FIN 302 Managerial Finance Fall 2010 Homework Set #2 (Chs 3&4: Financial Performance & Planning) Due:

: Tues., September 7, 2010, 12 Noon

Late submissions will receive a grade of zero I will leave a turn-in box on the counter at the (Finance) BAC 5th floor reception area You may turn in the HW during the preceding T morning FIN 302 class session You may work in groups of up to 4 You must list your group members Please turn in your own individual, neat, legible, and handwritten homework assignment

Balance Sheet Items End of Current Year Liabilities & Equity $50 Accounts Payable $100 $50 Accrued Expenses $50 $100 Short-Term Notes (or, $50 Notes Payable) Inventory $200 Long-Term Notes $400 Prepaid Expenses $50 Preferred Equity $100 Buildings, Fixtures, and $400 Common Equity (Par $200 Equipment Value) Land $150 Additional Paid-In $100 Capital Other Assets $200 Retained Earnings $200 Assets Cash & Equivalents Marketable Securities Accounts Receivable

Income Statement Items For the Current Year Sales (Assume all credit) $1,600 Costs of Goods Sold $1,200 (Non-Depreciation) Operating Expenses $200 Depreciation Expense $50 Interest Expense $50 Taxes Paid $50 Preferred Dividends Paid $10 Common Dividends Paid $20

FIN 302 Fall 2010 Garrett HW2

1. Using the above financial statement information, please calculate the following financial ratios. As we discuss in class, you will see in the slides, and also in the text, ratios may be used to evaluate one or more of the following 4 things: liquidity, efficiency, profitability, and debt/leverage. After writing down the formula for each of the ratios and calculating the ratio in question, please indicate which of the 4 things above the ratio in question is designed to measure. There may be more than one in each case! a. Current ratio b. Acid-test (also known as, quick) ratio c. Average collection period d. Accounts receivable turnover e. Inventory turnover f. Average days in inventory (mentioned in class not text) g. Accounts payable days (also known as, payable deferral period mentioned in class not text) h. Operating income return on investment i. Operating profit margin j. Total asset turnover k. Fixed asset turnover l. Debt ratio m. Times interest earned n. Return on common equity o. Gross profit margin (mentioned in class not text p. Net profit margin q. Leverage ratio (mentioned in class not text) 2. Apply the DuPont analysis to the above financial statements. Write down the DuPont formula there are 4 components. Explain how the three components on the righthand side relate to the left-hand side of the equation. 3. Use the percent of sales method to forecast future financing needs based on the above current-year financial statements. Assume a 10% sales growth rate from the current year to the next, next years net profit margin of 5%, and a dividend payout ratio of 50% (1/2 of net income available to common shareholders is paid as dividends). a. First, project the future balance sheet items that scale proportionally with sales. b. Calculate the discretionary funds needed (DFN). c. Finally, fill in the rest of next years projected balance sheet and income statement. 4. Using the firms current-year financial statements , calculate the sustainable rate of growth.