The Jimenez Corporation’s forecasted 2014 financial statements follow, along with some

industry average ratios. Calculate Jimenez’s 2014 forecasted ratios, compare them with
the industry average data, and comment briefly on Jimenez’s projected strengths and
weaknesses.

Jimenez Corporation: Forecasted Balance Sheet as of December 31, 2014

Assets
Cash 72,000
Accounts receivable 439,000
Inventories 894,000
Total current assets 1,405,000
Fixed assets 431,000
Total assets 1,836,000

Liabilities and Equity

Accounts payable 332,000
Notes payable 100,000
Accruals 170,000
Total current liabilities 602,000
Long-term debt 404,290
Common stock 575,000
Retained earnings 254,710
Total liabilities and equity 1,836,000

Jimenez Corporation: Forecasted Income Statement for 2014

Sales 4,290,000
Cost of goods sold 3,580,000
Selling, general, and administrative expens 370,320
Depreciation and amortization 159,000
Earnings before taxes (EBT) 180,680
Taxes (40%) 72,272
Net income 108,408

Per Share Data

EPS $4.71
Cash dividends per share $0.95
P/E ratio 5.0
Market price (average) $23.57
Number of shares outstanding 23,000

Industry Financial Ratios (2013)a

Quick ratio 1.0
Current ratio 2.7
Inventory turnoverb 7.0
Days sales outstandingc 32.0 days
Fixed assets turnoverb 13.0
Total assets turnoverb 2.6
Return on assets 9.10%
Return on equity 18.20%
Profit margin on sales 3.50%
Debt-to-assets ratio 21.00%
Liabilities-to-assets ratio 50.00%
P/E ratio 6.0
Price/Cash flow ratio 3.5
Market/Book ratio 3.5

aIndustry average ratios have been constant for the past 4 years.
bBased on year-end balance sheet figures.
cCalculation is based on a 365-day year.
Chapter 13 Mini Case

Input Data:
13 14
Year-end common stock price $6.00 $12.17
Year-end shares outstanding (i 100,000 250,000
Tax rate 40% 40%
After-tax cost of capital 0.0% 0.0%
Lease payments $40,000 $40,000

Balance Sheets common size analysis

(in millions of dollars)

Assets 2013 2014 2013

Cash and equivalents $7,282 $14,000 #DIV/0!
Short-term investments $20,000 $71,632 0.69%
Accounts receivable $632,160 $878,000 21.90%
Inventories $1,287,360 $1,716,480 44.60%
Total current assets $1,946,802 $2,680,112 67.44%
Net plant and equipment $939,790 $836,840 32.56%
Total assets $2,886,592 $3,516,952

Liabilities and equity

Accounts payable $324,000 $359,800 13.91%
Notes payable $720,000 $300,000 12.24%
Accruals $284,960 $380,000 12.24%
Total current liabilities $1,328,960 $1,039,800 57.06%
Long-term debt $1,000,000 $500,000 42.94%
Total liabilities $2,328,960 $1,539,800
Preferred stock (400,000 shar $0 $0
Common stock (50,000,000 sh $460,000 $1,680,936
Retained earnings $97,632 $296,216
Total common equity $557,632 $1,977,152
Total liabilities and equity $2,886,592 $3,516,952

Income Statements
(in millions of dollars)
0 0 2013
Net sales $5,834,400.0 $7,035,600.0
Operating costs $4,980,000.0 $5,800,000.0 85.36%
Earnings before interest, taxe $854,400.0 $1,235,600.0 14.64%
Depreciation $0.0 $0.0
Other expenses $720,000.0 $612,960.0
 Depreciation and amortizati $116,960.0 $120,000.0 2.00%
Earnings before interest and t $17,440.0 $502,640.0 0.30%
Less interest $176,000.0 $80,000.0 3.02%
Earnings before taxes (EBT) -$158,560.0 $422,640.0 -2.72%
Taxes (40%) $0.0 $0.0 0.00%
Net income before preferred d $0.0 $0.0
Preferred dividends $0.0 $0.0
Net income available to comm -$95,136.0 $253,584.0 -1.63%
Common dividends $0.0 $0.0
Addition to retained earnings -$95,136.0 $253,584.0 -1.63%

Calculated Data: Operating Performance and Cash Flows

13 14
Net operating working capita $1,205,202.0 $3,128,424.0
Total operating capital $4,091,794.0 $6,645,376.0
Net Operating Profit After Ta $17,440.0 $502,640.0
Net Cash Flow (Net income + D $21,824.0 $373,584.0
Operating Cash Flow (OCF) $134,400.0 $622,640.0
Free Cash Flow (FCF) $2,571,022.0 N/A

