财务管理基础 斯坦利 课后答案Chapter.docx

财务管理基础 斯坦利 课后答案Chapter.docx

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财务管理基础斯坦利课后答案Chapter

Chapter2

DiscussionQuestions

2-1.

Discusssomefinancialvariablesthataffecttheprice-earningsratio.

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

2-2.

Whatisthedifferencebetweenbookvaluepershareofcommonstockandmarketvaluepershare?

Whydoesthisdisparityoccur?

Bookvaluepershareisarrivedatbytakingthecostoftheassetsandsubtractingoutliabilitiesandpreferredstockanddividingbythenumberofcommonsharesoutstanding.Itisbasedonthehistoricalcostoftheassets.Marketvaluepershareisbasedoncurrentassessedvalueofthefirminthemarketplaceandmaybearlittlerelationshiptooriginalcost.Besidesthedisparitybetweenbookandmarketvaluecausedbythehistoricalcostapproach,othercontributingfactorsarethegrowthprospectsforthefirm,thequalityofmanagement,andtheindustryoutlook.Totheextentthesearequitenegativeorpositive,marketvaluemaydifferwidelyfrombookvalue.

2-3.

Explainhowdepreciationgeneratesactualcashflowsforthecompany.

Theonlywaydepreciationgeneratescashflowsforthecompanyisbyservingasataxshieldagainstreportedincome.Thisnon-cashdeductionmayprovidecashflowequaltothetaxratetimesthedepreciationcharged.Thismuchintaxeswillbesaved,whilenocashpaymentsoccur.

2-4.

Whatisthedifferencebetweenaccumulateddepreciationanddepreciationexpense?

Howaretheyrelated?

Accumulateddepreciationisthesumofallpastandpresentdepreciationcharges,whiledepreciationexpenseisthecurrentyear'scharge.Theyarerelatedinthatthesumofallpriordepreciationexpenseshouldbeequaltoaccumulateddepreciation（subjecttosomedifferentialrelatedtoassetwrite-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）.

Theanalystorbankernormallylooksatfreecashflowtodeterminewhetherthereareinsufficientexcessfundstopaybacktheloanassociatedwiththeleveragedbuy-out.

2-10.

Whyisinterestexpensesaidtocostthefirmsubstantiallylessthantheactualexpense,whiledividendscostit100percentoftheoutlay?

Interestexpenseisataxdeductibleitemtothecorporation,whiledividendpaymentsarenot.Thenetcosttothecorporationofinterestexpenseistheamountpaidmultipliedbythedifferenceofoneminustheapplicabletaxrate.

Forexample,$100ofinterestexpensecoststhecompany$65aftertaxeswhenthecorporatetaxrateis35percent.（e.g.$100x（1–.35）=$65）.

Problems

2-1.

RockwellPaperCompanyhadearningsaftertaxesof$580,000intheyear2003with400,000sharesoutstanding.OnJanuary1,2004,thefirmissued35,000newshares.Becauseoftheproceedsfromthesenewsharesandotheroperatingimprovements,earningsaftertaxesincreasedby25percent.

a.Computeearningspersharefortheyear2003.

b.Computeearningspersharefortheyear2004.

Solution:

RockwellPaperCompany

a.Year2003

b.Year2004

2-2.

Giventhefollowinginformation,prepare,ingoodform,anincomestatementfortheGoodmanSoftware,Inc.

Sellingandadministrativeexpense$50,000

Depreciationexpense80,000

Sales400,000

Interestexpense30,000

Costofgoodssold150,000

Taxes18,550

Solution:

GoodmanSoftware,Inc.

Sales$400,000

Costofgoodssold150,000

GrossProfit250,000

Sellingandadministrativeexpense50,000

Depreciationexpense80,000

Operatingprofit120,000

Interestexpense30,000

Earningsbeforetaxes90,000

Taxes18,550

Earningsaftertaxes$71,450

2-3.

a.KevinBaconandPorkCompanyhadsalesof$240,000andcostofgoodssoldof$108,000.Whatisthegrossprofitmargin（ratioofgrossprofittosales）?

b.Iftheaveragefirmintheporkindustryhadagrossprofitof60percent,howisthefirmdoing?

