FIN 311_Exam Review 1_S23_Solutions (1)

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FIN 311 Exam Review Assignment #1 – S23 Names ______________________________________________________________________________ You are welcome to use Excel to do your calculations and copy and paste your answers here. You may work as a team or individually on this exam review assignment. If you work with a team, make sure all names are included on this assignment on the line above. Only one team member needs to submit the assignment on BbLearn. 1. [10 points] You have been given the following information for NAUFIN Company. They have asked you to do trend and comparative analyses and evaluate the financial strength of the company. Compute the ratios below for 2022 (show your work) and provide the required ratio analysis. Ratio Actual 2020 Actual 2021 Actual 2022 Industry Avg Current 1.4 1.55 1.67 1.85 Quick 1 0.92 0.875 1.05 Inventory Turnover 9.52 9.21 7.89 8.6 Debt Ratio 0.2 0.2 0.35 0.3 Times Interest Earned 8.2 7.3 6.5 8 Net Profit Margin 0.062 0.062 0.066 0.053 EPS $1.75 $2.20 3.05 $1.50 2022 information: Sales $10,000,000 Accounts Receivable $800,000 Cost of Goods Sold $7,500,000 Inventory $950,000 Operating Profit (EBIT) $1,300,000 Total Current Assets $2,000,000 Interest Expense $200,000 Total Assets $12,000,000 Net Income $660,000 Total Current Liabilities $1,200,000 Preferred Dividends 50,000 $ Total Liabilities $4,200,000 Earnings Avail for Common Stock $600,000 Common Shareholders $610,000 (200,000 shares outstanding) Current: 2,000,000/1,200,000 = 1.67 Quick: (2,000,000-950,000)/1,200,000 = .875 Inventory Turnover: 7,500,000/950,000 = 7.89 Debt Ratio: 4,200,000/12,000,000 = .35 Times Interest Earned: 1,300,000/200,000 = 6.5 Net Profit Margin: 660,000/10,000,000 = .066 Earnings Per Share: 610,000/200,000 The company’s overall liquidity is improving, but they are not as liquid as their competitors. The declining quick ratio shows that they are increasingly relying on inventory sales to pay their short- term bills. This may become an issue because they are turning over their inventory at a slower rate each year (fewer times per year). The debt ratio has increased showing that they are financing a larger portion of assets with debt. The higher debt ratio is mainly in line with competitor debt usage. The times interest earned is declining likely indicating that their interest expense has increased from the added debt. The added interest expense has reduced their ability to pay interest

FIN 311 Exam Review Assignment #1 – S23 expense below that of their competitors. Net profit margin and EPS have increased showing that the company has done a good job controlling expenses, and they are performing better than their competitors. 2. [6 points] Use the following information from Apple, Inc. financial statements to calculate their Free Cash Flows for 2021 (fiscal year-end 09/30/2021). Use finance.yahoo.com or money.msn.com to access their financial statements . Their ticker symbol is AAPL. EBIT and tax information can be found on the income statement. Calculate the effective tax rate. 2021 EBIT = 111,852,000 EBIT (from income statement) OR 108,949,000 operating income Tax rate (Effective) = Tax provision/Earnings Before Tax = 14,527,000/109,207,000 = .1330 or 13.30% 2021 Depreciation & Amortization = 11,284,000 2021 Investment in Gross Fixed Assets = 6,197,000 2021 NOWC = 65,962,000 2020 NOWC = 90,153,000 Apple 2021 FCF = [111,852,000(1-.1330)+11,284,000] – [6,197,000 + (65,962,000-90,153,000)] = 108,259,684 – (-17,994,000) = $126,253,684 OR FCF = [108,949,000(1-.1330)+11,284,000] – [6,197,000 + (65,962,000-90,153,000)] = 105,742,783 – (-17,994,000) = $123,736,783 SINGLE Persons If the Adjusted Wage Amount (line 1d) is The tentative amount to withhold is… Plus this percentage… of the amount that the wage exceeds… at least… But less than… A B C D E $0 $5,250 $0.00 0% $0 $5,250 $16,250 $0.00 10% $5,250 $16,250 $49,975 $1,100.00 12% $16,250 $49,975 $100,625 $5,147.00 22% $49,975 $100,625 $187,350 $16,290.00 24% $100,625 $187,350 $236,500 $37,104.00 32% $187,350 $236,500 $583,375 $52,832.00 35% $236,500 $583,375 $174,238.25 37% $583,375

FIN 311 Exam Review Assignment #1 – S23 3. ( 6 points ) Use the following information and tax table above to complete parts a-d. Assume you are offered a job with a salary of $47,000 and a bonus of 8% based on your performance during the year. The bonus is taxable income. You will contribute 3% of your salary and bonus to your 401k which results in lower taxable income. a. If you receive your full bonus at the end of the year, what is your total (gross or before tax) pay for the year? Gross pay is $47,000*(1.08) = $50,760 Gross pay less 401k contribution = .97*50760 = $49,237.20 b. What is your marginal tax rate? 12% (this is the bracket for the pay from part a. ) c. Look up the standard deduction for a single taxpayer for 2022. Use this, your salary and bonus information, 401k deduction, and the tax table to determine your tax liability. 2022 Standard Deduction = $12,950 Taxable income = 49237.20 – 12950 = $36,287.50 Tax = [(36287.50 – 16250)*.12] + 1100 = $3,504.46 d. Calculate your effective (average) tax rate? Average tax = 3504.46/49237.20 = .0711 or 7.11% e. Calculate your take-home pay using the gross pay in part a. and the taxes calculated in part c. (ignore employment taxes). Take-home pay = $49,237.20 – 3504.46 = $45,732.74 4. ( 5 points ) Byron Books Inc. recently reported $6 million of net income. Its EBIT was $13.1 million, and its tax rate was 25%. What was its interest expense? (Hint: Write out the headings for an income statement, and then fill in the known values. Then divide $6 million of NI by (1 - T) = 0.75 to find the pretax income. The difference between EBIT and taxable income must be interest expense). EBIT $13,100,000 Interest 13100000-800000 = $5,100,000 EBT 6000000/.75 = $8,000,000 Taxes 8000000*.25 = $2,000,000 Net Income $6,000,000

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FIN 311 Exam Review Assignment #1 – S23 5. ( 8 points ) The assets of Dallas & Associates consist entirely of current assets and net plant and equipment, and the firm has no excess cash. The firm has total assets of $2.6 million and net plant and equipment equals $2.3 million. It has notes payable of $140,000, long-term debt of $750,000, and total common equity of $1.45 million. The firm does have accounts payable and accruals on its balance sheet. The firm only finances with debt and common equity, so it has no preferred stock on its balance sheet. (Hint: Write out the headings for a balance sheet, and then fill in the known values.) a. What is the company’s total debt (total liabilities)? b. What is the amount of total liabilities and equity that appears on the firm's balance sheet? c. What is the balance of current assets on the firm's balance sheet? d. What is the balance of current liabilities on the firm's balance sheet? e. What is the total amount of accounts payable and accruals on its balance sheet? (Hint: Consider this as a single line item on the firm's balance sheet.) Cash A/P and Accruals 400000-140000 = $260,000 Inventory/Accts Rec $300,000 Notes Payable - given $140,000 Total Current Liabilities $300,000 Total Current Liabilities 1150000-750000 - $400,000 Net PP&E - given $2,300,000 Long-term Debt - given $750,000 Total Liabilities $2.6 m – 1.45 m = $1,150,000 Total Common Equity $1,450,000 Total Assets - given $2,600,000 Total Liabilities and Equity $2,600,000