Calculated Data: Per-share Information

13 14
Earnings per share (EPS) -$237,840.00 $633,960.00
Dividends per share (DPS) $0.00 $0.00
Book value per share (BVPS) $7,216,480.00 $8,792,380.00
Cash flow per share (CFPS) $54,560.00 $933,960.00
Free cash flow per share (FC $6,427,555.00 N/A

LIQUIDITY RATIOS (Section 3.2) Industry

13 14 Average
Liquidity ratios liquidity ratios are increased, and almo
Current Ratio 0.94 1.67 2.7 This is good tendency not only the firm
Quick Ratio -1.01 -3.69 1 because for the firm, more capital from

ASSET MANAGEMENT RATIOS (Section 3.3) Industry

13 14 Average
Asset Management ratios The firm of asset management ratios n
Inventory Turnover 3.00 2.63 6.1 Therefore, I would say that they neede
Days Sales Outsta 80.5 89.05 32 In adddion, inventory turnover has a ro
Fixed Asset Turnov 2.02 2.00 7
Total Asset Turnov #DIV/0! #DIV/0! 2.5

DEBT MANAGEMENT RATIOS (Section 3.4) Industry In this part, the firm increased a lot. Ho
13 14 Average Debt ratio is still much higher than ave
Debt Management ratios 1.00 However, TIE and EBITDA Coverage Ra
 Debt Ratio #DIV/0! #DIV/0! 32.00% This is good sign. In EBITDA coverage r
Debt-to-Equity Rat #DIV/0! #DIV/0! 50.00 InTIM, this ratio is one of the factors w
Market Debt Ratio 0.00% 0.00% N/A
Times Interest Ear 0.10 6.28 6.2
EBITDA Coverage 4.85 15.45 8

PROFITABILITY RATIOS (Section 3.5) Industry

13 14 Average As shown left, even though ratios are b
Profitability ratios however, those ratios show that the co
-1.63% 3.60% 3.60% Also, they waste their assets. However
Basic Earning Pow #DIV/0! #DIV/0! 17.80%
Return on Assets #DIV/0! #DIV/0! 9.00%
Return on Equity -3.30% 7.21% 17.90%

MARKET VALUE RATIOS (Section 3.6) Industry

13 14 Average
Market Value ratios First aspect represent that investors ar
Price-to Earnings -0.42 0.39 16.2 Second indicate that they are above av
Price-to-Cash Flow 1.83 0.27 7.6
Price-to-EBITDA 5.85 10.12 0 investors are regarded the firm's book
Market-to-Book Rat 0.01 0.03 2.9

H
(NI/Sales)(Sales/TA)(TA/CE) = ROE
3.60% #DIV/0! 0 = #DIV/0!

Expense control (PM) All of three are the most significant point in Du point system
Asset utilization (TATO) These are increased from 2013
Debt utilization (EM) expense is decreased, assets are increased, and debt is decreased

I
Comparison with industort average is difficult if the company has many distinctive division
Seasonal components can effect ratio
Window dressing technique can make company's financial statement and ratios look better
Dufferent accounting and operating activities are be able to badly effect comparison

K
If revenues consist of a single customer, there is high risk for company
If revenues consist of a single product on a single suppliers, there is high risk
If reliance on a single supplier, it is risk
If high percentage of business is generated oversea, it is high risk
Therefore,these are important things which is to understand the competitive situation, the process of product, and legal and re
common size analysis average Percentage analysis

2014
0.40% 0.3 Total current aseets in the firm is higher than average percentaage
2.04% 0.3
24.96% 22.4
48.81% 41.2
76.21% 64.1
23.79% 35.9

23.37% 11.9 All of liability in 2014 is higer than average. They need to decrease their liabilities
19.48% 2.4
24.68% 9.5
67.53% 23.7
32.47% 26.3

