The purpose of this task is to provide an overview of the tools you have used so far, and to provide additional exercises for the tools introduced so far. How are you? Do you think you have considerable strengths when it comes to finance? After that, you are ready to move on and continue applying your skills.
This task consists of 4 parts and contains 9 questions that must be answered. Read the instructions carefully and answer all the questions.
Part 1: Balance Sheet (2 points)
Look at the balance sheet below and answer question 1 in the space below. < br> >
Consolidated Balance Sheet
December 31, 2018 and 2017 (in $ millions)
|Assets||2018||2017||Liabilities and Stockholders’ Equity||2018||2017|
|Current Assets||Current Liabilities|
|Accounts receivable||55.5||39.6||Notes payable /short-term debt||10.5||9.6|
|Inventories||45.9||42.9||Current maturities of long-term debt||39.9||36.9|
|Other current assets||6.0||3.0||Other current liabilities||6.0||12.0|
|Total current assets||171.0||144.0||Total current liabilities||144.0||132.0|
|Long-Term Assets||Long-Term Liabilities|
|Buildings||109.5||91.5||Capital lease obligations||—||—|
|Less accumulated depreciation||(56.1)||(52.5)||Deferred taxes||22.8||22.2|
|Net property, plant, and equipment||239.1||200.7||Other long-term liabilities||—||—|
|Goodwill||60.0||—||Total long-term liabilities||262.5||191.1|
|Other long-term assets||63.0||42.0||Total liabilities||406.5||323.1|
|Total long-term assets||362.1||242.7||Stockholders’ Equity||126.6||63.6|
|Total Assets||533.1||386.7||Total liabilities and Stockholders’ Equity||533.1||386.7|
Question 1: As of December 31, 2017, Luthor had 8 million shares outstanding and What’s Luther’s if it’s trading at $15 a share? What is the market-to-book ratio? (2 points)
Part 2: Income Statement (9 points)
Look at the income statement below and write your answers to questions 2 and 3 in the space below.
Statement Year ended December 31 (in $ millions)
|Cost of sales||(500.2)||(481.9)|
|Selling, general, andadministrative expenses||(40.5)||(39.0)|
|Research and development||(24.6)||(22.8)|
|Depreciation and amortization||(3.6)||(3.3)|
|Earnings before interest and taxes (EBIT)||41.2||31.3|
|Interest income (expense)||(25.1)||(15.8)|
|Price per share||$16||$15|
|Shares outstanding (millions)||10.2||8.0|
|Stock options outstanding (millions)||0.3||0.2|
|Total Liabilities and Stockholders’ Equity||533.1||386.7|
Question 2: Luther’s Return on Equity (ROE), Return on Assets (ROA) , and calculate the price-to-earnings ratio – ratio (PER) for the year ended December 31, 2017. (6 points)
Question 3: If Luther’s outstanding debt in 2018 is $55.5 million, calculate Luther’s outstanding debt in 2018. (3 points)
Part 3: Scenario (10 points)
Read the scenario below and answer question 4.
Scenario: Joe has just inherited the family business and has nothing. He wanted to continue his family business and decided to sell it to an entrepreneur. Joe was offered an immediate payment of $100,000 in exchange for the family business. Joe will also be paid $50,000 over one year, $50,000 over two years, and $75,000 over three years. Joe’s current market interest rate is 6%.
Question 4: Suppose a second entrepreneur approaches Joe and offers her $250,000 for today’s deal. Should Joe accept the new entrepreneur’s offer, or stick with her original offer of $100,000 and her three consecutive years of payments?Why? (10 points)
Part 4: Multiple Choice Questions (24 points)
Read the scenario and choose the option that best completes the statement or answers the question. Show all works as they are sub-graded.
Scenario: You are 30 today and you plan to retire at 65. Your current salary is $45,000 and is expected to increase by 5% annually as long as you keep working. To save for retirement, plan to make annual contributions to your retirement account. The first contribution will be on her 31st birthday and will be 8% of her salary for the year. Similarly, you will pay 8% of your salary each year until you turn 65. Suppose the interest rate is 7%. Show all calculations. Partial grades are awarded. Use the scenarios from questions 5 and 6.
Question 5: The present value of retirement savings (at age 30) is closest to: (10 points)
(a) $87,000 $(b) $75,230 (c) $46,600 (d) $108,000
Your answer: _
Question 6: The future value of retirement savings (at age 65) is closest to: (2 points)
(a) $497,530 (b) $108,000 (c) $928,895 (d) $1,263,236
Your answer: __
Scenario: Hasbeen Toys Quarterly Working capital levels are shown in the table below (in millions of US dollars). Use this table for questions 7-9.
Question 7: In which quarter will Hasbeen’s seasonal working capital be most needed? (8 points)
(a) 2 (b) 3 (c) 4 (d) 1
Your answer: __
Question 8: Works permanently Necessity Has been Toys’ capital is closest to the following values: (2 marks)
(a) $2.435 billion (b) $1.1 billion (c) $770 million (d ) $1.275 billion
Your answer: __ >
Question 9: Has been Toys’ preliminary Q1 working capital requirement is closest to: (2 marks)
(a) $770 million (b) $845 million (c) $340 million (d) $0 million
Your answer: __
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