BUSI 320 Week 2 Exam Assignment

BUSI 320 Week 2 Exam Assignment | Liberty University

1. Award: 4 out of 4.00 points

Capital markets refer to those markets dealing with short-term securities that have a life of one year or less.

True

False

 2. Award: 4 out of 4.00 points

In the past, the study of finance has included

Raising capital.

All of the options

Mergers and acquisitions.

Bankruptcy.

3.Award: 4 out of 4.00 points

With an S corporation

The life of the corporation is limited.

Stockholders have the same liability as members of a partnership.

Income is taxed as direct income to stockholders.

The number of stockholders is unlimited.

4. Award: 4 out of 4.00 points

As finance emerged as a new field, much emphasis was placed on mergers and acquisitions.

True

False

5. Award: 4 out of 4.00 points

The secondary market characteristically has had stable prices over the past 20 years.

True

False

6. Award: 4 out of 4.00 points

Swank Clothiers had sales of $385,000 and cost of goods sold of $297,000.

a. What is the gross profit margin (ratio of gross profit to sales)? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

Gross profit margin         22.86     %

b. If the average firm in the clothing industry had a gross profit of 20 percent, how is the firm doing?

The firm is           Outperforming.

 7. Award: 4 out of 4.00 points

Elite Trailer Parks has an operating profit of $283,000. Interest expense for the year was $37,900; preferred dividends paid were $31,000; and common dividends paid were $39,000. The tax was $63,600. The firm has 17,800 shares of common stock outstanding. 

a. Calculate the earnings per share and the common dividends per share for Elite Trailer Parks. (Round your answers to 2 decimal places.) 

Earnings per share           $8.46selected answer correct

Common dividends per share    $2.19

b. What was the increase in retained earnings for the year? 

Increase in retained earnings     $111,500

8.Award: 4 out of 4.00 points

A-Rod Fishing Supplies had sales of $2,440,000 and cost of goods sold of $1,750,000. Selling and administrative expenses represented 8 percent of sales. Depreciation was 4 percent of the total assets of $4,870,000.

What was the firm’s operating profit?

Operating profit               $300,000

 9. Award: 4 out of 4.00 points

Given the following information, prepare an income statement for Jonas Brothers Cough Drops.

Selling and administrative expense          $              335,000

Depreciation expense                  192,000

Sales                     2,030,000

Interest expense                            125,000

Cost of goods sold                          502,000

Taxes                   172,000

Jonas Brothers Cough Drops

Income Statement

Sales      $2,030,000selected answer correct

Cost of goods sold           502,000selected answer correct

Gross profit        $1,528,000

Selling and administrative expend            335,000selected answer correct

Depreciation expense   192,000selected answer correct

Operating profit               $1,001,000

Interest expense             125,000selected answer correct

Earnings before taxes    $876,000

Taxes    172,000selected answer correct

Earnings after taxes        $704,000

10. Award: 4 out of 4.00 points

Stein Books Inc. sold 2,000 finance textbooks for $270 each to High Tuition University in 20X1. These books cost $240 to produce. Stein Books spent $12,400 (selling expense) to convince the university to buy its books.

Depreciation expense for the year was $15,400. In addition, Stein Books borrowed $106,000 on January 1, 20X1, on which the company paid 16 percent interest. Both the interest and principal of the loan were paid on December 31, 20X1. The publishing firm’s tax rate is 30 percent.

Prepare an income statement for Stein Books.

Stein Books Inc.

Income Statement

For the Year Ending December 31, 20X1

Salesselected answer correct     $540,000selected answer correct

Cost of goods soldselected answer correct          480,000selected answer correct

Gross profitselected answer correct       $60,000

Selling expenseselected answer correct                12,400selected answer correct

Depreciation expenseselected answer correct   15,400selected answer correct

Operating profitselected answer correct               $32,200

Interest expenseselected answer correct            16,960selected answer correct

Earnings before taxesselected answer correct   $15,240

Taxesselected answer correct    4,572selected answer correct

Earnings after taxesselected answer correct       $10,668

 11. Award: 2.67 out of 4.00 points

The Canton Corporation shows the following income statement. The firm uses FIFO inventory accounting.  

