公司理财CorporateFinance第九版CASE答案

1、case solutionsfundamentals of corporate financeross, westerfield, and jordan9th editionchapter 1the mcgee cake company1.the advantages to a llc are: 1) reduction of personal liability. a sole proprietor has unlimited liability, which can include the potential loss of all personal assets. 2) taxes. f

2、orming an llc may mean that more expenses can be considered business expenses and be deducted from the companys income. 3) improved credibility. the business may have increased credibility in the business world compared to a sole proprietorship. 4) ability to attract investment. corporations, even l

3、lcs, can raise capital through the sale of equity. 5) continuous life. sole proprietorships have a limited life, while corporations have a potentially perpetual life. 6) transfer of ownership. it is easier to transfer ownership in a corporation through the sale of stock.the biggest disadvantage is t

4、he potential cost, although the cost of forming a llc can be relatively small. there are also other potential costs, including more expansive record-keeping.2.forming a corporation has the same advantages as forming a llc, but the costs are likely to be higher.3.as a small company, changing to a llc

5、 is probably the most advantageous decision at the current time. if the company grows, and doc and lyn are willing to sell more equity ownership, the company can reorganize as a corporation at a later date. additionally, forming a llc is likely to be less expensive than forming a corporation.chapter

6、 2cash flows and financial statements at sunset boardsbelow are the financial statements that you are asked to prepare.1.the income statement for each year will look like this:income statement20082009sales$247,259$301,392cost of goods sold126,038159,143selling & administrative24,78732,352depreciatio

7、n35,58140,217ebit$60,853$69,680interest7,7358,866ebt$53,118$60,814taxes10,62412,163net income$42,494$48,651dividends$21,247$24,326addition to retained earnings21,24724,3262.the balance sheet for each year will be:balance sheet as of dec. 31, 2008cash$18,187 accounts payable $32,143accounts receivabl

8、e12,887 notes payable 14,651inventory27,119 current liabilities $46,794current assets$58,193 long-term debt $79,235net fixed assets$156,975 owners equity 89,139total assets$215,168 total liab. & equity $215,168in the first year, equity is not given. therefore, we must calculate equity as a plug vari

9、able. since total liabilities & equity is equal to total assets, equity can be calculated as: equity = $215,168 46,794 79,235 equity = $89,139balance sheet as of dec. 31, 2009cash$27,478 accounts payable $36,404accounts receivable16,717 notes payable 15,997inventory37,216 current liabilities $52,401

10、current assets$81,411 long-term debt $91,195net fixed assets$191,250 owners equity 129,065total assets$272,661 total liab. & equity $272,661the owners equity for 2009 is the beginning of year owners equity, plus the addition to retained earnings, plus the new equity, so:equity = $89,139 + 24,326 + 1

11、5,600equity = $129,0653.using the ocf equation:ocf = ebit + depreciation taxesthe ocf for each year is:ocf2008 = $60,853 + 35,581 10,624 ocf2008 = $85,180ocf2009 = $69,680 + 40,217 12,163 ocf2009 = $97,7344.to calculate the cash flow from assets, we need to find the capital spending and change in ne

12、t working capital. the capital spending for the year was:capital spendingending net fixed assets$191,250 beginning net fixed assets156,975+ depreciation40,217 net capital spending$74,492and the change in net working capital was:change in net working capitalending nwc$29,010 beginning nwc 11,399 chan

13、ge in nwc$17,611so, the cash flow from assets was:cash flow from assetsoperating cash flow$97,734 net capital spending74,492 change in nwc 17,611 cash flow from assets$ 5,6315.the cash flow to creditors was:cash flow to creditorsinterest paid $8,866 net new borrowing 11,960 cash flow to creditors $3

14、,0946.the cash flow to stockholders was:cash flow to stockholdersdividends paid $24,326 net new equity raised15,600 cash flow to stockholders$8,726answers to questions1.the firm had positive earnings in an accounting sense (ni 0) and had positive cash flow from operations. the firm invested $17,611

15、in new net working capital and $74,492 in new fixed assets. the firm gave $5,631 to its stakeholders. it raised $3,094 from bondholders, and paid $8,726 to stockholders.2.the expansion plans may be a little risky. the company does have a positive cash flow, but a large portion of the operating cash

16、flow is already going to capital spending. the company has had to raise capital from creditors and stockholders for its current operations. so, the expansion plans may be too aggressive at this time. on the other hand, companies do need capital to grow. before investing or loaning the company money,

17、 you would want to know where the current capital spending is going, and why the company is spending so much in this area already.chapter 3ratios analysis at s&s air1.the calculations for the ratios listed are:current ratio = $2,186,520 / $2,919,000 current ratio = 0.75 timesquick ratio = ($2,186,25