Solution:

KevinBaconandPortCompany

a.Sales$240,000

Costofgoodssold180,000

Grossprofit$132,000

b.Withagrossprofit55percent,thefirmisunder-performingtheindustryaverageof60percent.

2-4.

PrepareingoodformanincomestatementforVirginiaSlimWear.Takeyourcalculationsallthewaytocomputingearningspershare.

Sales$600,000

Sharesoutstanding100,000

Costofgoodssold200,000

Interestexpense30,000

Sellingandadministrativeexpense40,000

Depreciationexpense20,000

Preferredstockdividends80,000

Taxes100,000

Solution:

VirginiaSlimWear

IncomeStatement

Sales$600,000

Costofgoodssold200,000

Grossprofit400,000

Sellingandadministrativeexpense40,000

Depreciationexpense20,000

Operatingprofit340,000

Interestexpense30,000

Earningsbeforetaxes310,000

Taxes100,000

Earningsaftertaxes210,000

Preferredstockdividends80,000

Earningsavailabletocommonstockholders130,000

Sharesoutstanding100,000

Earningspershare$1.30

2-5.

LasarTechnology,Inc.hadsalesof$500,000,costofgoodssoldof$180,000,sellingandadministrativeexpenseof$70,000,andoperatingprofitof$90,000.Whatwasthevalueofdepreciationexpense?

Setthisproblemupasapartialincomestatement,anddeterminedepreciationexpenseastheplugfigure.

Solution:

LasarTechnology,Inc.

Sales$500,000

Costofgoodssold180,000

GrossProfit$320,000

Sellingandadministrativeexpense70,000

DepreciationExpense（plugfigure）160,000

Operatingprofit$90,000

2-6.

TheReidBookCompanysold1,500financetextbooksfor$100eachtoHighTuitionUniversityin2004.ThesebookscostReid$74toproduce.Reidspent$4,000（sellingexpense）toconvincetheuniversitytobuyitsbooks.Inaddition,Reidborrowed$50,000onJanuary1,2004,onwhichthecompanypaid10percentinterest.BothinterestandprincipaloftheloanwerepaidonDecember31,2004.Reid’staxrateis25percent.Depreciationexpensefortheyearwas$8,000.

DidReidBookCompanymakeaprofitin2004?

Pleaseverifywithanincomestatementpresentedingoodform.

Solution:

ReidBookCompany

Sales（1,500booksat$100each）$150,000

Costofgoodssold（1,500booksat$74each）111,000

Grossprofit$39,000

Sellingexpense4,000

Depreciationexpense8,000

Operatingprofit$27,000

Interestexpense5,000

Earningsbeforetaxes$22,000

Taxes@25%5,500

Earningsaftertaxes$16,500

2-7.

CarrAutoWholesalershadsalesof$900,000in2004andtheircostofgoodssoldrepresented65percentofsales.Sellingandadministrativeexpenseswere9percentofsales.Depreciationexpensewas$10,000andinterestexpensefortheyearwas$8,000.Thefirm'staxrateis30percent.

a.Computeearningsaftertaxes.

b.AssumethefirmhiresMs.Hood,anefficiencyexpert,asaconsultant.Shesuggeststhatbyincreasingsellingandadministrativeexpensesto12percentofsales,salescanbeincreasedto$1,000,000.Theextrasaleseffortwillalsoreducecostofgoodssoldto60percentofsales（therewillbealargermakeupinpricesasaresultofmoreaggressiveselling）.Depreciationexpensewillremainat$10,000.However,moreautomobileswillhavetobecarriedininventorytosatisfycustomers,andinterestexpensewillgoupto$15,000.Thefirm'staxratewillremainat30percent.ComputerevisedearningsaftertaxesbasedonMs.Hood'ssuggestionsforCarrAutoWholesalers.Willherideasincreaseordecreaseprofitability?

Solution:

CarrAutoWholesalers

IncomeStatement

a.Sales$900,000

Costofgoodsold（65%ofsales）585,000

Grossprofit315,000

Sellingandadministrativeexpense

（9%ofsales）81,000

Depreciation10,000

Operatingprofit224,000

Interestexpense8,000

Earningsbeforetaxes216,000

Taxes@30%64,800

Earningsaftertaxes$151,200

2-7Continued

b.Sales$1,000,0