HW Q's - Homework Assignment 1 1. Consider the following...

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Homework Assignment 1 1. Consider the following data in millions of dollars: Balance Sheet Cash $ 500 Accounts payable $ 400 Receivables 400 Notes payable 400 Inventory 600 Accruals 200 Total current assets $1500 Total current liabilities $1000 Net fixed assets 3000 Long-term debt 800 Common equity 2700 Total assets $4500 Total liabilities and equity $4500 Income Statement Sales $4800 Cost of goods sold 3600 Depreciation 200 Marketing expenses 200 200 EBIT $ 600 Interest expenses 100 EBT $ 500 Taxes (at 40 percent) 200 Net income $ 300 Compute the following: Quick ratio Fixed assets turnover ratio Days-sales outstanding (assume 360 days per year) Debt-assets and equity-assets ratios (two answers here) Times interest earned Profit margin Returns on assets and equity (two answers here) In addition, the firm has a cost of capital of 9 percent, a current share price of $100 and 30 million shares outstanding. What are this firm’s Economic Value Added (EVA) and Market Value Added (MVA)? 2. Additional funds needed (AFN) represent the external debt and equity financing that a firm needs to support its future projected sales activities. Indicate whether a firm's AFN increases or decreases as: a. It increases its dividend payout ratio. b. Its basic earning power decreases. c. It decreases its days-sales outstanding and increases its inventory turnover ratio. d. Its current use of fixed assets is at 100% of capacity. e. Its sales and production become less capital intensive. f. It decides to pay its suppliers in 45 days rather than 30 days.
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3. The real, risk-free rate of interest is 2.5 percent. The rate of inflation is expected to be 2.0 percent for the next two years, 2.5 percent for years 3 and 4, and 3.0 percent every year thereafter.
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This note was uploaded on 04/08/2008 for the course FIN 201 taught by Professor Geottle during the Spring '08 term at Northeastern.

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HW Q's - Homework Assignment 1 1. Consider the following...

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