solution_15 problems - Solution to Part a LAIHO INDUSTRIES...

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Solution to Part a LAIHO INDUSTRIES Income Statement for the period ended December 31, 2008 (in '000 $) Sales 455,150 EBITDA 68,273 Less: Depreciation and Amortization 7,388 EBIT 60,884 Less: Interest Expense 8,575 EBT 52,309 Less: Income Tax (40%) 20,924 Net Income 31,386 Solution to Part b LAIHO INDUSTRIES Statement of Stockholder's Equity for the period ended December 31, 2008 Capital Stock Jan 1, 2008, Beginning Balance 90,000.00 Shares Issued during the year 10,000.00 Dec 31, 2008, Ending Balance 100,000.00 Retained Earnings Jan 1, 2008, Beginning Balance 38,774.00 Net Income after Tax for the year 2008 31,386.00 Less: Dividend declared during 2008 12,554.00 Net Increase during the year 2008 18,831.00 Dec 31, 2008, Ending Balance 57,605.00 Total Stockholder's Equity, December 31, 2008 157,605.00 LAIHO INDUSTRIES Cash Flow Statement for the period ended December 31, 2008 A. Cash from Operating Activities Reatined Earnings during the year 18,831.00 Working Capital Changes Less; Increase in Accounts Receivables (17,838.00) Less: Increase in Inventories (3,462.00) Add: Increase in Accounts Payable 7,652.00 Add: Increase in Accruals 7,821.00 Add: Increase in Notes Payable 2,500.00 (3,327.00) Cash from Operating Activities 15,504.00 B. Cash from Investing Activities New Fixed Assets purchased (24,729.00) Cash used in Investing Activities (24,729.00)
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C. Cash from Financing Activities Long Term Debt raised 12,350.00 Common Stock issued 10,000.00 Cash from Financing Activities 22,350.00 Cash and Cash Equivalents during the period 13,125.00 Cash, Jan 1, 2008, Beginning Balance 89,725.00 Cash, Dec 31, 2008, Ending Balance 102,850.00 Solution to Part c Calculation of Net Working Capital (NWC) 2008 2007 Current Assets 244,659.00 210,234.00 Less: Current Liabilities 77,955.00 59,982.00 Net Working Capital 166,704.00 150,252.00 FREE CASH FLOW for the year 2008 Net Income 31,386.00 Add: Depreciation and Amortization 7,388.00 Less: Changes in Working Capital (16,452.00) Less: Capital Expenditure (24,729.00) Free Cash Flow (2,407.00) Solution to Part d There would be not an affect on the corporate tax paid due to the change in the divividend payout ratio. If the dividend payout ratio is increased then the taxpayers will have to pay more of the tax and vice vers
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. This is because the dividend is paid out of the net profits after tax. rsa.
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Solution to Part a Data as given in the problem are shown below: Bartman Industries Reynolds Incorporated Winslow 5000 Year Stock Price Dividend Stock Price Dividend Includes Divs. 2008 $17.250 $1.150 $48.750 $3.000 11,663.98 2007 14.750 1.060 52.300 2.900 8,785.70 2006 16.500 1.000 48.750 2.750 8,679.98 2005 10.750 0.950 57.250 2.500 6,434.03 2004 11.375 0.900 60.000 2.250 5,602.28 2003 7.625 0.850 55.750 2.000 4,705.97 We now calculate the rates of return for the two companies and the index: Bartman Reynolds Index 2008 24.7% -1.1% 32.8% 2007 -4.2% 13.2% 1.2% 2006 62.8% -10.0% 34.9% 2005 2.9% -0.4% 14.8% 2004 61.0% 11.7% 19.0% Avg Returns 29.4% 2.7% 20.6% Solution to Part b We will use the function wizard to calculate the standard deviations. Bartman Reynolds Index Standard deviation of return 31.5% 9.7% 13.8% On a stand-alone basis, it would appear that Bartman is the most risky, Reynolds the least risky. Solution to Part c Divide the standard deviation by the average return: Bartman Reynolds Index Coefficient of Variation 1.07 3.63 0.67 Reynolds now looks most risky, because its risk (SD) per unit of return is highest.
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This note was uploaded on 05/13/2010 for the course MECH 17657 taught by Professor Ravikant during the Spring '10 term at Indian Institute of Technology, Delhi.

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solution_15 problems - Solution to Part a LAIHO INDUSTRIES...

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