CANTON CORPORATION

Income Statement for 20X1

Sales      $              236,800 (14,800 units at $16.00)

Cost of goods sold                          148,000 (14,800 units at $10.00)

Gross profit        $              88,800  

Selling and administrative expense                         11,840  

Depreciation                     11,600  

Operating profit               $              65,360  

Taxes (30%)                       19,608  

Aftertax income               $              45,752  

________________________________________

a. Assume in 20X2 the same 14,800-unit volume is maintained, but that the sales price increases by 10 percent. Because of FIFO inventory policy, old inventory will still be charged off at $10.00 per unit. Also assume selling and administrative expense will be 5 percent of sales and depreciation will be unchanged. The tax rate is 30 percent. Compute aftertax income for 20X2. (Do not round intermediate calculations. Round your answer to the nearest whole number.)

Aftertax income               $61,499selected answer correct

b. In parta, by what percent did aftertax income increase as a result of a 10 percent increase in the sales price? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

Gain in aftertax income 34.42selected answer correct     %

c. Now assume that in 20X3 the volume remains constant at 14,800 units, but the sales price decreases by 15 percent from its year 20X2 level. Also, because of FIFO inventory policy, cost of goods sold reflects the inflationary conditions of the prior year and is $10.50 per unit. Further, assume selling and administrative expense will be 5 percent of sales and depreciation will be unchanged. The tax rate is 30 percent. Compute the aftertax income. (Round the sales price per unit to 2 decimal places but do not round any other intermediate calculations. Round your final answer to the nearest whole dollar amount.)

Aftertax income               $16,951

 12. Award: 2.55 out of 4.00 points

Assume the following data for Cable Corporation and Multi-Media Inc.  

                Cable

Corporation        Multi-Media Inc.

Net income        $              34,400                  $              128,000

Sales                     364,000                                2,700,000            

Total assets                       448,000                                970,000

Total debt                          237,000                                468,000

Stockholders' equity                      211,000                                502,000

________________________________________

a-1. Compute return on stockholders’ equity for both firms. (Input your answers as a percent rounded to 2 decimal places.)

Return on Stockholders’ Equity

Cable Corporation           16.30selected answer correct     %

Multi-Media, Inc.             25.50selected answer correct     %

a-2. Which firm has the higher return?  

Multi-Media Inc. 

b. Compute the following additional ratios for both firms. (Input your Net income/Sales, Net income/Total assets and Debt/Total asset answers as a percent rounded to 2 decimal places. Round your Sales/Total assets answers to 2 decimal places.)

Cable Corporation           Multi-Media Inc.

Net income/Sales            9.34selected answer incorrect   %            4.74selected answer correct       %

Net income/Total assets               7.59selected answer incorrect   %            13.20selected answer correct     %

Sales/Total assets            0.81selected answer correct       times     2.78selected answer correct       times

Debt/Total assets            0.53selected answer incorrect   %            0.48selected answer incorrect   %

 13. Award: 1.84 out of 4.00 points

Given the financial statements for Jones Corporation and Smith Corporation: 

JONES CORPORATION

Current Assets  Liabilities

Cash                                     $              122,700 Accounts payable            $              106,000

Accounts receivable                                                      80,700   Bonds payable (long term)                         89,300

Inventory                                                           52,600                                   

Long-Term Assets            Stockholders' Equity

Gross fixed assets           $              565,000                                Common stock  $              150,000

Less: Accumulated depreciation                               154,900                                Paid-in capital                   70,000

Net fixed assets*                                                            410,100 Retained earnings                          250,800

Total assets                                       $              666,100 Total liabilities and equity             $              666,100

________________________________________

Sales (on credit)               $              1,855,000

Cost of goods sold                          718,000

Gross profit        $              1,137,000

Selling and administrative expense†                      351,000

Depreciation expense                  50,500

Operating profit               $              735,500

Interest expense                            10,600

Earnings before taxes    $              724,900

Tax expense                     94,000

Net income        $              630,900

________________________________________

*Use net fixed assets in computing fixed asset turnover.