2014 average

82.44% 84.5
17.56% 4.4
 1.71% 4
7.14% 7.1
1.14% 1.1
6.01% 5.9
0.00% 2.4

3.60% 3.6

3.60%

atios are increased, and almost industory average. Yhe reason would be decreasing their debt and increasing their profitability
od tendency not only the firm but also stockholders and bankers
or the firm, more capital from stockholders, for banker,the posibility of returning the debt from the firm, for stockholders, return on invest

of asset management ratios need to be improved. Especially, days sales outstanding is too late. Therefore, they need to borrow money
e, I would say that they needed to borrow money from bank or some instruments to prepare their capital for operating
n, inventory turnover has a room to improve. However, I guess that they made much inventories than last year for some reasones

rt, the firm increased a lot. However, this is normal condition. This means that last year was totally failure in operating company
o is still much higher than average. This aspect was caused their days sales outstanding and amouns of inveentories they have
TIE and EBITDA Coverage Ratio are increased a lot and abovve average.
od sign. In EBITDA coverage ratio, banks are more likey to see the ratio to determine wether or not making a loan. Improvement of these fa
is ratio is one of the factors wether or not a company have a possibility of bankruptcy. Therefore, as much as higer is good

left, even though ratios are below average, they increased a lot. It is good sign for growing biger and biger
those ratios show that the company need to utilize the assets and equity more effective. Otherwise, stockholders do not want to invest na
y waste their assets. However, this is good sign in 2014

ct represent that investors are not willing to make a investment to the firm in comparison with average
ndicate that they are above average in growth prospects.

are regarded the firm's book value as below aberage. This means that many people doubt that the firm is not interested

ss of product, and legal and regulatory issues

e percentaage

ed to decrease their liabilities

ng their profitability

or stockholders, return on investment

they need to borrow money

or operating
year for some reasones

n operating company
entories they have
 a loan. Improvement of these factors could be regared as increasing their sales
as higer is good

holders do not want to invest nay money for the firm

not interested
Problem 10
Use both the TVM equations and a financial calculator to find the following values.
See the Hint for Problem 4-9.
a. An initial $500 compounded for 10 years at 6%
b. An initial $500 compounded for 10 years at 12%
c. The present value of $500 due in 10 years at a 6% discount rate
d. The present value of $500 due in 10 years at a 12% discount rate

A B
PV 500 PV 500
I 6% I 12%
N 10 N 10
FV 895.4238 FV 1552.924

C D
PV 500 PV 500
I 6% I 12%
N 10 N 10
PV 279.1974 PV 160.9866
Problem 11
To the closest year, how long will it take $200 to double if it is deposited and earns the
following rates? [Notes: (1) See the Hint for Problem 4-9. (2) This problem cannot be
solved exactly with some financial calculators. For example, if you enter PV = −200, PMT
= 0, FV = 400, and I = 7 in an HP-12C and then press the N key, you will get 11 years for
part a. The correct answer is 10.2448 years, which rounds to 10, but the calculator rounds
up. However, the HP10BII gives the exact answer.]
a. 7%
b. 10%
c. 18%
d. 100%

A B
PV 200 PV 200
FV 400 FV 400
I 7% I 10%
N 10.24477 N 7.272541

C D
PV 200 PV 200
FV 400 FV 400
I 18% I 100%
N 4.187835 N 1
Problem 12
Find the future value of the following annuities. The first payment in these annuities is
made at the end of Year 1, so they are ordinary annuities. (Notes: See the Hint to
Problem 4-9. Also, note that you can leave values in the TVM register, switch to Begin
Mode, press FV, and find the FV of the annuity due.)
a. $400 per year for 10 years at 10%
b. $200 per year for 5 years at 5%
c. $400 per year for 5 years at 0%
d. Now rework parts a, b, and c assuming that payments are made at the beginning of
each year; that is, they are annuities due.

A B B
N 10 N 5 N 5
I 10% I 5% I 0%
PV $0 PV $0 PV $0
PMT -$400 PMT -$200 PMT -$400
FV $6,374.97 FV $1,105.13 FV $2,000.00
D D D
N 10 N 5 N 5
I 10% I 5% I 0%
PV $0 PV $0 PV $0
PMT -$400 PMT -$200 PMT -$400
FV $7,012.47 FV $1,160.38 FV $2,000.00
Problem 13
Find the present value of the following ordinary annuities (see the Notes to
Problem 4-12).
a. $400 per year for 10 years at 10%
b. $200 per year for 5 years at 5%
c. $400 per year for 5 years at 0%
d. Now rework parts a, b, and c assuming that payments are made at the beginning of
each year; that is, they are annuities due.

