Actual Actual Industry

Ratio 2013 2014 Average

2015

Current ratio 1.40 1.55 1.85

Quick ratio 1.00 0.92 1.05

Inventory turnover 9.52 9.21 8.60

Average collection period 45.6 days 36.9 days 35.5 days

Average payment period 59.3 days 61.6 days 46.4 days

Total asset turnover 0.74 0.80 0.74

Debt ratio 0.20 0.20 0.30

Times interest earned ratio 8.20 7.30 8.00

Fixed-payment coverage ratio 4.50 4.20 4.20

Gross profit margin 0.30 0.27 0.25

Operating profit margin 0.12 0.12 0.10

Net profit margin 0.062 0.062 0.053

 Return on total assets (ROA) 0.045 0.050 0.040

Return on common equity (ROE) 0.061 0.067 0.066

Earnings per share (EPS) $1.75 $2.20 $1.50

Price/earnings (P/E) ratio 12 10.5 11.20

Market/book (M/B) ratio 1.2 1.05 1.1

Actual 2015

1.67

0.88

7.89

29.2

52.98

0.83

0.35

6.5

2.73

0.25

0.13

0.066
0.050833333333

0.0897

3.05

12.95

1.16
 Comment

Each dollar covered by 1.67 current Assets so, the company has sufficient
resources to pay off it is short term liabilities, and it is below industry average

Quick Ratio Measure the company ability to easily pay it is short term debt and
avoid inventory valuation problems, for every dollar of current liabilities the
company has 0.875 as an immediate liquidity & it is below industry average.

Inventory turnovers measure the efficiency of inventory management; the

company has ability to purchase & sell it is inventory 7.89 times during this year
which is below industry average.
The company takes 29.2 days average to collect its receivable which is below
industry average.
The company takes 53.6 days average to pay its payables which is below
industry average.
The company generate 83.33 % sales for each dollar of Assets invested.It is good
indicator for how the company deploy it is assets to generate sales, which is
below industry average.
Each dollar is covered 35% from debt which is above industry average
This ratio is a measure of a company's ability to meet its debt obligations based
on its current income each dollar interest is covered by 6.5 dollar of income
which is below industry average

This ratio is a measure of a company's ability to meet its fixed interest

obligations based on its current income each dollar interest is covered by 2.73
dollar of income which is below industry average

It is the factor affecting company’s financial health and it means that each dollar
of net sales is generating 0.25 $ profit which is like industry average

It is the factor affecting company’s financial health and it means that each dollar
of net sales is generating 0.13 $ operating profit which is above industry average

The percentage of each dollar of sales that result in income is 6.6% which is
above industry average.
 It is measuring how well the management deploying the company’s assets to
pursuit profit. the company has 5.08% return per each dollar of assets invested
which is above industry average.

It is measuring how well the management deploying the company's assets to

pursuit profit. the company has 8.97% return per each dollar of equity invested
which is above industry average.
Every share has net income of 3.05 which is above industry average
It means that market value per share is 12.95 multiple of its earning per share
which is above industry average
It means that that the price of stock is 1.16 multiple the book value which is
below industry average
 Form

Current Ratio = Current a

Quick Ratio = (Current Assets-i

Inventory Turnover = Cost

Average Collection Period =365 /

Average Payment Period =465 /

Assets Turn Over = net

Debt ratio = Total

Times Interest Earnings = Net income

Fixed-payment coverage ratio = (Operating Profit + Lease payment-Cash Tax

Gross profit Margin = g

Operating profit Margin = O

Net profit Margin = N

 Return on Assets (ROA)= Earnings availab

Return on Equity(%)= Earnings available for

Earnings per Share (EPS) = Earnings available for comm

Price/earnings (P/E) ratio = Market price per

Market/book (M/B) ratio = Market price per share of c

 Cross-
Time-series sectional evaluations

Improving Fair Liquidity Ratios

Deteriorating Poor Liquidity Ratios

Deteriorating Fair Activity Ratios

Improving Good Activity Ratios

Unstable Poor Activity Ratios

Improving Good Activity Ratios

Improving Fair Debt Ratios

Deteriorating Poor Debt Ratios

Deteriorating Poor Debt Ratios

Deteriorating average Profitability Ratios

Improving Good Profitability Ratios

Stable Good Profitability Ratios

 Improving Good Profitability Ratios

Improving Good Profitability Ratios

Improving Good Profitability Ratios

Unstable Good Market Ratios

Deteriorating Fair Market Ratios

Answer (A)