18、0 1,037,120) / $2,919,000 quick ratio = 0.39 timescash ratio = $441,000 / $2,919,000 cash ratio = 0.15 timestotal asset turnover = $30,499,420 / $18,308,920 total asset turnover = 1.67 timesinventory turnover = $22,224,580 / $1,037,120 inventory turnover = 21.43 timesreceivables turnover = $30,499,4

19、20 / $708,400 receivables turnover = 43.05 timestotal debt ratio = ($18,308,920 10,069,920) / $18,308,920 total debt ratio = 0.45 timesdebt-equity ratio = ($2,919,000 + 5,320,000) / $10,069,920 debt-equity ratio = 0.82 timesequity multiplier = $18,308,920 / $10,069,920 equity multiplier = 1.82 times

20、times interest earned = $3,040,660 / $478,240 times interest earned = 6.36 timescash coverage = ($3,040,660 + 1,366,680) / $478,420 cash coverage = 9.22 timesprofit margin = $1,537,452 / $30,499,420 profit margin = 5.04%return on assets = $1,537,452 / $18,308,920 return on assets = 8.40%return on eq

21、uity = $1,537,452 / $10,069,920 return on equity = 15.27% 2. boeing is probably not a good aspirant company. even though both companies manufacture airplanes, s&s air manufactures small airplanes, while boeing manufactures large, commercial aircraft. these are two different markets. additionally, bo

22、eing is heavily involved in the defense industry, as well as boeing capital, which finances airplanes. bombardier is a canadian company that builds business jets, short-range airliners and fire-fighting amphibious aircraft and also provides defense-related services. it is the third largest commercia

23、l aircraft manufacturer in the world. embraer is a brazilian manufacturer than manufactures commercial, military, and corporate airplanes. additionally, the brazilian government is a part owner of the company. bombardier and embraer are probably not good aspirant companies because of the diverse ran

24、ge of products and manufacture of larger aircraft.cirrus is the worlds second largest manufacturer of single-engine, piston-powered aircraft. its sr22 is the worlds best selling plane in its class. the company is noted for its innovative small aircraft and is a good aspirant company. cessna is a wel

25、l known manufacturer of small airplanes. the company produces business jets, freight- and passenger-hauling utility caravans, personal and small-business single engine pistons. it may be a good aspirant company, however, its products could be considered too broad and diversified since s&s air produc

26、es only small personal airplanes.3.s&s is below the median industry ratios for the current and cash ratios. this implies the company has less liquidity than the industry in general. however, both ratios are above the lower quartile, so there are companies in the industry with lower liquidity ratios

27、than s&s air. the company may have more predictable cash flows, or more access to short-term borrowing. if you created an inventory to current liabilities ratio, s&s air would have a ratio that is lower than the industry median. the current ratio is below the industry median, while the quick ratio i

28、s above the industry median. this implies that s&s air has less inventory to current liabilities than the industry median. s&s air has less inventory than the industry median, but more accounts receivable than the industry since the cash ratio is lower than the industry median.the turnover ratios ar

29、e all higher than the industry median; in fact, all three turnover ratios are above the upper quartile. this may mean that s&s air is more efficient than the industry.the financial leverage ratios are all below the industry median, but above the lower quartile. s&s air generally has less debt than c

30、omparable companies, but still within the normal range.the profit margin, roa, and roe are all slightly below the industry median, however, not dramatically lower. the company may want to examine its costs structure to determine if costs can be reduced, or price can be increased.overall, s&s airs pe

31、rformance seems good, although the liquidity ratios indicate that a closer look may be needed in this area. below is a list of possible reasons it may be good or bad that each ratio is higher or lower than the industry. note that the list is not exhaustive, but merely one possible explanation for ea

32、ch ratio.ratiogoodbadcurrent ratiobetter at managing current accounts.may be having liquidity problems.quick ratiobetter at managing current accounts.may be having liquidity problems.cash ratiobetter at managing current accounts.may be having liquidity problems.total asset turnoverbetter at utilizin

33、g assets.assets may be older and depreciated, requiring extensive investment soon.inventory turnoverbetter at inventory management, possibly due to better procedures.could be experiencing inventory shortages.receivables turnoverbetter at collecting receivables.may have credit terms that are too stri

34、ct. decreasing receivables turnover may increase sales.total debt ratioless debt than industry median means the company is less likely to experience credit problems.increasing the amount of debt can increase shareholder returns. especially notice that it will increase roe.debt-equity ratioless debt

35、than industry median means the company is less likely to experience credit problems.increasing the amount of debt can increase shareholder returns. especially notice that it will increase roe.equity multiplierless debt than industry median means the company is less likely to experience credit proble

36、ms.increasing the amount of debt can increase shareholder returns. especially notice that it will increase roe.tiehigher quality materials could be increasing costs.the company may have more difficulty meeting interest payments in a downturn.cash coverageless debt than industry median means the comp

