2.Corporate Tax Liability
To complete the assignments listed below, refer to theTable 2-1.
The Talley Corporation had a taxable income of $300,000 from operations after all operating costs but before (1) interest charges of $30,000, (2) dividends received of $18,000, (3) dividends paid of $18,000, and (4) income taxes.
What are the firm’s income tax liability and its after-tax income? Round your answers to two decimal places.
| Income tax liability | $ |
| After-tax income | $ |
3.Balance Sheet Analysis
Complete the balance sheet and sales information in the table that follows for J. White Industries using the following financial data:
Total assets turnover: 2.1
Gross profit margin on sales: (Sales – Cost of goods sold)/Sales = 24%
Total liabilities-to-assets ratio: 35%
Quick ratio: 1.05
Days sales outstanding (based on 365-day year): 36 days
Inventory turnover ratio: 3.0
Round your answers to the nearest whole dollar.
| Partial Income | Statement Information |
| Sales | $ |
| Cost of goods sold | $ |
Balance Sheet
| Cash | $ | Accounts payable | $ |
| Accounts receivable | $ | Long-term debt | $ 50,000 |
| Inventories | $ | Common stock | $ |
| Fixed assets | $ | Retained earnings | $ 100,000 |
| Total assets | $ 400,000 | Total liabilities and equity | $ |
4. PV and Effective Annual Rate
Assume that you inherited some money. A friend of yours is working as an unpaid intern at a local brokerage firm, and her boss is selling securities that call for 4 payments of $50 (1 payment at the end of each of the next 4 years) plus an extra payment of $1,000 at the end of Year 4. Your friend says she can get you some of these securities at a cost of $950 each. Your money is now invested in a bank that pays an 12% nominal (quoted) interest rate but with quarterly compounding. You regard the securities as being just as safe, and as liquid, as your bank deposit, so your required effective annual rate of return on the securities is the same as that on your bank deposit. You must calculate the value of the securities to decide whether they are a good investment. What is their present value to you? Round your answer to the nearest cent.
$
5.Amortization Schedule
a. Set up an amortization schedule for a $15,000 loan to be repaid in equal installments at the end of each of the next 5 years. The interest rate is 12%. Round your answers to the nearest cent. Enter “0” if required
| Year | Payment | Repayment Interest | Repayment of Principal | Balance |
| 1 | $ | $ | $ | $ |
| 2 | $ | $ | $ | $ |
| 3 | $ | $ | $ | $ |
| 4 | $ | $ | $ | $ |
| 5 | $ | $ | $ | $ |
| Total | $ | $ | $ |
b. How large must each annual payment be if the loan is for $30,000? Assume that the interest rate remains at 12% and that the loan is paid off over 5 years. Round your answer to the nearest cent.
$
c. How large must each payment be if the loan is for $30,000, the interest rate is 12%, and the loan is paid off in equal installments at the end of each of the next 10 years? This loan is for the same amount as the loan in part b, but the payments are spread out over twice as many periods. Round your answer to the nearest cent.
$
6. Free Cash Flows
Rhodes Corporation: Income Statements for Year Ending December 31 (Millions of Dollars)
| 2013 | 2012 | ||
| Sales | $8,450.0 | $6,500.0 | |
| Operating costs excluding depreciation | 6,971.0 | 5,525.0 | |
| Depreciation and amortization | 203.0 | 163.0 | |
| Earnings before interest and taxes | $1,276.0 | $812.0 | |
| Less: Interest | 182.0 | 140.0 | |
| Pre-tax income | $1,094.0 | $672.0 | |
| Taxes (40%) | 437.6 | 268.8 | |
| Net income available to common stockholders | $656.4 | $403.2 | |
| Common dividends | $591.0 | $323.0 |
Rhodes Corporation: Balance Sheets as of December 31 (Millions of Dollars)
| 2013 | 2012 | ||
| Assets | |||
| Cash | $86.0 | $78.0 | |
| Short-term investments | 43.0 | 33.0 | |
| Accounts receivable | 894.0 | 715.0 | |
| Inventories | 2,028.0 | 1,560.0 | |
| Total current assets | $3,051.0 | $2,386.0 | |
| Net plant and equipment | 2,031.0 | 1,625.0 | |
| Total assets | $5,082.0 | $4,011.0 | |
| Liabilities and Equity | |||
| Accounts payable | $468.0 | $390.0 | |
| Accruals | 215.0 | 195.0 | |
| Notes payable | 169.0 | 130.0 | |
| Total current liabilities | $852.0 | $715.0 | |
| Long-term bonds | 1,690.0 | 1,300.0 | |
| Total liabilities | $2,542.0 | $2,015.0 | |
| Common stock | 2,354.6 | 1,876.0 | |
| Retained earnings | 185.4 | 120.0 | |
| Total common equity | $2,540.0 | $1,996.0 | |
| Total liabilities and equity | $5,082.0 | $4,011.0 |
Using Rhodes Corporation’s financial statements (shown above), answer the following questions.