Date Descreption

Land
1/2/2017 Preferred Stock (2000 Share*50$)
Paid-in Capital in Excess of Par—Preferred Stock (120000-1
Cash
1/3/2017 Preferred Stock ( 1000 Share * 50$ )
Paid-in Capital in Excess of Par—Preferred Stock 65000-50
Cash
1/7/2017 Common Stock (16000 Share * 5$ )
Paid-in Capital in Excess of Par—Common Stock 112000-80
Patent
1/9/2017 Preferred Stock ( 400 Share*50$)
Paid-in Capital in Excess of Par—Preferred Stock (28000-20
Cash
1/12/2017 Common Stock 8000 Share * 5$ )
Paid-in Capital in Excess of Par—Common Stock 60000-400
Net Income
31/12/2017
Retained Earnings

Answer (B)

Common Stock
Opening Balance
1/7/2017
1/12/2017

Paid-in Capital in Excess of Par—Common Stock

Opening Balance
1/7/2017
1/12/2017
 Retained Earnings
Opening Balance
31/12/2017

Answer (C)

Stockholders’ equity
Paid-in capital
Capital stock
10% Preferred stock,$50 par value,20,000 shares
authorized,13,400 shares issued and outstanding

Common stock, $5 par value,125,000 shares

authorized,94,000 shares issued and outstanding

Total capital stock

Additional paid-in capital

In excess of par— preferred stock
In excess of par—common stock
Total additional paid-in capital

Total paid-in capital

Retained earnings

Total stockholders’ equity

 Descreption Debit Credit

120,000
2000 Share*50$) 100,000
Excess of Par—Preferred Stock (120000-100000) 20,000
65,000
1000 Share * 50$ ) 50,000
Excess of Par—Preferred Stock 65000-50000) 15,000
112,000
16000 Share * 5$ ) 80,000
Excess of Par—Common Stock 112000-80000) 32,000
28,000
400 Share*50$) 20,000
Excess of Par—Preferred Stock (28000-20000) 8,000
60,000
000 Share * 5$ ) 40,000
Excess of Par—Common Stock 60000-40000) 20,000
260,000
s 260,000

Preferred Stock
350,000 Opening Balance
80,000 1/2/2017
40,000 1/3/2017
1/9/2017

470,000

n Stock Paid-in Capital in Excess of Par—Preferred Stock

700,000 Opening Balance
32,000 1/2/2017
20,000 1/3/2017
 1/9/2017

752,000

300,000
260,000

560,000

ock,$50 par value,20,000 shares

670,000
0 shares issued and outstanding

$5 par value,125,000 shares

0 shares issued and outstanding 470,000

k 1,140,000

n capital
— preferred stock 118,000
—common stock 752,000
paid-in capital 870,000

2,010,000

560,000

2,570,000
k
500,000
100,000
50,000
20,000

670,000

—Preferred Stock
75,000
20,000
15,000
 8,000

118,000
Answer (A)

Date Account
Cash Dividend-Common Stock (Retained Earnings)
1/7/2017
Dividends payable-Common Stock
Retained earnings
1/8/2017
Accumulated depreciation
Dividends payable-Common stock
1/9/2017
Cash
Stock dividend-Common stock (Retained Earnings)
1/12/2017
Dividends payable-Common stock
Dividends payable-Common stock
1/12/2017 Common Stock
Paid-in Capital in Excess of Par—Common Stock
Cash Dividend-Preferred Stock (Retained Earnings)
15/12/2017
Dividends payable-Preferred Stock
Net Income
31/12/2017
Retained Earnings
Retained earnings
31/12/2017
Appropriated retained earnings for planet expansion

Answer (B)

Common Stock
Opening Balance
1/12/2017

920,000 Ending Balance

920,000

Paid-in Capital in Excess of Par—Common Stock

Opening Balance
 1/12/2017

612,000 Ending Balance

612,000

Retained Earnings
96,000 1/7/2017 Opening Balance
25,000 1/8/2017 31/12/2017
432,000 1/12/2017
36,000 15/12/2017
200,000 31/12/2017
366,000 Ending Balance
1,155,000

Answer (C)