†Includes $13,200 in lease payments.

SMITH CORPORATION

Current Assets  Liabilities

Cash                                     $              38,000   Accounts payable            $              75,300

Marketable securities                                                   16,100   Bonds payable (long term)                         234,000

Accounts receivable                                                      79,200                                   

Inventory                                                           76,400                                   

Long-Term Assets            Stockholders' Equity

Gross fixed assets           $              507,000                                Common stock  $              75,000

Less: Accumulated depreciation                               250,200                                Paid-in capital                   30,000

Net fixed assets*                                                            256,800 Retained earnings                          52,200

Total assets                                       $              466,500 Total liabilities and equity             $              466,500

________________________________________

*Use net fixed assets in computing fixed asset turnover.

SMITH CORPORATION

Sales (on credit)               $              1,090,000

Cost of goods sold                          674,000

Gross profit        $              416,000

Selling and administrative expense†                      249,000

Depreciation expense                  51,400

Operating profit               $              115,600

Interest expense                            23,600

Earnings before taxes    $              92,000

Tax expense                     55,300

Net income        $              36,700

________________________________________

†Includes $13,200 in lease payments.

a. Compute the following ratios. (Use a 360-day year. Do not round intermediate calculations. Input your profit margin, return on assets, return on equity, and debt to total assets answers as a percent rounded to 2 decimal places. Round all other answers to 2 decimal places.)

                Jones Corp.        Smith Corp.

Profit margin      34.01selected answer correct     %            3.37selected answer correct       %

Return on assets (investments)                94.72selected answer correct     %            7.87selected answer correct       %

Return on equity              187.88selected answer incorrect               %            23.35selected answer correct     %

Receivable turnover       35.27selected answer incorrect times     13.76selected answer correct     times

Average collection period            10.35selected answer incorrect days       26.52selected answer incorrect days

Inventory turnover         11.99selected answer incorrect times     8.82selected answer incorrect   times

Fixed asset turnover      4.52selected answer correct       times     4.24selected answer correct       times

Total asset turnover       2.78selected answer correct       times     2.34selected answer correct       times

Current ratio      1.31selected answer incorrect   times     0.68selected answer incorrect   times

Quick ratio          1.04selected answer incorrect   times     0.43selected answer incorrect   times

Debt to total assets         0.29selected answer incorrect   %            0.66selected answer incorrect   %

Times interest earned   69.39selected answer correct     times     4.90selected answer correct       times

Fixed charge coverage   not attempted  times     not attempted  times

  14. Award: 2 out of 4.00 points

Jerry Rice and Grain Stores has $4,000,000 in yearly sales. The firm earns 3.5 percent on each dollar of sales and turns over its assets 4 times per year. It has $143,000 in current liabilities and $308,000 in long-term liabilities.  

a. What is its return on stockholders’ equity? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

Return on stockholders' equity  25.50selected answer correct     %

b. If the asset base remains the same as computed in part a, but total asset turnover goes up to 4.20, what will be the new return on stockholders’ equity? Assume that the profit margin stays the same as do current and long-term liabilities. (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

New return on stockholders' equity        27.92selected answer incorrect %

 15. Award: 4 out of 4.00 points

Quantum Moving Company has the following data. Industry information also is shown.

Company data   Industry Data on

Year       Net Income        Total Assets        Net Income/Total Assets

20X1      $              388,000                $              2,868,000                                            12.8        %           

20X2                     412,000                                3,244,000                                            8.2                          

20X3                     408,000                                3,762,000                                            4.4                          

________________________________________

Year       Debt      Total Assets        Industry Data on

Debt/Total Assets

20X1      $              1,692,000                            $              2,868,000                                            55.4        %           

20X2                     1,740,000                                            3,244,000                                            49.0                        

20X3                     1,981,000                                            3,762,000                                            30.0                        

________________________________________

a. Calculate the company's data in terms of: (Input your answers as a percent rounded to 1 decimal place.)