a. What is the net operating profit after taxes (NOPAT) for 2013? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to one decimal place.
$ million
b. What are the amounts of net operating working capital for both years? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answers to one decimal place.
2013 $ million
2012 $ million
c. What are the amounts of total net operating capital for both years? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answers to one decimal place.
2013 $ million
2012 $ million
d. What is the free cash flow for 2013? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to one decimal place.
$ million
e. What is the ROIC for 2013? Round your answer to two decimal places.
%
f. How much of the FCF did Rhodes use for each of the following purposes: after-tax interest, net debt repayments, dividends, net stock repurchases, and net purchases of short-term investments? (Hint:Remember that a net use can be negative.) Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answers to one decimal place.
| After-tax interest payment | $ million |
| Reduction (increase) in debt | $ million |
| Payment of dividends | $ million |
| Repurchase (Issue) stock | $ million |
| Purchase (Sale) of short-term investments | $ million |
7.Future Value of an Annuity for Various Compounding Periods
Find the future values of the following ordinary annuities:
a. FV of $600 paid each 6 months for 5 years at a nominal rate of 16%, compounded semiannually. Round your answer to the nearest cent.
$
b. FV of $300 paid each 3 months for 5 years at a nominal rate of 16%, compounded quarterly. Round your answer to the nearest cent.
$
9.Comprehensive Ratio Analysis
Data for Lozano Chip Company and its industry averages follow.
Lozano Chip Company: Balance Sheet as of December 31, 2013 (Thousands of Dollars)
| Cash | $ 225,000 | Accounts payable | $601,866 | |
| Receivables | 1,575,000 | Notes payable | 326,634 | |
| Inventories | 1,125,000 | Other current liabilities | 525,000 | |
| Total current assets | $2,925,000 | Total current liabilities | $1,453,500 | |
| Net fixed assets | 1,350,000 | Long-term debt | 1,068,750 | |
| Common equity | 1,752,750 | |||
| Total assets | $4,275,000 | Total liabilities and equity | $4,275,000 |
Lozano Chip Company: Income Statement for Year Ended December 31, 2013 (Thousands of Dollars)
| Sales | $7,500,000 |
| Cost of goods sold | 6,375,000 |
| Selling general and administrative expenses | 825,000 |
| Earnings before interest and taxes (EBIT) | $ 300,000 |
| Interest expense | 111,631 |
| Earnings before taxes (EBT) | $ 188,369 |
| Federal and state income taxes (40%) | 75,348 |
| Net income | $ 113,022 |
a. Calculate the indicated ratios for Lozano. Round your answers to two decimal places.
| Ratio | Lozano | Industry Average |
| Current assets/Current liabilities | 2.0 | |
| Days sales outstanding* | days | 35.0 days |
| COGS/Inventory | 6.7 | |
| Sales/Fixed assets | 12.1 | |
| Sales/Total assets | 3.0 | |
| Net income/Sales | % | 1.2% |
| Net income/Total assets | % | 3.6% |
| Net income/Common equity | % | 9.0% |
| Total debt/Total assets | % | 30.0% |
| Total liabilities/Total assets | % | 60.0% |
| *Calculation is based on a 365-day year. |
b. Construct the extended Du Pont equation for both Lozano and the industry. Round your answers to two decimal places.
| For the firm, ROE is | % |
| For the industry, ROE is | % |
c. Outline Lozano’s strengths and weaknesses as revealed by your analysis