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Entrepreneurial Finance 6th edition Philip J. Adelman; Alan M. Marks - Solutions
What is a personal statement of financial position?
What is the importance of liquidity?
What is the accounting equation for the balance sheet?
The Happy Auto Shop has the following annual information: Gross Sales, $700,000; Net Sales, $696,000; Gross Profit, $448,000. What are the shop’s returns and allowances and cost of goods sold?
a. Construct a personal income statement for the Humperdinck family using the following information: salaries, $42,000; mortgage payment, $7,980; food, $2,400; interest income, $150; transportation, $1,200; dividend income, $190; automobile payment, $3,060; clothes and personal, $2,000; student
1. Develop a financial income statement and balance sheet by combining the chart of account items on the DP Systems income statement and balance sheet in Tables 3–9 and 3–10. 2. List the chart of account numbers and major categories used in DP Systems’ accounting system. 3. How would a
A company computes its accounts receivable turnover to be 20. Based on this information, find the average collection period. If the company has a credit collection period of 30 days, explain the relationship between the credit collection period and the average collection period.
If a company finds that its fixed asset turnover (net sales/fixed assets) has fallen to less than 1, what does this indicate?
If a company has $181,000 in total liabilities and $225,000 in total assets, what percentage of total assets is being financed with the use of other people's money?
Distinguish between gross profit margin, operating profit margin, and net profit margin and provide the formula for each ratio?
Why is the operating return on assets ratio also referred to as the operating return on investment?
If a company€™s stock is currently selling for $12 per share and its price earnings ratio is 6, what are its earnings per share? What does this figure mean?
Give an example of how financial statements can be used internally by the managers of a company.
List and briefly describe the three types of financial statement analysis.
If a company had sales of $2,587,643 in 2008 and sales of $3,213,456 in 2013, by what percentage did sales change during this time period?If the company had a goal of increasing sales by 25% over a five-year period, did it meet its objectives?
If the company in question 4 had set a goal of increasing sales by 28% during the next five years, what should be the sales goal for 2018?
List and briefly describe the five categories of business ratios.
Why might a company have a high current ratio but a low quick ratio (acid test ratio)?
If a company has beginning inventory of $30,000 and ending inventory of $55,000, compute its average inventory. If the COGS are $140,000, compute its inventory turnover and determine how many days the average item is in stock.
Samantha Knight is applying for a small-business loan. She provides the bank with the following information: cash in checking accounts, $5,000; cash in savings, $10,350; home market value, $145,500; first mortgage on house, $25,000; home equity loan limit, $70,000; home equity loan, $10,000;
Using both the balance sheet (Table 4-4) and the income statement (Table 4-7) for the MLC, answer the following:a. Calculate the following ratios for 2013: inventory turnover, fixed asset turnover, and total asset turnover.b. In a written explanation, describe what each of these ratios means.c. In
Given the profit loss (income statement) and balance sheet for Sam's Sandwich Delivery (Table 4-8), answer the following: a. Calculate the following ratios: current, quick, accounts receivable turnover, fixed asset turnover. b. Using the inventory figure on the balance sheet as average
Go to your local library or the Internet and look up the industry averages for the following groups of ratios: liquidity, activity, debt utilization, and profitability.a. Compare these ratios to Starbucks’ ratios.b. After your analysis of Starbucks in the previous exercise, would you still
The Handy Dandy Corporation has an income statement that indicates that Operating Income is $2,375,486 and Net Profit is $1,375,486. In 2011, the corporation had 1 million shares of common stock outstanding; in 2012, they had 3 million shares of common stock outstanding. What is this
The Namleda Corporation has an income statement that indicates that Operating Income is $2,375,486 and pays interest of $100,000 and taxes of $900,000. The Corporation currently has 3 million shares of common stock outstanding and 1 million shares of preferred stock, which pays a dividend of $1.00
You receive the following partial balance sheet (Table 4-5) for 2013 and 2012 for a company that you are considering making an investing in. Perform a vertical analysis for each year on these accounts. Compare the two years, and in a sentence describe those changes that were beneficial or
You were not totally satisfied with the vertical analysis, so you now want to run a horizontal analysis of this company. Complete table 4-6. Perform a horizontal analysis on these accounts. Compare the changes in accounts, and in a sentence describe those changes that were beneficial or detrimental
Last month you were vacationing in Phoenix and noticed that there were several Starbucks coffee locations. You don’t have any coffee locations in your city, except for a few local cafes. You also have a large college in your town and believe that, if Starbucks opened a location, they would be
Given the balance sheet for Moderately Large Corporation (Table 4-4) answer the following: a. For each year calculate the following ratios: current, quick, debt-to-asset and debt-to-equity. b. In a written explanation, state what each of these ratios mean. c. Compare the ratios for the two-year
Perform a horizontal analysis of the MLC balance sheet (Table 4-4). a. Compare assets, liabilities, and owner’s equity from one year to the next.b. Is the corporation better off in 2013 or in 2012?
