Answer questions 28-30 based on the following information: &nb
Answer questions 28-30 based on the following information:
2017 2020
EBITDA 900 1100
28. Assume that in 2017 the company was purchased for an 8x multiple, using $2400 of debt. Assume that in 2020 the company is sold for an 8x multiple, and there was still $2,400 of debt outstanding when the company was sold. What is the equity return?
29. Now assume that the company was purchased for an 8x multiple in 2017, but in this case $4,500 of debt was used. Assume that in 2020 the company is sold for an 8x multiple, and there is still $4,500 of debt outstanding when the company is sold. What is the equity return?
30. Explain why the equity returns in 28 and 29 above are different. What impact did financial leverage have on equity returns?
Homework Answers
USE THE FOLLOWING INFORMATION TO CONSTRUCT A BALANCE SHEET TO ANSWER QUESTIONS 28 through 30 $...
USE THE FOLLOWING INFORMATION TO CONSTRUCT A BALANCE SHEET TO ANSWER QUESTIONS 28 through 30 $ 320,000 30% 4X Sales Gross profit margin Inventory turnover ratio (Cost of goods sold/Inventory) Net profit margin Average collection period Return on equity Accumulated depreciation Return on assets Accounts payable days Notes payable Gross fixed assets Percent of sales on credit (remainder are cash sales) 25% 15,000 12.5% $ 1,800 48,000 75% NOTE: Assume a 360 day year for all ratios, etc. Assume that...
USE THE FOLLOWING INFORMATION TO CONSTRUCT A BALANCE SHEET TO ANSWER QUESTIONS 28 through 30 $...
USE THE FOLLOWING INFORMATION TO CONSTRUCT A BALANCE SHEET TO ANSWER QUESTIONS 28 through 30 $ 2,000,000 20% 25 4% 45 Sales Gross profit margin Inventory turnover ratio (Cost of goods sold/Inventory) Net profit margin Average collection period Return on equity Accumulated depreciation Return on assets Accounts payable days Notes payable Gross fixed assets Percent of sales on credit (remainder are cash sales) $ 25% 75,000 12.5% $ $ 18,000 400,000 80% NOTE: Assume a 360 day year for all...
1.4 Consider the following financial information for a company (in millions of dollars) Partial income statement...
1.4 Consider the following financial information for a company (in millions of dollars) Partial income statement (latest year ending December 31, 2017): Sales $900 Cost of goods sold ($350) Other expenses ($200) Depreciation ($120) Interest expenses ($30) Partial balance sheet (as of December 31) 2016 2017 Cash $30 $20 Receivables $200 $250 Inventories $220 $210 Net fixed assets $500 $520 Accounts payable $100 $120 Accruals $80 $100 Short-term debt $50 $10 Long-term debt $270 $270 a) Assuming an income...
1.4 Consider the following financial information for a company (in millions of dollars) Partial income statement...
1.4 Consider the following financial information for a company (in millions of dollars) Partial income statement (latest year ending December 31, 2017): Sales $900 Cost of goods sold ($350) Other expenses ($200) Depreciation ($120) Interest expenses ($30) Partial balance sheet (as of December 31) 2016 2017 Cash $30 $20 Receivables $200 $250 Inventories $220 $210 Net fixed assets $500 $520 Accounts payable $100 $120 Accruals $80 $100 Short-term debt $50 $10 Long-term debt $270 $270 Net income after taxes...
Required information (The following information applies to the questions displayed below.] The September 30 bank statement...
Required information (The following information applies to the questions displayed below.] The September 30 bank statement for Cadieux Company and the September ledger account for cash are summarized here: BANK STATEMENT Checks Deposits Other NSF check $ 100 $3,300 Balance, September 1 September 7 September 11 September 12 September 17 September 26 September 29 September 30 Balance $2,200 2,100 5,400 4,500 2,600 #101 #102 #103 $ 900 1,900 2,400 200 400 EFT deposit Service charge 200 20 380 Balance Sep...
Read the following prompt and then answer the following questions: 29. You work as a financial...
Read the following prompt and then answer the following questions: 29. You work as a financial analyst for a new subsidiary of Coca-Cola and you are analyzing the new firm’s capital structure. As you move through the data you try to answer the following to your boss You propose using no debt in the capital structure . Total invested capital is 50 million, Net income is 8 million and outstanding shares are 10 million. What are the EPS and ROE...
Use the following information about Company X to help answer questions 14-20 Company X went public...
Use the following information about Company X to help answer questions 14-20 Company X went public at the start of 2017. At the time of the IPO the company: Issued 200M shares of stock at $25 per share (thus raising $500M in equity) Issued $400M of long term debt; as part of this interest only loan, the company agreed to pay creditors 15.0% per year; this implies the current portion of long term debt is $0 in 2017/20l 8 At...
QUESTION 21 During April 2020, a company had the following transactions: Credit sales of $2,400 (cost...