37、any is less likely to experience credit problems.increasing the amount of debt can increase shareholder returns. especially notice that it will increase roe.profit marginthe pm is slightly below the industry median. it could be a result of higher quality materials or better manufacturing.company may

38、 be having trouble controlling costs.roacompany may have newer assets than the industry.company may have newer assets than the industry.roelower profit margin may be a result of higher quality.profit margin and em are lower than industry, which results in the lower roe.chapter 4planning for growth a

39、t s&s air1.to calculate the internal growth rate, we first need to find the roa and the retention ratio, so:roa = ni / ta roa = $1,537,452 / $18,309,920 roa = .0840 or 8.40%b = addition to re / ni b = $977,452 / $1,537,452 b = 0.64now we can use the internal growth rate equation to get:internal grow

40、th rate = (roa b) / 1 (roa b)internal growth rate = 0.0840(.64) / 1 0.0840(.64) internal growth rate = .0564 or 5.64%to find the sustainable growth rate, we need the roe, which is:roe = ni / te roe = $1,537,452 / $10,069,920 roe = .1527 or 15.27%using the retention ratio we previously calculated, th

41、e sustainable growth rate is:sustainable growth rate = (roe b) / 1 (roe b)sustainable growth rate = 0.1527(.64) / 1 0.1527(.64) sustainable growth rate = .1075 or 10.75%the internal growth rate is the growth rate the company can achieve with no outside financing of any sort. the sustainable growth r

42、ate is the growth rate the company can achieve by raising outside debt based on its retained earnings and current capital structure.2.pro forma financial statements for next year at a 12 percent growth rate are:income statementsales $ 34,159,350 cogs 24,891,530other expenses 4,331,600depreciation 1,

43、366,680 ebit $ 3,569,541 interest 478,240 taxable income $ 3,091,301taxes (40%) 1,236,520 net income $ 1,854,780 dividends $ 675,583 add to re 1,179,197balance sheetassetsliabilities & equitycurrent assetscurrent liabilities cash $ 493,920 accounts payable $ 995,680 accounts rec. 793,408 notes payab

44、le 2,030,000 inventory 1,161,574 total cl $ 3,025,680 total ca $ 2,448,902long-term debt $ 5,320,000 shareholder equity common stock $ 350,000 fixed assets retained earnings 10,899,117 net pp&e$ 18,057,088 total equity $ 11,249,117 total assets $ 20,505,990 total l&e $ 19,594,787 so, the efn is:efn

45、= total assets total liabilities and equityefn = $20,505,990 19,594,797 efn = $911,193the company can grow at this rate by changing the way it operates. for example, if profit margin increases, say by reducing costs, the roe increases, it will increase the sustainable growth rate. in general, as lon

46、g as the company increases the profit margin, total asset turnover, or equity multiplier, the higher growth rate is possible. note however, that changing any one of these will have the effect of changing the pro forma financial statements.3.now we are assuming the company can only build in amounts o

47、f $5 million. we will assume that the company will go ahead with the fixed asset acquisition. to estimate the new depreciation charge, we will find the current depreciation as a percentage of fixed assets, then, apply this percentage to the new fixed assets. the depreciation as a percentage of asset

48、s this year was:depreciation percentage = $1,366,680 / $16,122,400depreciation percentage = .0848 or 8.48%the new level of fixed assets with the $5 million purchase will be:new fixed assets = $16,122,400 + 5,000,000 = $21,122,400so, the pro forma depreciation will be:pro forma depreciation = .0848($

49、21,122,400) pro forma depreciation = $1,790,525 we will use this amount in the pro forma income statement. so, the pro forma income statement will be:income statementsales $ 34,159,350 cogs 24,891,530other expenses 4,331,600depreciation 1,790,525 ebit $ 3,145,696 interest 478,240 taxable income $ 2,

50、667,456taxes (40%) 1,066,982 net income $ 1,600,473 dividends $ 582,955add to re 1,017,519the pro forma balance sheet will remain the same except for the fixed asset and equity accounts. the fixed asset account will increase by $5 million, rather than the growth rate of sales. balance sheetassetslia

51、bilities & equitycurrent assetscurrent liabilities cash $ 493,920 accounts payable $ 995,680 accounts rec. 793,408 notes payable 2,030,000 inventory 1,161,574 total cl $ 3,025,680 total ca $ 2,448,902long-term debt $ 5,320,000 shareholder equity common stock $ 350,000 fixed assets retained earnings

52、10,737,439 net pp&e$ 21,122,400 total equity $ 11,087,439 total assets $ 23,571,302 total l&e $ 19,433,119 so, the efn is:efn = total assets total liabilities and equityefn = $23,581,302 19,433,119 efn = $4,138,184since the fixed assets have increased at a faster percentage than sales, the capacity utilization for next year will decrease.chapter 6the mba decision1.age is obviously an important factor.