Solved by verified expert :2.Corporate Tax Liability

To complete the assignments listed below, refer

to theTable 2-1.

The Talley Corporation had a taxable income of

$300,000 from operations after all operating costs but before (1) interest

charges of $30,000, (2) dividends received of $18,000, (3) dividends paid of

$18,000, and (4) income taxes.

What are the firm’s income tax liability and its

after-tax income? Round your answers to two decimal places.

Income tax liability

$

After-tax income

$

3.Balance Sheet Analysis

Complete the balance sheet and sales

information in the table that follows for J. White Industries using the

following financial data:

Total assets turnover: 2.1

Gross profit margin on sales: (Sales – Cost of goods sold)/Sales = 24%

Total liabilities-to-assets ratio: 35%

Quick ratio: 1.05

Days sales outstanding (based on 365-day year): 36 days

Inventory turnover ratio: 3.0

Round your answers to the nearest whole

dollar.

Partial Income

Statement

Information

Sales

$

Cost of goods sold

$

Balance Sheet

Cash

$

Accounts payable

$

Accounts receivable

$

Long-term debt

$ 50,000

Inventories

$

Common stock

$

Fixed assets

$

Retained earnings

$ 100,000

Total assets

$ 400,000

Total liabilities and equity

$

4. PV and Effective Annual Rate

Assume that you inherited some money.

A friend of yours is working as an unpaid intern at a local brokerage firm, and

her boss is selling securities that call for 4 payments of $50 (1 payment at

the end of each of the next 4 years) plus an extra payment of $1,000 at the end

of Year 4. Your friend says she can get you some of these securities at a cost

of $950 each. Your money is now invested in a bank that pays an 12% nominal

(quoted) interest rate but with quarterly compounding. You regard the

securities as being just as safe, and as liquid, as your bank deposit, so your

required effective annual rate of return on the securities is the same as that

on your bank deposit. You must calculate the value of the securities to decide

whether they are a good investment. What is their present value to you? Round

your answer to the nearest cent.

$

5.Amortization Schedule

a.

Set up an amortization schedule

for a $15,000 loan to be repaid in equal installments at the end of each of the

next 5 years. The interest rate is 12%. Round your answers to the nearest cent.

Enter “0” if required

Year

Payment

Repayment Interest

Repayment of Principal

Balance

1

$

$

$

$

2

$

$

$

$

3

$

$

$

$

4

$

$

$

$

5

$

$

$

$

Total

$

$

$

b. How large must each annual payment be if the loan is for $30,000?

Assume that the interest rate remains at 12% and that the loan is paid off over

5 years. Round your answer to the nearest cent.

$

c.

How large must each payment

be if the loan is for $30,000, the interest rate is 12%, and the loan is paid

off in equal installments at the end of each of the next 10 years? This loan is

for the same amount as the loan in part b, but the payments are spread out over

twice as many periods. Round your answer to the nearest cent.

$

6. Free Cash Flows

Rhodes Corporation: Income

Statements for Year Ending December 31 (Millions of Dollars)

2013

2012

Sales

$8,450.0

$6,500.0

Operating costs excluding depreciation

6,971.0

5,525.0

Depreciation and amortization

203.0

163.0

Earnings before interest and taxes

$1,276.0

$812.0

Less: Interest

182.0

140.0

Pre-tax income

$1,094.0

$672.0

Taxes (40%)

437.6

268.8

Net income available to common stockholders

$656.4

$403.2

Common dividends

$591.0

$323.0

Rhodes Corporation: Balance

Sheets as of December 31 (Millions of Dollars)

2013

2012

Assets

Cash

$86.0

$78.0

Short-term investments

43.0

33.0

Accounts receivable

894.0

715.0

Inventories

2,028.0

1,560.0

Total current assets

$3,051.0

$2,386.0

Net plant and equipment

2,031.0

1,625.0

Total assets

$5,082.0

$4,011.0

Liabilities and Equity

Accounts payable

$468.0

$390.0

Accruals

215.0

195.0

Notes payable

169.0

130.0

Total current liabilities

$852.0

$715.0

Long-term bonds

1,690.0

1,300.0

Total liabilities

$2,542.0

$2,015.0

Common stock

2,354.6

1,876.0

Retained earnings

185.4

120.0

Total common equity

$2,540.0

$1,996.0

Total liabilities and equity

$5,082.0

$4,011.0

Using Rhodes Corporation’s financial statements

(shown above), answer the following questions.

a. What is the net operating profit after taxes (NOPAT) for 2013?

