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.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
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