Fin515 – problem set – week -1

Week 1 Problem Set

Answer the following questions and solve the following problems in the space provided. When you are done, save the file in the format flastname_Week_1_Problem_Set.docx, where flastname is your first initial and you last name, and submit it to the appropriate dropbox.

Chapter 1 (page 19)

1.

What is the most important difference between a corporation and all other organizational forms?

 

2.

What does the phrase limited liability mean in a corporate context?

 

3.

Which organizational forms give their owners limited liability?

 

4.

What are the main advantages and disadvantages of organizing a firm as a corporation?

 

5.

Explain the difference between an S corporation and a C corporation.

 

Chapter 2

The following is provided for use in answering the next set of questions. You may also find table 2.5 on page 53 of your text and all questions on pages 56–57.

TABLE 2.5 2009–2013 Financial Statement Data and Stock Price Data for Mydeco Corp.

Mydeco Corp. 2009–2013

(All data as of fiscal year end; in $ million)

Income Statement

2009

2010

2011

2012

2013

Revenue

Cost of Goods Sold

404.3

(188.3)

363.8

(173.8)

424.6

(206.2)

510.7

(246.8)

604.1

(293.4)

   Gross Profit

Sales and Marketing

Administration

Depreciation and Amortization

216.0

(66.7)

(60.6)

(27.3)

190.0

(66.4)

(59.1)

(27.0)

218.4

(82.8)

(59.4)

(34.3)

263.9

(102.1)

(66.4)

(38.4)

310.7

(120.8)

(78.5)

(38.6)

   EBIT

Interest Income (Expense)

 61.4

(33.7)

37.5

(32.9)

41.9

(32.2)

57.0

(37.4)

72.8

(39.4)

   Pretax Income

Income Tax

 27.7

  (9.7)

4.6

(1.6)

9.7

(3.4)

19.6

(6.9)

33.4

(11.7)

   Net Income

   Shares outstanding (millions)

   Earnings per share

 18.0

 55.0

 $0.33

3.0

55.0

$0.05

6.3

55.0

$0.11

12.7

55.0

$0.23

21.7

55.0

$0.39

Balance Sheet

2009

2010

2011

2012

2013

Assets

Cash

Accounts Receivable

Inventory

 

48.8

88.6

33.7

 

68.9

69.8

30.9

 

86.3

69.8

28.4

 

77.5

76.9

31.7

 

85.0

86.1

35.3

   Total Current Assets

Net Property, Plant, and Equip.

Goodwill and Intangibles

171.1

245.3

361.7

169.6

169.6

243.3

184.5

309

361.7

186.1

345.6

361.7

206.4

347.0

361.7

   Total Assets

Liabilities and Stockholders’ Equity

Accounts Payable

Accrued Compensation

778.1

 

18.7

 6.7

774.6

 

17.9

6.4

855.2

 

22.0

7.0

893.4

 

26.8

8.1

915.1

 

31.7

9.7

   Total Current Liabilities

Long-term Debt

25.4

500.0

24.3

500.0

29.0

575.0

34.9

600.0

41.4

600.0

   Total Liabilities

Stockholders’ Equity

525.4

252.7

524.3

250.3

604.0

251.2

634.9

258.5

641.4

273.7

   Total Liabilities and Stockholders’ Equity

778.1

774.6

855.2

893.4

915.1

Statement of Cash Flows

2009

2010

2011

2012

2013

Net Income

Depreciation and Amortization

Chg. in Accounts Receivable

Chg. in Inventory

Chg. in Payables and Accrued Comp.

18.0

27.3

3.9

(2.9)

2.2

3.0

27.0

18.8

2.8

(1.1)

6.3

34.3

(0.0)

2.5

4.7

12.7

38.4

(7.1)

(3.3)

5.9

21.7

38.6

(9.2)

(3.6)

6.5

   Cash from Operations

Capital Expenditures

48.5

(25.0)

50.5

(25.0)

47.8

(100.0)

46.6

(75.0)

54.0

(40.0)

   Cash from Investing Activities

Dividends Paid

Sale (or purchase) of stock

Debt Issuance (Pay Down)

(25.0)

(5.4)

(25.0)

(5.4)

(100.0)

(5.4)

75.0

(75.0)

(5.4)

25.0

(40.0)

(6.5)

   Cash from Financing Activities

(5.4)

(5.4)

69.6

19.6

(6.5)

Change in Cash

18.1

20.1

17.4

(8.8)

7.5

Mydeco Stock Price

$7.92

$3.30

$5.25

$8.71

$10.89

 

29.

In fiscal year 2011, Starbucks Corporation (SBUX) had revenue of $11.70 billion, gross profit of $6.75 billion, and net income of $1.25 billion. Peet’s Coffee and Tea (PEET) had revenue of $372 million, gross profit of $72.7 million, and net income of $17.8 million.

  • a. Compare the gross margins for Starbucks and Peet’s.
  • b. Compare the net profit margins for Starbucks and Peet’s.
  • c. Which firm was more profitable in 2011?

 

31.

See Table 2.5 showing financial statement data and stock price data for Mydeco Corp.

·         a. How did Mydeco’s accounts receivable days change over this period?

·         b. How did Mydeco’s inventory days change over this period?

·         c. Based on your analysis, has Mydeco improved its management of its working capital during this time period?

 

32.

See Table 2.5 showing financial statement data and stock price data for Mydeco Corp.

·         a. Compare Mydeco’s accounts payable days in 2009 and 2013.

·         b. Did this change in accounts payable days improve or worsen Mydeco’s cash position in 2013?

 

33.

See Table 2.5 showing financial statement data and stock price data for Mydeco Corp.

 

  • a. By how much did Mydeco increase its debt from 2009 to 2013?
  • b. What was Mydeco’s EBITDA/Interest coverage ratio in 2009 and 2013? Did its coverage ratio ever fall below 2?
  • c. Overall, did Mydeco’s ability to meet its interest payments improve or decline over this period?

 

 

 

42.

For fiscal year 2011, Starbucks Corporation (SBUX) had total revenues of $11.70 billion, net income of $1.25 billion, total assets of $7.36 billion, and total shareholder’s equity of $4.38 billion.

  • a. Calculate the Starbucks’ ROE directly, and using the DuPont Identity.
  • b. Comparing with the data for Peet’s in Problem 41, use the DuPont Identity to understand the difference between the two firms’ ROEs.

 

 

 

Berk, J., & DeMarzo, P. (2014). Corporate Finance. Boston, MA: Pearson.

 

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