Enter your answer in millions. For example, an answer of $1.2 million should be

entered as 1.2, not 1,200,000. Round your answer to one decimal place.

$ million

b. What are the amounts of net operating working capital for both

years? Enter your answer in millions. For example, an answer of $1.2 million

should be entered as 1.2, not 1,200,000. Round your answers to one decimal

place.

2013 $ million

2012 $ million

c. What are the amounts of total net operating capital for both

years? Enter your answer in millions. For example, an answer of $1.2 million

should be entered as 1.2, not 1,200,000. Round your answers to one decimal

place.

2013 $ million

2012 $ million

d. What is the free cash flow for 2013? Enter your answer in

millions. For example, an answer of $1.2 million should be entered as 1.2, not

1,200,000. Round your answer to one decimal place.

$ million

e. What is the ROIC for 2013? Round your answer to two decimal

places.

%

f.

How much of the FCF did

Rhodes use for each of the following purposes: after-tax interest, net debt

repayments, dividends, net stock repurchases, and net purchases of short-term

investments? (Hint:Remember that a net use can be negative.) Enter your answer in

millions. For example, an answer of $1.2 million should be entered as 1.2, not

1,200,000. Round your answers to one decimal place.

After-tax interest payment

$ million

Reduction (increase) in debt

$ million

Payment of dividends

$ million

Repurchase (Issue) stock

$ million

Purchase (Sale) of short-term investments

$ million

7.Future Value of an Annuity for Various

Compounding Periods

Find the future values of the following ordinary

annuities:

a. FV of $600 paid each 6 months for 5 years at a nominal rate of

16%, compounded semiannually. Round your answer to the nearest cent.

$

b. FV of $300 paid each 3 months for 5 years at a nominal rate of

16%, compounded quarterly. Round your answer to the nearest cent.

$

9.Comprehensive Ratio Analysis

Data for Lozano Chip Company and its industry averages

follow.

Lozano Chip Company: Balance Sheet as of December 31, 2013

(Thousands of Dollars)

Cash

$ 225,000

Accounts payable

$601,866

Receivables

1,575,000

Notes payable

326,634

Inventories

1,125,000

Other current liabilities

525,000

Total current assets

$2,925,000

Total current liabilities

$1,453,500

Net fixed assets

1,350,000

Long-term debt

1,068,750

Common equity

1,752,750

Total assets

$4,275,000

Total liabilities and equity

$4,275,000

Lozano Chip Company: Income Statement for Year Ended

December 31, 2013 (Thousands of Dollars)

Sales

$7,500,000

Cost of goods sold

6,375,000

Selling general and administrative expenses

825,000

Earnings before interest and taxes (EBIT)

$ 300,000

Interest expense

111,631

Earnings before taxes (EBT)

$ 188,369

Federal and state income taxes (40%)

75,348

Net income

$ 113,022

a.

Calculate the indicated ratios for

Lozano. Round your answers to two decimal places.

Ratio

Lozano

Industry Average

Current assets/Current liabilities

2.0

Days sales outstanding*

days

35.0 days

COGS/Inventory

6.7

Sales/Fixed assets

12.1

Sales/Total assets

3.0

Net income/Sales

%

1.2%

Net income/Total assets

%

3.6%

Net income/Common equity

%

9.0%

Total debt/Total assets

%

30.0%

Total liabilities/Total assets

%

60.0%

*Calculation is based on a 365-day year.

b.

Construct the extended Du Pont

equation for both Lozano and the industry. Round your answers to two decimal

places.

For the firm, ROE is

%

For the industry, ROE is

%

c. Outline Lozano’s strengths and weaknesses as revealed by your

analysis