                20X1      20X2      20X3

Net income/Total assets               13.5selected answer correct       %            12.7selected answer correct       %                10.9selected answer correct       %

Debt/Total assets            59.0selected answer correct       %            53.6selected answer correct       %            52.7selected answer correct  %

b. As an industry analyst comparing the firm to the industry, are you likely to praise or criticize the firm in terms of:

                Praise/Criticize

Net income/Total assets               Praiseselected answer correct

Debt/Total assets            Criticize

 16. Award: 4 out of 4.00 points

The Bradley Corporation produces a product with the following costs as of July 1, 20X1:

Material               $3 per unit

Labor     3 per unit

Overhead            1 per unit

________________________________________

Beginning inventory at these costs on July 1 was 3,100 units. From July 1 to December 1, 20X1, Bradley produced 12,200 units. These units had a material cost of $2, labor of $3, and overhead of $4 per unit. Bradley uses LIFO inventory accounting.

a.            Assuming that Bradley sold 13,400 units during the last six months of the year at $14 each, what is its gross profit?

Gross profit        $69,400

b. What is the value of ending inventory?

Ending inventory              $13,300

17. Award: 4 out of 4.00 points

The Alliance Corp. expects to sell the following number of units of copper cables at the prices indicated, under three different scenarios in the economy. The probability of each outcome is indicated.

Outcome             Probability          Units     Price

A             0.70        280         $              31

B             0.20        480                        46

C             0.10        730                        56

________________________________________

What is the expected value of the total sales projection?

Total expected value      $14,580

18. Award: 1.47 out of 4.00 points

The Volt Battery Company has forecast its sales in units as follows:

January                2,900                    May       3,450

February              2,750                    June      3,600

March   2,700                    July        3,300

April       3,200                                     

________________________________________

Volt Battery always keeps an ending inventory equal to 110% of the next month’s expected sales. The ending inventory for December (January’s beginning inventory) is 3,190 units, which is consistent with this policy.

Materials cost $12 per unit and are paid for in the month after purchase. Labor cost is $5 per unit and is paid in the month the cost is incurred. Overhead costs are $16,500 per month. Interest of $10,100 is scheduled to be paid in March, and employee bonuses of $15,300 will be paid in June.

a. Prepare a monthly production schedule for January through June.

Volt Battery Company

Summary of Cash Payments

                January                February              March   April       May       June      July

Projected unit sales        2,900selected answer correct     2,750selected answer correct     2,700selected answer correct                3,200selected answer correct     3,450selected answer correct     3,600selected answer correct     3,300selected answer correct

Desired ending inventory             3,190selected answer incorrect 3,025selected answer incorrect 2,970selected answer incorrect              3,520selected answer incorrect 3,795selected answer incorrect 3,960selected answer incorrect

Total units required        6,090     5,775     5,670     6,720     7,245     7,560    

Beginning inventory       3,190selected answer correct     3,190selected answer incorrect 3,025selected answer incorrect                2,970selected answer incorrect 3,520selected answer incorrect 3,795selected answer incorrect

Units to be produced     2,900     2,585     2,645     3,750     3,725     3,765    

*Red text indicates no response was expected in a cell or a formula-based calculation is incorrect; no points deducted.

b.            Prepare a monthly summary of cash payments for January through June. Volt produced 2,700 units in December.

