It is important to remember that equity will not increase by the same percentage as the other
assets. If every other item on the income statement and balance sheet increases by 15
percent, the pro forma income statement and balance sheet will look like
Using the formula for NWC, we get:
NWC = CA CL
CA = CL + NWC = $3,720 + 1,370 = $5,090
So, the current ratio is:
Current ratio = CA / CL = $5,090/$3,720 = 1.37 times
And the quick ratio is:
Quick ratio = (CA Inventory) / CL = ($5,090 1,950) / $3,720 =
The new market value will be the current shares outstanding times the stock price plus
the rights offered times the rights price, so:
New market value = 500,000($81) + 60,000($70) = $44,700,000
The number of rights associated with the old s
With the information given, we can find the cost of equity using the dividend growth model.
Using this model, the cost of equity is:
RE = [$2.40(1.055)/$52] + .055 = .1037 or 10.37%
Here we have information to calculate the cost of equity usin
The portfolio weight of an asset is total investment in that asset divided by the total portfolio
value. First, we will find the portfolio value, which is:
Total value = 180($45) + 140($27) = $11,880
The portfolio weight for each stock is:
The return of any asset is the increase in price, plus any dividends or cash flows, all divided
by the initial price. The return of this stock is:
R = [($102 91) + 2.40] / $91 = .1473 or 14.73%
The dividend yield is the dividend divided by pri
The total variable cost per unit is the sum of the two variable costs, so:
Total variable costs per unit = $5.43 + 3.13
Total variable costs per unit = $8.56
The total costs include all variable costs and fixed costs. We need to make sure w
The $6 million acquisition cost of the land six years ago is a sunk cost. The $6.4 million
current aftertax value of the land is an opportunity cost if the land is used rather than sold
off. The $14.2 million cash outlay and $890,000 grading expe
To calculate the payback period, we need to find the time that the project has recovered its
initial investment. After three years, the project has created:
$1,600 + 1,900 + 2,300 = $5,800
in cash flows. The project still needs to create another:
To solve this problem, we must find the PV of each cash flow and add them. To find the PV
of a lump sum, we use:
PV = FV / (1 + r)t
PV@10% = $950 / 1.10 + $1,040 / 1.102 + $1,130 / 1.103 + $1,075 / 1.104 = $3,306.37
PV@18% = $950 / 1.18 + $1,040
The simple interest per year is:
$5,000 .08 = $400
So after 10 years you will have:
$400 10 = $4,000 in interest.
The total balance will be $5,000 + 4,000 = $9,000
With compound interest we use the future value formula:
FV = PV(1 +r)t
FV = $5,000
To find owners equity, we must construct a balance sheet as follows:
TL & OE
We know that total liabilities and owners equity (TL & OE) must equal total assets of
EXERCISE 11-1 (15- 20 minutes)
10, 13, 15, 16, 17, 19, 23
Long-term investments in the balance sheet.
Property, plant, and equipment in the balance sheet.
Research and development expense in the income
Current asset (prepaid
EXERCISE 9-1 (15- 20 minutes)
Items 1, 3, 5, 7, 8, 11, 13, 14, 16, and 17 would be reported as
inventory in the financial statements.
The following items would not be reported as inventory:
2. Cost of goods sold in the income statement.
4. Not reported in
EXERCISE 8-1 (10- 15 minutes)
Cash includes the following:
1. Commercial savings account-First National Bank of Yojimbo .
1. Commercial checking account-First National Bank of Yojimbo .
2. Money market fund-Volonte .
5. Petty cash .
EXERCISE 7-4 (15- 20 minutes)
X $2,200,000 = $660,000
2009- $2,200,000 (contract price) minus $660,000 (revenue
recognized in 2008) = $1,540,000 (revenue
recognized in 2009).
(b) All $2,200,000 of the contract price is recogn
The correct answer for each question is indicated by a
Top of Form
The competitive moves and business approaches a company's management
are using grow the business, attract and please customers, compete
successfully, conduct opera
Which of the following is not one of the central questions in evaluating a company's business prospects?
A. What is the company's present situation?
B. What are the key product or service attributes demanded by consumers?
C. Where does t