Question 1 The end-of-year balance sheet and income statement of TZR Limited as of December, 31st...
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Question 1 The end-of-year balance sheet and income statement of TZR Limited as of December, 31st 2017 are as follows: Balance-Sheet: Assets Cash Trade Receivables Inventory Property, Plant and Equipment Total Assets Liabilities and equity Trade Payables Long-term Debt Common Stock Retained profit at beginning of current year Profit for the current year Total liabilities and equity € 20,000 10,000 40,000 100,000 170,000 20,000 60,000 60,000 20,000 10,000 170,000 Income Statement: Sales Operating expenses Operating income Net interest expense Profit before tax Tax Net profit Required: € Assume that all assets other than cash are operating, the corporation tax rate is 35% and only long term debt is interest bearing. Note that ratios, where one of the items in the ratio is a flow variable and the other item is a stock variable, must be calculated by using ending balances for the stock variable. (a) Calculate Asset Turnover, Profit Margin, and RNOA. 80,000 59,000 21,000 8,000 13,000 3,000 10,000 (3 marks) (b) Determine whether financial leverage benefits TZR Limited's shareholders. (10 marks) (c) If Sales grow by 10% during the year 2018 and Asset Turnover, Long-term Debt and Cash remains at the level of 2017, calculate Abnormal Earnings at the end of 2018. Abnormal Earnings at the end of 2017 are nil and there has been no transactions with equity holders during 2017 or 2018. (13 marks) (d) What is your best estimate of the market value of equity of TZR Limited at the end of 2017? (9 marks) [Total: 35 marks] Question 1 The end-of-year balance sheet and income statement of TZR Limited as of December, 31st 2017 are as follows: Balance-Sheet: Assets Cash Trade Receivables Inventory Property, Plant and Equipment Total Assets Liabilities and equity Trade Payables Long-term Debt Common Stock Retained profit at beginning of current year Profit for the current year Total liabilities and equity € 20,000 10,000 40,000 100,000 170,000 20,000 60,000 60,000 20,000 10,000 170,000 Income Statement: Sales Operating expenses Operating income Net interest expense Profit before tax Tax Net profit Required: € Assume that all assets other than cash are operating, the corporation tax rate is 35% and only long term debt is interest bearing. Note that ratios, where one of the items in the ratio is a flow variable and the other item is a stock variable, must be calculated by using ending balances for the stock variable. (a) Calculate Asset Turnover, Profit Margin, and RNOA. 80,000 59,000 21,000 8,000 13,000 3,000 10,000 (3 marks) (b) Determine whether financial leverage benefits TZR Limited's shareholders. (10 marks) (c) If Sales grow by 10% during the year 2018 and Asset Turnover, Long-term Debt and Cash remains at the level of 2017, calculate Abnormal Earnings at the end of 2018. Abnormal Earnings at the end of 2017 are nil and there has been no transactions with equity holders during 2017 or 2018. (13 marks) (d) What is your best estimate of the market value of equity of TZR Limited at the end of 2017? (9 marks) [Total: 35 marks]
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aAsset TurnoverSalesAverage Total Assets Profit MarginNet ProfitSales RNOAOperating IncomeAverage To... View the full answer
Related Book For
Horngrens Financial and Managerial Accounting The Financial Chapters
ISBN: 978-0134486857
6th edition
Authors: Tracie L. Miller Nobles, Brenda L. Mattison, Ella Mae Matsumura
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