Volt Battery Company

Summary of Cash Payments

                December           January                February              March   April       May       June

Units produced 2,700selected answer correct     2,900selected answer incorrect 2,585selected answer incorrect                2,645selected answer incorrect 3,750selected answer incorrect 3,725selected answer incorrect 3,765selected answer incorrect

Material cost                      $34,800selected answer incorrect            $31,020selected answer incorrect            $31,740selected answer incorrect              $45,000selected answer incorrect            $44,700selected answer incorrect            $45,180selected answer incorrect

Labor cost                           14,500selected answer incorrect               12,925selected answer incorrect               13,225selected answer incorrect              18,750selected answer incorrect               18,625selected answer incorrect               18,825selected answer incorrect

Overhead cost                  16,500selected answer correct  16,500selected answer correct  16,500selected answer correct                16,500selected answer correct  16,500selected answer correct  16,500selected answer correct

Interest                                10,100not attempted     10,100not attempted     10,100selected answer correct  10,100not attempted          10,100not attempted     10,100not attempted

Employee bonuses                         15,300not attempted     15,300not attempted     15,300not attempted     15,300not attempted          15,300not attempted     15,300selected answer correct

Total cash payments                       $91,200 $85,845 $86,865 $105,650              $105,225              $105,905

 19. Award: 4 out of 4.00 points

Watt’s Lighting Stores made the following sales projection for the next six months. All sales are credit sales.

March   $54,000                June      $58,000

April       60,000                  July        66,000

May       49,000                  August  68,000

________________________________________

Sales in January and February were $57,000 and $56,000, respectively. Experience has shown that of total sales, 5 percent are uncollectible, 40 percent are collected in the month of sale, 50 percent are collected in the following month, and 5 percent are collected two months after sale.

a. Prepare a monthly cash receipts schedule for the firm for March through August.

Watt’s Lighting Stores

Cash Receipts Schedule

                January                February              March   April       May       June      July        August

Credit sales         $57,000selected answer correct                $56,000selected answer correct                $54,000selected answer correct  $60,000selected answer correct                $49,000selected answer correct                $58,000selected answer correct                $66,000selected answer correct                $68,000selected answer correct

In month of sale                                               $21,600selected answer correct                $24,000selected answer correct                $19,600selected answer correct                $23,200selected answer correct                $26,400selected answer correct                $27,200selected answer correct

One month after sale                                     28,000selected answer correct  27,000selected answer correct  30,000selected answer correct  24,500selected answer correct  29,000selected answer correct  33,000selected answer correct

Two months after sale                                   2,850selected answer correct     2,800selected answer correct     2,700selected answer correct  3,000selected answer correct     2,450selected answer correct     2,900selected answer correct

Total cash receipts                                           $52,450 $53,800 $52,300 $50,700 $57,850 $63,100

 20. Award: 4 out of 4.00 points

Sales for Ross Pro’s Sports Equipment are expected to be 53,000 units for the coming month. The company likes to maintain 20 percent of unit sales for each month in ending inventory. Beginning inventory is 15,000 units.

How many units should the firm produce for the coming month?

Units to be produced     48,600

21. Award: 0.29 out of 4.00 points

Delsing Canning Company is considering an expansion of its facilities. Its current income statement is as follows:

Sales      $              6,200,000

Variable costs (50% of sales)                      3,100,000

Fixed costs                         1,920,000

Earnings before interest and taxes (EBIT)             $              1,180,000

Interest (10% cost)                         440,000

Earnings before taxes (EBT)        $              740,000

Tax (30%)                           222,000

Earnings after taxes (EAT)            $              518,000

Shares of common stock                             320,000

Earnings per share           $              1.62

________________________________________

The company is currently financed with 50 percent debt and 50 percent equity (common stock, par value of $10). In order to expand the facilities, Mr. Delsing estimates a need for $3.2 million in additional financing. His investment banker has laid out three plans for him to consider:

1.            Sell $3.2 million of debt at 14 percent.

2.            Sell $3.2 million of common stock at $20 per share.

3.            Sell $1.60 million of debt at 13 percent and $1.60 million of common stock at $25 per share.

Variable costs are expected to stay at 50 percent of sales, while fixed expenses will increase to $2,420,000 per year. Delsing is not sure how much this expansion will add to sales, but he estimates that sales will rise by $1.60 million per year for the next five years.