Perform a vertical analysis of MLC balance sheet (Table 4-4) for December 31, 2012.
Given the income statement for the MLC (Table 4-7) and balance sheet (Table 4-4), answer the following:a. Calculate the following ratios for 2013: operating profit margin, net profit margin, operating return on assets, net return on assets, and return on equity. b. In a written explanation,
Perform a horizontal analysis for the MLC income statement (Table 4-7) for 2011 and 2012. Write an explanation of this analysis.
1. Using Table 4–9, perform a vertical analysis of the Mosbacher Insurance Agency.a. Using the Internet, obtain the income statement for the insurance company where you insure your automobile (casualty insurance company) and perform a vertical analysis of this company.b. Compare and contrast the
The Handy Doll Manufacturing Company has the following information. The average doll sales price is $12.00, raw materials for a doll are $4, and it takes 15 minutes to assemble a doll. Production labor is paid $8.00 per hour. Operating expenses are as follows: salaries, $2,500 per week; insurance,
For the company in question 10, if the goal is to make a profit of $5,000 per month, how many dolls must be sold?
Discuss the changes in bankruptcy law and their impact on a personal and business basis.
What is the difference between accounting profit and entrepreneurial profit?
Describe the earning power of a company.
How is financial leverage related to bankruptcy?
What is the relationship among fixed costs, contribution margin, and the break-even point?
What are the basic steps that you must take to determine if you are able to make a profit?
You want to open up a custom skate board shop. You can sell each skate board for $160. It takes 3 hours to make each skate board. Each skate board maker earns $25 per hour. Each skate board costs $15 in raw materials. You estimate that your fixed costs are $20,000 per month. a. What is the
Using the Van Accessible data from table 5-4:a. Calculate the degree of operating leverage (DOL).b. Calculate the degree of financial leverage (DFL).c. Calculate the degree of combined leverage (DCL).d. Explain what the DOL, DFL, and DCL mean.
Joan purchases a 30 year Federal Government bond for $10,000 that pays 4 percent annual interest. Jim purchases $20,000 worth of 30 year Corporate bonds that pay 7 percent annual interest. Joan's goal is to earn $400 per year on her investment, and Jim's goal is to earn $1,400 per year on his
Sam quit a $30,000-a-year job with a local heating and air conditioning firm to go into business for himself. After his first year in business, his accountant showed him an income statement, which indicated Sam’s firm had a profit of $40,000. During this year Sam had drawn a salary of $20,000. a.