QUESTION 21 During April 2020, a company had the following transactions: Credit sales of $2,400 (cost of goods sold $1,000). Received $300 from a customer for services that will be provided in May. Purchased inventory for $4,500, paid $2,700 and the rest will be paid in 30 days. Purchased and paid $560 for supplies still on hand. Paid $960 in wages. Profit for April 2020 according to accrual accounting is: A. $440 B. $180 C. $740 D. None of the...
28. Between December 2016 and December 2017, Widget Company’s market capitalization: Increased by $332M Increased by...
28. Between December 2016 and December 2017, Widget Company’s
market capitalization:
Increased by $332M
Increased by $200M
Increased by $156M
Decreased by $156M
Decreased by $200M
29. At the end of 2016, Widget Company’s P/E is closest to:
a. 7.2 b. 8.0 c. 14.4 d. 15.0 e. 16.0
30. During 2017, Widget Company __________.
HINT: BOY SE + NI – DIVS + Equity Issued – Equity Repurchased = EOY
SE 23
Net borrowing was $200M and shares outstanding were repurchased...
Required information [The following information applies to the questions displayed below.] The September 30 bank statement...
Required information [The following information applies to the questions displayed below.] The September 30 bank statement for Cadieux Company and the September ledger account for cash are summarized here: BANK STATEMENT Checks Deposits Other NSF check $ 90 $ 2,700 Balance, September 1 September 7 September 11 September 12 September 17 September 26 September 29 September 30 #101 #102 #103 $ 700 1,500 2,200 Balance $1,800 1,710 4,410 3,710 2,210 10 110 100 EFT deposit Service charge 100 10 Balance...
USE THE FOLLOWING INFORMATION TO CONSTRUCT A BALANCE SHEET TO ANSWER QUESTIONS 28 through 30 $ 320,000 30% 4X Sales Gross profit margin Inventory turnover ratio (Cost of goods sold/Inventory) Net profit margin Average collection period Return on equity Accumulated depreciation Return on assets Accounts payable days Notes payable Gross fixed assets Percent of sales on credit (remainder are cash sales) 25% 15,000 12.5% $ 1,800 48,000 75% NOTE: Assume a 360 day year for all ratios, etc. Assume that...
USE THE FOLLOWING INFORMATION TO CONSTRUCT A BALANCE SHEET TO ANSWER QUESTIONS 28 through 30 $ 2,000,000 20% 25 4% 45 Sales Gross profit margin Inventory turnover ratio (Cost of goods sold/Inventory) Net profit margin Average collection period Return on equity Accumulated depreciation Return on assets Accounts payable days Notes payable Gross fixed assets Percent of sales on credit (remainder are cash sales) $ 25% 75,000 12.5% $ $ 18,000 400,000 80% NOTE: Assume a 360 day year for all...
Required information (The following information applies to the questions displayed below.] The September 30 bank statement for Cadieux Company and the September ledger account for cash are summarized here: BANK STATEMENT Checks Deposits Other NSF check $ 100 $3,300 Balance, September 1 September 7 September 11 September 12 September 17 September 26 September 29 September 30 Balance $2,200 2,100 5,400 4,500 2,600 #101 #102 #103 $ 900 1,900 2,400 200 400 EFT deposit Service charge 200 20 380 Balance Sep...
Use the following information about Company X to help answer questions 14-20 Company X went public at the start of 2017. At the time of the IPO the company: Issued 200M shares of stock at $25 per share (thus raising $500M in equity) Issued $400M of long term debt; as part of this interest only loan, the company agreed to pay creditors 15.0% per year; this implies the current portion of long term debt is $0 in 2017/20l 8 At...
QUESTION 21 During April 2020, a company had the following transactions: Credit sales of $2,400 (cost of goods sold $1,000). Received $300 from a customer for services that will be provided in May. Purchased inventory for $4,500, paid $2,700 and the rest will be paid in 30 days. Purchased and paid $560 for supplies still on hand. Paid $960 in wages. Profit for April 2020 according to accrual accounting is: A. $440 B. $180 C. $740 D. None of the...
28. Between December 2016 and December 2017, Widget Company’s
market capitalization:
Increased by $332M
Increased by $200M
Increased by $156M
Decreased by $156M
Decreased by $200M
29. At the end of 2016, Widget Company’s P/E is closest to:
a. 7.2 b. 8.0 c. 14.4 d. 15.0 e. 16.0
30. During 2017, Widget Company __________.
HINT: BOY SE + NI – DIVS + Equity Issued – Equity Repurchased = EOY
SE 23
Net borrowing was $200M and shares outstanding were repurchased...
Required information [The following information applies to the questions displayed below.] The September 30 bank statement for Cadieux Company and the September ledger account for cash are summarized here: BANK STATEMENT Checks Deposits Other NSF check $ 90 $ 2,700 Balance, September 1 September 7 September 11 September 12 September 17 September 26 September 29 September 30 #101 #102 #103 $ 700 1,500 2,200 Balance $1,800 1,710 4,410 3,710 2,210 10 110 100 EFT deposit Service charge 100 10 Balance...
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