Delsing is interested in a thorough analysis of his expansion plans and methods of financing.He would like you to analyze the following:

a. The break-even point for operating expenses before and after expansion (in sales dollars). (Enter your answers in dollars not in millions, i.e, $1,234,567.)

                Break-Even Point

Before expansion            not attempted

After expansion               not attempted

b. The degree of operating leverage before and after expansion. Assume sales of $6.2 million before expansion and $7.2 million after expansion. Use the formula: DOL = (S − TVC) / (S − TVC − FC). (Round your answers to 2 decimal places.)

                                Degree of Operating Leverage

Before expansion            not attempted

After expansion               not attempted

c-1. The degree of financial leverage before expansion. (Round your answers to 2 decimal places.)

Degree of financial leverage       1.59

c-2. The degree of financial leverage for all three methods after expansion. Assume sales of $7.2 million for this question. (Round your answers to 2 decimal places.)

                Degree of Financial Leverage

100% Debt          not attempted

100% Equity        not attempted

50% Debt & 50% Equity not attempted

d. Compute EPS under all three methods of financing the expansion at $7.2 million in sales (first year) and $10.1 million in sales (last year). (Round your answers to 2 decimal places.)

                Earnings per Share

                First Year             Last Year

100% Debt          not attempted  not attempted

100% Equity        not attempted  not attempted

50% Debt & 50% Equity not attempted  not attempted

 22. Award: 4 out of 4.00 points

Boise Timber Co. computes its break-even point strictly on the basis of cash expenditures related to fixed costs. Its total fixed costs are $6,700,000, but 20 percent of this value is represented by depreciation. Its contribution margin (price minus variable cost) for each unit is $11. How many units does the firm need to sell to reach the cash break-even point? (Round your answer to the nearest whole number.)

Cash break-even point  487,273selected answer correct                units

 23. Award: 4 out of 4.00 points

Air Purifier Inc. computes its break-even point strictly on the basis of cash expenditures related to fixed costs. Its total fixed costs are $2,480,000, but 15 percent of this value is represented by depreciation. Its contribution margin (price minus variable cost) for each unit is $46. How many units does the firm need to sell to reach the cash break-even point? (Round your answer to the nearest whole number.)

Cash break-even point  45,827selected answer correct  units

24. Award: 2 out of 4.00 points

The Harding Company manufactures skates. The company’s income statement for 20X1 is as follows:

HARDING COMPANY

Income Statement

For the Year Ended December 31, 20X1

Sales (11,900 skates @ $88 each)              $              1,047,200

Variable costs (11,900 skates at $39)                       464,100

Fixed costs                         340,000

Earnings before interest and taxes (EBIT)             $              243,100

Interest expense                            69,500

Earnings before taxes (EBT)        $              173,600

Income tax expense (20%)                         34,720

Earnings after taxes (EAT)            $              138,880

________________________________________

a. Compute the degree of operating leverage. (Round your answer to 2 decimal places.)

Degree of operating leverage    4.20

b. Compute the degree of financial leverage. (Round your answer to 2 decimal places.)

Degree of financial leverage       1.40

c. Compute the degree of combined leverage. (Round your answer to 2 decimal places.)

Degree of combined leverage    5.88

d. Compute the break-even point in units (number of skates). (Round your answer to the nearest whole number.)

Break-even point             6,939selected answer correct     skates

 25. Award: 4 out of 4.00 points

The Hartnett Corporation manufactures baseball bats with Pudge Rodriguez’s autograph stamped on them. Each bat sells for $27 and has a variable cost of $15. There are $27,000 in fixed costs involved in the production process.

a. Compute the break-even point in units.

Break-even point             2,250selected answer correct     units

b. Find the sales (in units) needed to earn a profit of $20,400.

Sales quantity needed   3,950selected answer correct     units