A B C
N 10 N 5 N 5
I 10% I 5% I 0%
PMT -$400 PMT -$200 PMT -$400
FV $0 FV $0 FV $0
PV $2,457.83 PV $865.90 PV $2,000.00

D D D
N 10 N 5 N 5
I 10% I 5% I 0%
PMT -$400 PMT -$200 PMT -$400
FV $0 FV $0 FV $0
PV $2,703.61 PV $909.19 PV $2,000.00
Problem 14
a. Find the present values of the following cash flow streams. The appropriate interest
rate is 8%. (Hint: It is fairly easy to work this problem dealing with the individual
cash flows. However, if you have a financial calculator, read the section of the manual
that describes how to enter cash flows such as the ones in this problem. This will take
a little time, but the investment will pay huge dividends throughout the course. Note
that, when working with the calculator’s cash flow register, you must enter CF0 = 0.
Note also that it is quite easy to work the problem with Excel, using procedures
described in the Chapter 4 Tool Kit.)
b. What is the value of each cash flow stream at a 0% interest rate?

A
Cash Stream A Cash Stream B
I 8% I 8%
Year Cash Year Cash
1 100 1 300
2 400 2 400
3 400 3 400
4 400 4 400
5 300 5 100
PV ¥1,251.25 PV ¥1,300.32

B
Cash Stream A Cash Stream B
I 0% I 0%
Year Cash Year Cash
1 100 1 300
2 400 2 400
3 400 3 400
4 400 4 400
5 300 5 100
PV ¥1,600.00 PV ¥1,600.00
Problem 15
Find the interest rate (or rates of return) in each of the following situations.
a. You borrow $700 and promise to pay back $749 at the end of 1 year.
b. You lend $700 and receive a promise to be paid $749 at the end of 1 year.
c. You borrow $85,000 and promise to pay back $201,229 at the end of 10 years.
d. You borrow $9,000 and promise to make payments of $2,684.80 at the end of each of
the next 5 years.

A B
N 1 N 1
PMT $0 PMT $0
PV $700 PV -$700
FV -$749 FV $749
I 7.00% I 7.00%

C C
N 10 N 5
PMT $0 PMT -$2,684.8
PV $85,000 PV $9,000
FV -$201,229 FV $0
I 9.00% I 15.00%
Problem 16
Find the amount to which $500 will grow under each of the following conditions.
a. 12% compounded annually for 5 years
b. 12% compounded semiannually for 5 years
c. 12% compounded quarterly for 5 years
d. 12% compounded monthly for 5 years

A B
N 5 N 10
I 12% I 6%
PV $500 PV $500
PMT $0 PMT $0
FV $881.17 FV $895.42

A B
N 20 N 60
I 3% I 1%
PV $500 PV $500
PMT $0 PMT $0
FV $903.06 FV $908.35
Problem 20
a. Set up an amortization schedule for a $25,000 loan to be repaid in equal installments
at the end of each of the next 5 years. The interest rate is 10%.
b. How large must each annual payment be if the loan is for $50,000? Assume that the
interest rate remains at 10% and that the loan is still paid off over 5 years.
c. How large must each payment be if the loan is for $50,000, the interest rate is 10%,
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. Why are these payments not half as large as the
payments on the loan in part b?

A B C
N 5 N 5 N 10
I 10% I 10% I 10%
PV -$25,000 PV -$50,000 PV -$50,000
FV $0 FV $0 FV $0
PMT $6,594.94 PMT $13,189.87 PMT $8,137.27

Because the payments are spread out over a longer period of time, more interest must be paid.
The total interest paid on the 10-year loan is $31,373, while the total for the 5-year loan is $15,949
However the same principal ($50,000) is repaid over a longer period of time so that the total payment per year is not doubled.
payment per year is not doubled.
Problem 23
A mortgage company offers to lend you $85,000; the loan calls for payments of $8,273.59
at the end of each year for 30 years. What interest rate is the mortgage company
charging you?

N 30
PMT -$8,273.59
PV $85,000
FV $0
I 9.00%
Problem 27
What is the present value of a perpetuity of $100 per year if the appropriate discount rate
is 7%? If interest rates in general were to double and the appropriate discount rate rose to
14%, what would happen to the present value of the perpetuity?

A
PMT $100
I 7%
PV $1,428.57

B
PMT $100
I 14%
PV $714.29
Problem 28
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 $900 each. Your
money is now invested in a bank that pays an 8% 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?

I 8% I 8%
Year Cash Flow PV Facotr
PV of Cash Flow Year Cash Flow
1 50 0.925926 46.30 1 50
2 50 0.857339 42.87 2 50
3 50 0.793832 39.69 3 50
4 1050 0.73503 771.78 4 1050
PV 900.64 PV ¥900.64