Maury quit his job as an accountant with We Keep Books Accurately to open his own accounting firm. He earned $40,000 with the accounting firm We Keep Books Accurately. During the current year, Maury had revenues of $150,000 and total expenses of $110,000; he did not draw a salary. a. What was
James builds brick walls for custom homes. His annual sales are approximately $300,000, and his net income is $18,000. He has assets of $100,000 invested in this business. Tom sells window shades. His annual sales are approximately $900,000, and his net income is $27,000. He has assets of $150,000
The Faster Modem Corporation was founded by two engineers who managed to capitalize their firm with $150,000. They were able to raise this money because their test model performed much faster than current modems on the market and they received an initial commitment from a national firm to market
You are going to open a business making custom cabinets. You can sell each cabinet for $80. It takes a cabinet maker approximately 45 minutes to make one cabinet. Each cabinet maker works an eight-hour day, earning $18 per hour. Each cabinet will use $25 in raw materials. You usually produce
Wanda wants to open a Health Food Store. Her monthly expenses are rent $3,500, utilities of $1,000, insurance of $500, and payroll of $4,250. She estimates that her cost of goods is approximately 65 percent of sales. Wanda would like to make $4,000 a month for herself. a. What is Wanda’s
Woody's Widget Shop has the following information: The average widget has a sales price of $18; raw materials for the widget are $4, and it takes 30 minutes to assemble one widget. Production labor is paid $8 per hour. Operating expenses are as follows: salaries, $2,500 per week; insurance, $1,200
1. In order to provide competitive bids in the construction industry, how important is it for a contractor like Mark Wheeler to know his labor costs and costs of materials? Why is this knowledge so important to a contractor who builds and modifies items for homes and businesses? 2. What effect do
What is the purpose of pro forma financial statements (Tables 6-7 through 6-10)?
How are budgets used as monitoring and control tools?
What are the basic criteria for selecting a forecasting model?
What role does MAD play in evaluating a forecasting model?
List and describe at least three time series models.
In linear regression, compare independent and dependent variables.
Describe how to develop a pro forma income statement (Table 6-7).
What role does the pro forma cash budget play in financial forecasting (Table 6-8)?
What role does the pro forma balance sheet play in financial forecasting?
In generating a pro forma balance sheet, on what is the percentage of sales method based?
Jane White has recorded the following sales figures for last year for her business: January, $35,645; February, $35,456; March, $31,270; April, $32,129; May, $34,456; June, $35,256; July, $36,218; August, $35,456; September, $34,250; October, $32,156; November, $30,125; and December, $32,275. She
Your projected sales for the first three months of next year are as follows: January, $15,000; February, $20,000; and March, $25,000. Based on last year’s data, cash sales are 20 percent of total sales for each month. Of the accounts receivable, 60 percent are collected in the month after the
Using Table 6-13, create a pro forma balance sheet using the percentage of sales method. If net income next year is $50,000, answer the following:a. How much did the owners take out of the business?b. What is the profit margin for next year?
Using Table 6-13, what is required new financing if next years sales forecast increases to $400,000, profit margin is 10 percent, and the payout ratio is 90 percent?Table 6-13
Gary Fisher owns five successful health clubs. He believes that he can put a health club in a new community that currently has no such facility. His research indicates that communities such as this can support two health clubs. a. What type of information should Gary gather when selecting a
a. Make an exponential smoothing forecast for periods 2 through 5 with 2 values of alpha, 0.05 and 0.60, and an assumed forecast for period 1 of 30.b. Compute the MAD for each of the above forecasts.c. Which value of alpha will you choose?Period1234Data32144130
Develop a linear regression equation to predict future demand from the following data: a. Write the regression equation.b. Predict demand for 2015.c. Name the independent variable.d. Name the dependent variable.
Using the data in table 6-11, calculate a three-month moving average forecast for month 12.
Using the data in Table 6-11, calculate the following:a. A weighted-moving average forecast for months 4 through 12, using weights of 3, 5, and 9.b. What is the MAD for this forecast?
Using the data in Table 6-11, calculate the following:a. What is the slope?b. What is the intercept?c. Write the regression equation.d. Calculate a regression forecast for month 25.
