Finance and Value Creation

Finance and Value Creation

Problem One

  1. Value of Jones Incorporated Stockholder’s Equity

Stock holders’ equity = Total Assets – Total liabilities

Jones, Incorporated total assets = Net fixed assets + net current assets

= $22, 500 + $8, 200

=$30, 700

Total liabilities = current liabilities + long-term liabilities

= $6, 400 + $12, 500

= $18, 900

Stock holders’ equity = $ 30, 700 – $18, 900

= $11, 800

  1. Value Of Jones Incorporated Networking Capital

Net working capital = current assets – current liabilities

Jones, Incorporated current assets = $8, 200

Jones, Incorporated total current liabilities = $6, 400

Jones, Incorporated net working capital = $8, 200 – $6, 400 = $1, 800

Problem Two

  1. Tanner Incorporated Net income
Tanner Incorporated
Income statement
Sales $863,000
cost of sales $407,000
gross profit $456,000
depreciation expenses $58,000
Interest expense $23,600
net income before tax $374,400
Tax (35%) $131,040
Net income After tax $243,360

 

  1. Tanner Incorporated Increase In Retained Earnings
Net income After tax $243,360
Cash Dividend $77, 000
Increase in retained earnings $166,360

Problem Three

Willard incorporated operating cash flow

Willard Incorporated
Operating cash flow
Sales $26,400
cost of sales $9,400
Gross profit $17,000
Depreciation $1,500
Interest expense $925
income before tax $14,575
Tax (0.4) $5,830.0
Net Income after tax $8,745.0
Net cash flow
Net Income after tax $8,745.0
Depreciation $1,500
net cash flow $10,245.0

Problem Four

  1. Drake Company Equity Multiplier

Equity multiplier = total assets/stockholder’s equity

Drake total liabilities = $875, 000 * 0.85 = $743750

Total assets = equity + liability = $743750 + $875, 000 = $1, 618, 750

Equity multiplier = $1, 618, 750/$875, 000

=1.85

  1. Drake Company Return On Equity

Return on equity = (10.75% *$1, 618, 750)/ /$875, 000

= 19.89%

  1. Drake Company Net Income

Net income = 10.75% *$1, 618, 750

= $174, 015.63

Problem Five

GTS Corporation Sustainable Growth Rate

SGR = ROE x (1 – dividend-payout ratio)

= 12% * (1 – 30%)

= 8.4%

Problem Six

The Conrad Company…………………….

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