金融管理基础英文版第16版人大版MGH版简答题附答案BHD16eSMChapter02.docx

金融管理基础英文版第16版人大版MGH版简答题附答案BHD16eSMChapter02.docx

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金融管理基础英文版第16版人大版MGH版简答题附答案BHD16eSMChapter02

Chapter2

ReviewofAccounting

DiscussionQuestions

2-1.

Discusssomefinancialvariablesthataffecttheprice-earningsratio.

Theprice-earningsratiowillbeinfluencedbytheearningsandsalesgrowthofthefirm,theriskorvolatilityinperformance,thedebt-equitystructureofthefirm,thedividendpaymentpolicy,thequalityofmanagement,andanumberofotherfactors.Theratiotendstobefuture-oriented,andthemorepositivetheoutlook,thehigheritwillbe.

2-2.

Whatisthedifferencebetweenbookvaluepershareofcommonstockandmarketvaluepershare?

Whydoesthisdisparityoccur?

Bookvaluepershareisarrivedatbytakingthecostoftheassetsandsubtractingoutliabilitiesandpreferredstockanddividingbythenumberofcommonsharesoutstanding.Itisbasedonthehistoricalcostoftheassets.Marketvaluepershareisbasedonthecurrentassessedvalueofthefirminthemarketplaceandmaybearlittlerelationshiptooriginalcost.Besidesthedisparitybetweenbookandmarketvaluecausedbythehistoricalcostapproach,othercontributingfactorsarethegrowthprospectsforthefirm,thequalityofmanagement,andtheindustryoutlook.Totheextentthesearequitenegativeorpositive;marketvaluemaydifferwidelyfrombookvalue.

2-3.

Explainhowdepreciationgeneratesactualcashflowsforthecompany.

Theonlywaydepreciationgeneratescashflowsforthecompanyisbyservingasataxshieldagainstreportedincome.Thisnon-cashdeductionmayprovidecashflowequaltothetaxratetimesthedepreciationcharged.Thismuchintaxeswillbesaved,whilenocashpaymentsoccur.

2-4.

Whatisthedifferencebetweenaccumulateddepreciationanddepreciationexpense?

Howaretheyrelated?

Accumulateddepreciationisthesumofallpastandpresentdepreciationcharges,whiledepreciationexpenseisthecurrentyear’scharge.Theyarerelatedinthatthesumofallpriordepreciationexpenseshouldbeequaltoaccumulateddepreciation（subjecttosomedifferentialrelatedtoasset

write-offs）.

2-5.

Howistheincomestatementrelatedtothebalancesheet?

Theearnings（lessdividends）reportedintheincomestatementistransferredtotheownershipsectionofthebalancesheetasretainedearnings.Thus,whatweearnintheincomestatementbecomespartoftheownershipinterestinthebalancesheet.

2-6.

Commentonwhyinflationmayrestricttheusefulnessofthebalancesheetasnormallypresented.

Thebalancesheetisbasedonhistoricalcosts.Whenpricesarerisingrapidly,historicalcostdatamaylosemuchoftheirmeaning—particularlyforplantandequipmentandinventory.

2-7.

Explainwhythestatementofcashflowsprovidesusefulinformationthatgoesbeyondincomestatementandbalancesheetdata.

Theincomestatementandbalancesheetarebasedontheaccrualmethodofaccounting,whichattemptstomatchrevenuesandexpensesintheperiodinwhichtheyoccur.However,accrualaccountingdoesnotattempttoproperlyassessthecashflowpositionofthefirm.Thestatementofcashflowsfulfillsthisneed.

2-8.

Whatarethethreeprimarysectionsofthestatementofcashflows?

Inwhatsectionwouldthepaymentofacashdividendbeshown?

Thesectionsofthestatementofcashflowsare:

Cashflowsfromoperatingactivities

Cashflowsfrominvestingactivities

Cashflowsfromfinancingactivities

Thepaymentofcashdividendsfallsintothefinancingactivitiescategory.

2-9.

Whatisfreecashflow?

Whyisitimportanttoleveragedbuyouts?

Freecashflowisequaltocashflowfromoperatingactivities:

Minus:

Capitalexpendituresrequiredtomaintaintheproductivecapacityofthefirm.

Minus:

Dividends（requiredtomaintainthepayoutoncommonstockandtocoveranypreferredstockobligation）.

Theanalystorbankernormallylooksatfreecashflowtodeterminewhethertherearesufficientexcessfundstopaybacktheloanassociatedwiththeleveragedbuyout.

2-10.

Whyisinterestexpensesaidtocostthefirmsubstantiallylessthantheactualexpense,whiledividendscostit100percentoftheoutlay?

Interestexpenseisataxdeductibleitemtothecorporation,whiledividendpaymentsarenot.Thenetcosttothecorporationofinterestexpenseistheamountpaidmultipliedbythedifferenceofoneminustheapplicabletaxrate.

Forexample,$100ofinterestexpensecoststhecompany$65aftertaxeswhenthecorporatetaxrateis35percent—forexample,$100×（1–0.35）=$65.

Chapter2

Problems

1.IncomeStatement（LO1）FranticFastFoodshadearningsaftertaxesof$420,000intheyear20X1with309,000sharesoutstanding.OnJanuary1,20X2,thefirmissued20,000newshares.Becauseoftheproceedsfromthesenewsharesandotheroperatingimprovements,earningsaftertaxesincreasedby30percent.

a.Computeearningspersharefortheyear20X1.

b.Computeearningspersharefortheyear20X2.

