MBA Program Financial Management Assignment


MBA Program

Financial Management 

Assignment

Name_________________________________

SHORT ANSWERS.  Write the word or phrase that best completes each statement or answers the question.

 Briefly discuss mechanisms that can be used to align the interests of shareholders and managers.  Found

Takeholders value maximization

Discuss the risk/return tradeoff and how it relates to finance.  found

Working capital

       Table 4

                    Financial Data for Dooley Sportswear, December 31, 1996

Inventory                                             $206,250

Long-term debt                                     300,000

Interest expense                                         5,000

Accumulated depreciation                 442,500

Cash                                                        180,000

Net sales (all credit)                          1,500,000

Common stock                                      800,000

Accounts receivable                            225,000

Operating expenses                              525,000

Notes payable-current                          187,500

Cost of goods sold                                937,500

Plant and equipment                        1,312,500

Accounts payable                                 168,750

Marketable securities                             95,000

Prepaid insurance                                   80,000

Accrued wages                                         65,000

Retained earnings-current-year                       ?

Federal income taxes                                5,750

3)

From the scrambled list of items presented in Table 4, prepare an income statement and a balance sheet for Dooley Sportswear Company.

3)

_____________

4)

Pearls, Inc. had sales in 1993 of $2.1 million. The common stockholders received $400,000 in cash dividends and preferred stockholders were paid $200,000. Interest totaling $150,000 was paid on outstanding debts. Operating expenses totaled $300,000, and cost of goods sold was $500,000. Stock that had been purchased for $50,000 in 1987 was sold for $70,000. What is the tax liability of Pearls, Inc.?

4)

_____________

5)

Baker & Co. has applied for a loan from the Trust Us Bank in order to invest in several potential opportunities. In order to evaluate the firm as a potential debtor, the bank would like to compare Baker & Co. to the industry. The following are the financial statements given to Trust Us Bank:

Balance Sheet                                     12/31/95                12/31/96

Cash                                                              $305                         270

Accounts receivable                                    275                         290

Inventory                                                        600                         580

Current assets                                             1,180                      1,140

Plant and equipment                                1,700                      1,940

Less: acc depr                                             (500)                       (600)

Net plant and equipment                         1,200                      1,340

Total assets                                              $2,380                    $2,480

Liabilities and Owners’ Equity

Accounts payable                                       $150                       $200

Notes payable                                                125                              0

Current liabilities                                         275                         200

Bonds                                                             500                         500

Owners’ equity

Common stock                                              165                         305

Paid-in-capital                                              775                         775

Retained earnings                                         665                         700

Total owners’ equity                                 1,605                      1,780

Total liabilities and owners’ equity     $2,380                    $2,480

Income Statement

Sales (100% credit)                                $1,100                    $1,330

Cost of goods sold                                        600                         760

Gross profit                                                    500                         570

Operating expenses                                        20                            30

Depreciation                                                  160                         200

Net operating income                                  320                         340

Interest expense                                              64                            57

Net income before taxes                              256                         283

Taxes                                                                 87                            96

Net income                                                  $169                       $187

a.     What are the firm’s financial strengths and weaknesses?

b.     Should the bank make the loan? Why or why not?

5)

_____________

6)

McKinny Enterprises must raise $580,000 to pay off a bank loan at the end of the year. The firm expects sales of $5,200,000 for the year. Depreciation for the year is $315,000. The company’s net profit margin is 5%. Can the company pay off its loan through the retention of earnings?

6)

_____________

                                         Table 3

Financial Data for Dooley Sportswear December 31, 1996

Inventory                                                     $206,250

Long-term debt                                             300,000

Interest expense                                                   ,000

Accumulated depreciation                         442,500

Cash                                                                180,000

Net sales (all credit)                                  1,500,000

Common stock                                              800,000

Accounts receivable                                    225,000

Operating expenses                                      525,000

Notes payable-current                                  187,500

Cost of goods sold                                        937,500

Plant and equipment                                1,312,500

Accounts payable                                         168,750

Marketable securities                                     95,000

Prepaid insurance                                           80,000

Accrued wages                                                 65,000

Retained earnings-current-year                               ?

Federal income taxes                                        5,750

7)

From the information presented in Table 3, calculate the following financial ratios for the Dooley Sportswear Company.

current ratio                                          operating profit margin

acid test ratio                                       net profit margin

average collection period                  total tangible asset turnover

inventory turnover                              times interest earned

gross profit margin

7)

_____________

8)

In order to send your oldest child to law school when the time comes, you want to accumulate $40,000 at the end of 18 years. Assuming that your savings account will pay 6% compounded annually, how much would you have to deposit if:

a. you want to deposit an amount annually at the end of each year?

b. you want to deposit one large lump sum today?

If you have an opportunity cost of 10%, how much are you willing to invest each year to have $4,000 accumulated in 10 years?  

Provide an intuitive discussion of beta and its importance for measuring risk.  

Discuss how new entrants are deterred from entering a competitive market.  

Discuss why debt is considered a two-edged sword.  

Discuss the basic functions that budgets perform for a firm.

Frank Zanca is considering three different investments that his broker has offered to him. The different cash flows are as follows:

     End of Year                            A             B             C

1                                   300         400

2                                   300

3                                   300

4                                   300         300         600

5                                   300

6                                   300

7                                   300

8                                   300         600

Because Frank has enough savings for only one investment, his broker has proposed the third alternative to be, according to his expertise, the best in town. However, Frank questions his broker and wants to eliminate the present value of each investment. Assuming a 15% discount rate, what is Frank’s best alternative?

Given the anticipated rate of inflation (i) of 6.3% and the real rate of interest (R) of 4.7%, find the nominal rate of interest (r).  

Briefly discuss why financial decision makers must focus on incremental cash flows when evaluating new projects.

Discuss the limitations of the percent-of-sales forecast method.  

You have just received an endowment of $32,976. You plan to put the entire amount in an account earning 8 percent compounded annually and to withdraw $4000 at the end of each year. How many years can you continue to make the withdrawals?  

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