Statement of Retained Earnings at 31-12-2017

1/1/2017 Beginning Balance
Less
1/7/2017 Cash Dividend-Common Stock
1/8/2017 Accumulated depreciation
1/12/2017 Stock dividend-Common stock
15/12/2017 Cash Dividend-Preferred Stock
31/12/2017 Appropriated for planet expansion
Total
Add
Net Profit of the year
Balance Carried Forward

Answer (D)
Stockholders’ equity
Paid-in capital
Capital stock
Preferred Stock
Common stock
Total capital stock

Additional paid-in capital

In excess of par— preferred stock
In excess of par—common stock
Total additional paid-in capital

Total paid-in capital

Retained earnings

Dividends payable-Common Stock

Total stockholders’ equity

 Account Debit Credit
ock (Retained Earnings) 96,000
n Stock 96,000
25,000
25,000
n stock 96,000
96,000
ock (Retained Earnings) 432,000
n stock 432,000
n stock 432,000
120,000
Par—Common Stock 312,000
tock (Retained Earnings) 36,000
ed Stock 36,000
355,000
355,000
200,000
nings for planet expansion 200,000

Preferred Stock
800,000
120,000

600,000 Ending Balance

920,000 600,000

tock Paid-in Capital in Excess of Par—Prefer

300,000
 312,000

200,000 Ending Balance

612,000 200,000

Dividends payable-Common Sto

800,000
355,000 96,000 1/9/2017
432,000 1/12/2017

36,000 Ending Balance

1,155,000 564,000

nt of Retained Earnings at 31-12-2017

800,000

(96,000)
(25,000)
(432,000)
(36,000)
(200,000)
(789,000)

355,000
366,000
 600,000
920,000
1,520,000

d stock 200,000
stock 612,000
pital 812,000

2,332,000

366,000

36,000

2,734,000
 Preferred Stock
Opening Balance 600,000

600,000

al in Excess of Par—Preferred Stock

Opening Balance 200,000
 200,000

ends payable-Common Stock

Opening Balance
1/7/2017 96,000
1/12/2017 432000
15/12/2017 36000

564,000
 Answer (A) - Calculate the after-tax cost of debt.
Cost of debt Calculation
FV( Face value ) Given
Coupon % Given
Coupon value Coupon% X Face value
Issued Price (selling price) Face Value - Discount
Flotation cost % Given
Flotation cost Value Face value * Flotation cost %
Net proceed fund (pv) issued price - Flotation cost Value
Duration Given
Before tax cost of debt Rate function

Tax rate Given

After tax cost of debt Yield to maturity X (1-tax rate)

Answer (B) - Calculate the cost of preferred stock.

Cost of preferred stock calculation
Par value Given
Annual dividend % Given
Annual dividend value Annual dividend % X par value
Floating cost Given
Selling price Given
Cost of preferred Stock Annual dividend /(selling price - floatation cost)

Answer (C) - Calculate the cost of retained earnings.

 Cost of retained earning calculation
Annual dividend Given
Floating cost Given
Selling price Given
Growth rate Given
Cost of retained earning (annual dividend/selling price ) + growth rate

Answer (D) - Calculate the cost of new common stock.

Cost of new common stock calculation
Annual dividend Given
Floating cost Given
Selling price Given
Growth rate Given
(annual dividend/(selling price-floatation cost)) + growth rate
Cost of new common stocks

Answer (E) - Calculate the firm’s weighted average cost of capital using
retained earnings and the capital structure weights
Source of capital Weight
Long term debt 35%
Preferred stock 12%
Common stock equity 53%
WACC using retained earnings and capital structure

Answer (F) - Calculate the firm’s weighted average cost of capital using n
common stock and the capital structure weights
Source of capital Weight
Long term debt 35%
Preferred stock 12%
Common stock equity 53%
WACC using new common stock and capital structure
 debt.

$1,000
6.50%
$65
980
2%
20
960
10
7.07%
40.00%
4.24%

d stock.

$100
6%
$6
$4
$102
6.12%

arnings.
 $3.25
$2
$35
5%
14.29%

on stock.

$3.25
$2
$35
5%

14.85%

e cost of capital using

ure weights
% WEIGHT * %
4.24% 1.48%
6.12% 0.73%
14.29% 7.57%
9.79%

cost of capital using new

re weights
% WEIGHT * %
4.24% 1.48%
6.12% 0.73%
14.85% 7.87%
10.09%