2-1.Solution:

FranticFastFoods

a.Year20X1

b.Year20X2

2.Incomestatement（LO1）SosaDietSupplementshadearningsaftertaxesof$800,000intheyear20X1with200,000sharesofstockoutstanding.OnJanuary1,20X2,thefirmissued50,000newshares.Becauseoftheproceedsfromthesenewsharesandotheroperatingimprovements,earningsaftertaxesincreasedby30percent.

a.Computeearningspersharefortheyear20X1.

b.Computeearningspersharefortheyear20X2.

2-2.Solution:

SosaDietSupplements

a.Year20X1

b.Year20X2

3.a.Grossprofit（LO1）SwankClothiershadsalesof$383,000andcostofgoodssoldof$260,000.Whatisthegrossprofitmargin（ratioofgrossprofittosales）?

b.Iftheaveragefirmintheclothingindustryhadagrossprofitof25percent,howisthefirmdoing?

2-3.Solution:

SwankClothiers

a.Sales$383,000

Costofgoodssold260,000

GrossProfit$123,000

b.Withagrossprofitof32percent,thefirmisoutperformingtheindustryaverageof25percent.

4.Operatingprofit（LO1）A-RodFishingSupplieshadsalesof$2,500,000andcostofgoodssoldof$1,710,000.Sellingandadministrativeexpensesrepresented10percentofsales.Depreciationwas6percentofthetotalassetsof$4,680,000.Whatwasthefirm’soperatingprofit?

2-4.Solution:

A-RodFishingSupplies

Sales$2,500,000

Costofgoodssold1,710,000

GrossProfit790,000

Sellingandadministrativeexpense*250,000

Depreciationexpense**280,800

Operatingprofit$259,200

*10%×$2,500,000=$250,000

**6%×$4,680,000=$280,800

5.Incomestatement（LO1）Arrangethefollowingincomestatementitemssotheyareintheproperorderofanincomestatement:

TaxesEarningspershare

SharesoutstandingEarningsbeforetaxes

InterestexpenseCostofgoodssold

DepreciationexpenseEarningsaftertaxes

PreferredstockdividendsEarningsavailabletocommon

Operatingprofitstockholders

SalesSellingandadministrativeexpense

Grossprofit

2-5.Solution:

Sales

–Costofgoodssold

Grossprofit

–Sellingandadministrativeexpense

–Depreciationexpense

Operatingprofit

–Interestexpense

Earningsbeforetaxes

–Taxes

Earningsaftertaxes

–Preferredstockdividends

Earningsavailabletocommonstockholders

Sharesoutstanding

Earningspershare

6.Incomestatement（LO1）Giventhefollowinginformation,prepareanincomestatementfortheDentalDrillingCompany.

Sellingandadministrativeexpense$112,000

Depreciationexpense73,000

Sales489,000

Interestexpense45,000

Costofgoodssold156,000

Taxes47,000

2-6.Solution:

DentalDrillingCompany

IncomeStatement

Sales$489,000

Costofgoodssold$156,000

Grossprofit$333,000

Sellingandadministrativeexpense$112,000

Depreciationexpense$73,000

Operatingprofit$148,000

Interestexpense$45,000

Earningsbeforetaxes$103,000

Taxes$47,000

Earningsaftertaxes$56,000

7.Incomestatement（LO1）Giventhefollowinginformation,prepareingoodformanincomestatementforJonasBrothersCoughDrops.

Sellingandadministrativeexpense$328,000

Depreciationexpense195,000

Sales1,660,000

Interestexpense129,000

Costofgoodssold560,000

Taxes171,000

2-7.Solution:

JonasBrothersCoughDrops

IncomeStatement

Sales$1,660,000

Costofgoodssold560,000

Grossprofit1,100,000

Sellingandadministrativeexpense328,000

Depreciationexpense195,000

Operatingprofit577,000

Interestexpense129,000

Earningsbeforetaxes448,000

Taxes171,000

Earningsaftertaxes$277,000

8.Determinationofprofitability（LO1）PrepareingoodformanincomestatementforFranklinKiteCo.Inc.Takeyourcalculationsallthewaytocomputingearningspershare.

Sales$900,000

Sharesoutstanding50,000

Costofgoodssold400,000

Interestexpense40,000

Sellingandadministrativeexpense60,000

Depreciationexpense20,000

Preferredstockdividends80,000

Taxes50,000

2-8.Solution:

FranklinKiteCompany

IncomeStatement

Sales$900,000

Costofgoodssold400,000

Grossprofit500,000

Sellingandadministrativeexpense60,000

Depreciationexpense20,000

Operatingprofit$420,000

Interestexpense40,000

Earningsbeforetaxes$390,000

Taxes120,000

Earningsaftertaxes$270,000

Preferredstockdividends80,000

Earningsavailabletocommonstockholders190,000

Sharesoutstanding50,000

Earningspershare$3.80

9.Determinationofprofitability（LO1）PrepareanincomestatementforVirginiaSlimWear.Takeyourcalculationsallthewaytocomputingearningspershare.

Sales$1,360,000

Sharesoutstanding104,000

Costofgoodssold700,000

Interestexpense34,000

Sellingandadministrativeexpense49,000

Depreciationexpense23,000

Preferredstock