Part B : Answer any 4 of the following questions. Exercise 1 - A firm generated net income...

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Finance

Part B :
Answer any 4 of the following questions.
Exercise 1 -
A firm generated net income of $862. The depreciation expensewas $47 and dividends were paid in the amount of $25. Accountspayables decreased by $13, accounts receivables increased by $28,inventory decreased by $14, and net fixed assets decreased by $8.There was no interest expense. What is the net cash flow fromoperating activity? Explain the usefulness of the net cash flowfrom operating activities in decision making.
Exercise 2:
Following information is extracted from the books of Brox Ltd:a. Current Accounts ? 2017: CA = 18,900; CL = 11,300 ? 2016: CA =14,700; CL = 11,600 b. Fixed Assets and Depreciation ? 2017: NFA =88,100; 2016: NFA = 85,700 ? Depreciation Expense = 1500 c.Long-term Debt and Equity (R.E. not given) ? 2017: LTD = 17,000;Common stock & APIC = 1,400 ? 2016: LTD = 15,650; Common stock& APIC = 1,400 d. Income Statement ? EBIT = 16,000; Taxes =1400 ? Interest Expense = 1,240; Dividends = 1,700 Required: i.Compute the cash flow from asset for Brox Ltd. ii. Comment onusefulness of cash flow from asset in financial decisionmaking.
Exercise 3 :
A firm has sales of $2,190, net income of $174, net fixed assetsof $1,600, and current assets of $720. The firm has $310 ininventory. What is the common-size statement value of inventory?Also explain the implications of common size analysis.
Exercise 4 :
Following financial information is related to Glow Corporationand Blue Corporation: Glow Corporation Blue Corporation 2001 20002001 2000 Current ratios 1.16 .95 2.25 2.17 Working capital $11($2) $30 $28 A/R turnover 31.7 times 45 times 30 times 30 timesInventory Turnover 16.6 times 22.5 times 15 times 15 times Assetturnover 2.4 times 3.2 times 3.6 times 3.8 times Total debt tototal assets 86.9% 81.7% 14.2% 15.4% Sh. Equity to total assets13.1% 18.3% 85.8% 84.6% Gross margin ratio 30% 33% 25% 25% Returnon sales 10% 11.9% 10% 10% Return on assets 24.5% 38.5% 35.5% 38.5%Return on equity 186.3% 210.5% 41.4$ 45.5% Required: Conductfinancial analyses of the two companies on the basis of above dataand deduct which is performing better and why?
Exercise 5:
a. A stock is expected to pay a year-end dividend of $4.00. Thedividend is expected to grow at a rate of 7% a year forever. If thecompany is in equilibrium and its expected and required rate ofreturn is 10%, what is the price of stock? Show all calculations.b. Zello’s preferred stock pays a dividend of $2.00 per months. Ifthe price of the stock is $85.00, what is its nominal (noteffective) annual rate of return? Show all calculations. c.Contrast between preferred and common stock. Discuss which one ofthese two investments is suitable for investors.

Answer & Explanation Solved by verified expert

3.7 Ratings (603 Votes)

NET CASH FLOW FROM OPERATING ACTIVITY Net Income 862 Add Depreciation Expense 47 Non cash Expense hence added back Decrease in Accounts payable See Answer

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Part B :Answer any 4 of the following questions.Exercise 1 -A firm generated net income of $862. The depreciation expensewas $47 and dividends were paid in the amount of $25. Accountspayables decreased by $13, accounts receivables increased by $28,inventory decreased by $14, and net fixed assets decreased by $8.There was no interest expense. What is the net cash flow fromoperating activity? Explain the usefulness of the net cash flowfrom operating activities in decision making.Exercise 2:Following information is extracted from the books of Brox Ltd:a. Current Accounts ? 2017: CA = 18,900; CL = 11,300 ? 2016: CA =14,700; CL = 11,600 b. Fixed Assets and Depreciation ? 2017: NFA =88,100; 2016: NFA = 85,700 ? Depreciation Expense = 1500 c.Long-term Debt and Equity (R.E. not given) ? 2017: LTD = 17,000;Common stock & APIC = 1,400 ? 2016: LTD = 15,650; Common stock& APIC = 1,400 d. Income Statement ? EBIT = 16,000; Taxes =1400 ? Interest Expense = 1,240; Dividends = 1,700 Required: i.Compute the cash flow from asset for Brox Ltd. ii. Comment onusefulness of cash flow from asset in financial decisionmaking.Exercise 3 :A firm has sales of $2,190, net income of $174, net fixed assetsof $1,600, and current assets of $720. The firm has $310 ininventory. What is the common-size statement value of inventory?Also explain the implications of common size analysis.Exercise 4 :Following financial information is related to Glow Corporationand Blue Corporation: Glow Corporation Blue Corporation 2001 20002001 2000 Current ratios 1.16 .95 2.25 2.17 Working capital $11($2) $30 $28 A/R turnover 31.7 times 45 times 30 times 30 timesInventory Turnover 16.6 times 22.5 times 15 times 15 times Assetturnover 2.4 times 3.2 times 3.6 times 3.8 times Total debt tototal assets 86.9% 81.7% 14.2% 15.4% Sh. Equity to total assets13.1% 18.3% 85.8% 84.6% Gross margin ratio 30% 33% 25% 25% Returnon sales 10% 11.9% 10% 10% Return on assets 24.5% 38.5% 35.5% 38.5%Return on equity 186.3% 210.5% 41.4$ 45.5% Required: Conductfinancial analyses of the two companies on the basis of above dataand deduct which is performing better and why?Exercise 5:a. A stock is expected to pay a year-end dividend of $4.00. Thedividend is expected to grow at a rate of 7% a year forever. If thecompany is in equilibrium and its expected and required rate ofreturn is 10%, what is the price of stock? Show all calculations.b. Zello’s preferred stock pays a dividend of $2.00 per months. Ifthe price of the stock is $85.00, what is its nominal (noteffective) annual rate of return? Show all calculations. c.Contrast between preferred and common stock. Discuss which one ofthese two investments is suitable for investors.