You have just completed the first year of operation for your business and have the following information: sales, $200,000; cost of goods, $140,000; rent, $18,000; utilities, $8,400; insurance, $2,000; equipment, $3,500; and interest, $10,000. Your forecast indicates that your sales will increase by
Sam Jones has two years of historical sales data for his company. He is applying for a business loan and must supply his projections of sales by month for the next two years to the bank.a. Using the data from Table 6-12, provide a regression forecast for time periods 25 through 48.b. Do Sam's sales
Using a discount store or supermarket. What type of forecasting model would they use to plan for expansion into a particular city? What internal data and external data would they require to develop a 10-year expansion plan?
List and describe three types of inventory.
How is a line of credit issued by a bank similar to a credit card?
What is the difference between a line of credit and a short-term loan?
If a firm does not provide for accrued liabilities, what problems may the firm face?
Compare standard quantity discounts to cumulative quantity discounts.
In current asset management, what is the float? How would paying by check allow a business to take advantage of the float?
List and describe at least three methods a business can use to speed cash receipt time from its debtors.
What role do marketable securities play in current asset management?
What methods can be used by small businesses to speed the collection of money that is owed to them?
What are the five Cs of credit? How do these serve as a yardstick for credit evaluation?
What corrective action can be taken for customers whose outstanding balances do not adhere to our credit terms?
What is an ABC analysis with regard to inventory?
Joe Fellows is attempting to categorize several items from his company’s financial statements so he can determine his working capital. Joe notices the following categories of accounts and amounts: cash, $3,500; accounts payable, $10,200; accounts receivable, $15,000; sales taxes due city of
Harriet has been told about an ABC inventory analysis. She has accumulated the following annual figures for her flower shop: roses, $10,000; ribbon, $100; bud vases, $1,000; pins, $15; glass bowls, $500; ceramic pots, $3,000; wrapping paper, $250; carnations, $5,500.a. Using the percent of total
Your firm sells home appliances at retail. When ordering washing machines from the manufacturer, you notice the following terms listed in the catalogue:If you take advantage of all trade discounts, find the net price you will pay for the washing machine.
Explain the following terms:a. 2/10, n /30b. 3/15, n /60c. n/40d. What is the effective rate of interest you will pay if you do not take advantage of the cash discounts described?
Bernie’s Bike Shop receives the following trade discounts: 35/25/15. The vendor’s price list indicates that 35 percent off list price is for purchasing bikes in quantities of 100 or more, 25 percent off list price is for assembling the bikes for customers, and 15 percent is for sales promotion
In exercise 13, Bernie is given terms of 4/15 n/30, and he pays by day 15. a. How much will he pay the manufacturer for the order of 110 bikes? b. For how much will the manufacturer credit Bernie’s account? c. If Bernie has a cash flow problem and waits until day 30 to pay the manufacturer, what
If you have $50,000 in an interest-bearing savings account that pays 2 percent annual interest, how much interest will you earn during a 30 day month?
Jane James owns an appliance store. She normally receives $50,000 worth of appliances per month. She does not like to owe people money and always pays her bills on the day she receives the invoice. Someone told her that if she delayed payment, she could actually increase her profit because the
Jane Marks has a restaurant in which she accepts credit cards and checks. Several of the places that Jane shops now accept debit cards and do not accept checks. Jane's banker explained that a debit card would immediately transfer money into her account, but it would cost $50 per month for the
Larry’s Lawn Equipment Company gives terms of 2/10, n/30. Larry has annual credit sales of $500,000 and average accounts receivable of $60,000. a. What is Larry’s accounts receivable turnover? b. What is Larry’s average daily collection? c. What is the relationship between the terms that
A firm has $400,000 in credit sales and $100,000 in accounts receivable. Compute accounts receivable turnover and average number of collection days. How do these numbers relate to the terms of 2/10 net/30?
If Larry in exercise 5 has accounts receivable of $100,000 rather than $60,000: a. What is Larry’s accounts receivable turnover? b. What is Larry’s average collection period? c. What should Larry do, if anything?
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