ACC 230 WEEK 8 CHECKPOINT 1 - ANALYZING FINANCIAL DATA

ACC 230 WEEK 8 CHECKPOINT 1 - ANALYZING FINANCIAL DATA -...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Week 7 CheckPoint 1: Analyzing Financial Data · Resource: Ch. 6 of Understanding Financial Statements · Due Date: Day 2 [Individual forum] · Complete Problem 6.6 on p. 232 (Ch. 6). Submit your answers to questions (a) and (b).
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Ans. A Current Equity Debt Sales 100,000,000 Cost of Sales 65,000,000 Gross Profit 35,000,000 Less: Operating expenses 20,000,000 Operating Profit ( f ) 15,000,000 18,000,000 18,000,000 Interest expense ( e ) 4,800,000 4,800,000 6,300,000 Earnings before tax 10,200,000 13,200,000 11,700,000 Income tax @40% 4,080,000 5,280,000 4,680,000 Net income ( d ) 6,120,000 7,920,000 7,020,000 Value of debt ( a ) 40,000,000 40,000,000 50,000,000 Value Of Equity ( b ) 50,000,000 60,000,000 50,000,000 Number of shares ( c) 800,000 1,000,000 800,000 EPS ( d/c) 7.650 7.920 8.775 Debt ratio [ a/(a+b)*100] 44% 40% 50% Times interest earned ( f/e ) 3 4 3 Financial leverage ( f/f-e ) 1.471 1.364 1.538   Ans. B The company should consider the following points when taking such a decision. The return that the ordinary shareholders are expecting on the shares that they hold.
Background image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Any expected growth in dividends that the shareholders expect from the company's shares. Any minimum EPS or P/E ratios that the company may have to maintain according to market expectations, in order to maintain its share marketability. The potential loss in share price and the accompanying loss of goodwill, incase the said policy goes wrong. The availability of debt from the market. The duration for which the long-term loan is sought. Ideally, it should match the length of time of the project. Whether the loan to be obtained contains a clause for the bank to reconsider interest rates, in the future, should it wish to do so. The amount of security or any such restrictive covenants (minimum cash, specific EPS maintenance) that come with the loan....
View Full Document

Page1 / 2

ACC 230 WEEK 8 CHECKPOINT 1 - ANALYZING FINANCIAL DATA -...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online