total assets ($1,658,528+2,085,362)/2 with an assumption of 40% tax rate.
(j) Return on common equity = Net Income -$1,104,867 = = 34.47% avg. shareholder's equity (-$389,701+$324,968)/2 Price per share $2.83 (k) Price-earning ratio = = = 3.59 Earnings per share $0.7877 Net income $1,104, 867 = Earnings per share= Avg. number of shares outstanding 1, 402, 619 = $0.7877 (l) Book value per share = total stockholders' equity-preferred stock -$389,071 = = 0.277 Shares outstanding 1, 402, 619
Instructor Solutions Manual to accompany Fundamentals of Engineering Economics, Second Edition, by Chan S. Park. ISBN-13: 9780132209618. 2008 Pearson Education, Inc., Upper Saddle River, NJ. All rights reserved. This material is protected by Copyright and written permission should be obtained from the publisher prior to any prohibited reproduction, storage 4 in a retrieval system, or transmission in any form or by any means, electronic, mechanical, photocopying, recording, or likewise.
13.12) Total debt $1,118,455 = = 79.39% Total assets $1,408,785 EBIT $290,235 = = 946.69% (b) Times-interest-earned ratio= Interest expense $30,658 Current assets $515,173 (c) Current ratio = = = 179.88% Current liabilities $286,394 (a) Debt ratio = Current assets - Inventory $515,173-$311,464 = = 71.13% Current liabilities $286,394 Net revenue $3,198,084 (e) Inventory turnover = = = 16.37 times avg. Inventory ($311,464+$79,181)/2 (d) Quick ratio = (f) DSO = A/R $126,634 = = 14.45 days avg. sales/day $3,198,084/365 Net revenue $3,198,084 = = 2.27 times Total assets $1,408,785
(g) Total assets turnover ratio =
(h) Profit margin on sales =
Net Income $157,368 = = 4.92 % Net sale $3,198,084
(i) Return on total assets = Net Income+Interst expense(1-tax rate) $157,368+30,658(0.6) = = 15.94% avg. total assets ($1,408,785+758,780)/2 We assume a tax rate of 40%.
(j) Return on common equity = Net Income $157,368 = = 55.23% avg. share holder's equity ($290,330+$279,493)/2 Price per share $65 (k) Price-earning ratio = = = 19.30 Earnings per share $3.37 $157, 368 Earnings per share= 46, 738 = $3.37 (l) Book value per share = Total stockholders' equity - Preferred stock $290,330 = = 6.21 Shares outstanding 46, 738
13.13) Not provided
Instructor Solutions Manual to accompany Fundamentals of Engineering Economics, Second Edition, by Chan S. Park. ISBN-13: 9780132209618. 2008 Pearson Education, Inc., Upper Saddle River, NJ. All rights reserved. This material is protected by Copyright and written permission should be obtained from the publisher prior to any prohibited reproduction, storage 5 in a retrieval system, or transmission in any form or by any means, electronic, mechanical, photocopying, recording, or likewise.
13.14) Not provided.
Instructor Solutions Manual to accompany Fundamentals of Engineering Economics, Second Edition, by Chan S. Park. ISBN-13: 9780132209618. 2008 Pearson Education, Inc., Upper Saddle River, NJ. All rights reserved. This material is protected by Copyright and written permission should be obtained from the publisher prior to any prohibited reproduction, storage 6 in a retrieval system, or transmission in any form or by any means, electronic, mechanical, photocopying, recording, or likewise.