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foundations financial management
Foundations of Financial Management 10th Canadian edition Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta - Solutions
The Quinn Corporation shows the following income statement. The firm uses FIFO inventory accounting.a. Assume that the same 10,000 unit volume is maintained in 2016, but the sales price increases by 10 percent. Because of FIFO inventory policy, old inventory will still be charged off at $5 per
The Global Products Corporation has three subsidiaries.a. Which division has the lowest return on sales?b. Which division has the highest ROA?c. Compute the ROA for the entire corporation.d. If the $8,000,000 investment in the heavy machinery division is sold and redeployed in the medical supplies
Quantum Moving Company has the following data. Industry information is also shown.As an industry analyst comparing the firm to the industry, are you likely to praise or criticize the firm in terms of:a. Net income/total assetsb. Debt/total assets. Company Data Industry Data on Net income/total
JAS Clocks Corp. shows the following data:a. Compute the ratio of net income to total assets for each year and comment on the trend.b. Compute the ratio of net income to shareholders' equity and comment on the trend. Explain why there may be a difference in the trends between parts a and b.
In January 2006 the Status Quo Company was formed. Total assets were $500,000, of which $300,000 consisted of capital assets. Status Quo uses straight-line amortization, and in 2006 it estimated its capital assets to have useful lives of 10 years. After tax income has been $26,000 per year each of
Century Plaza Enterprises has three subsidiaries:a. Which subsidiary has the lowest return on sales?b. Which subsidiary has the highest ROA?c. Calculate the ROA for the whole company.d. If Century Plaza sells the $5,000,000 investment in Caledon and reinvests same amount in Grand Vista at the same
Using the income statement for the Sports Car Tire Company, compute the following ratios:a. The interest coverageb. The fixed charge coverageThe total assets for this company equal $40,000. Set up the formula for the DuPont system of ratio analysis, and compute c, d, and e.c. Profit margind. Total
The Simmons Corporation's income statement is given below.a. What is the times interest earned ratio?b. What would be the fixed charge coverage ratio?SIMMONS CORPORATIONSales..........................................................$200,000Cost of goods sold .... .. .. .. .. . ....... . .. .. .
The balance sheet for Bryan Corporation is given below. Sales for the year were $3 ,040,000, with 75 percent of sales sold on credit.Compute the following ratios:a. Current ratiob. Quick ratioc. Debt-to-total-assets ratiod. Asset turnovere. Average collection period BRYAN CORPORATION Balance Sheet
A firm has sales of $1.2 million, and 10 percent of the sales are for cash. The year end accounts receivable balance is $360,000. What is the average collection period?
Assume the following data for Interactive Technology and Silicon Software.a. Compute return on shareholders' equity for both firms. Which firm has the higher return?b. Compute the following ratios for both firms:Net income/salesNet income/total assetsSales/total assetsDebt/total assetsc. Discuss
Donovan Bailey's Shoe Stores has $3,000,000 in sales and turns over its assets 3.75 times per year. The firm earns 6.2 percent on each sales dollar. It has $90,000 in current liabilities and $200,000 in long-term liabilities.a. What is its return on shareholders' equity?b. If the asset base remains
Pony Express Company has $750,000 in assets and $300,000 of debt. The income for the year is $55,000.a. Calculate the ROA.b. Determine the return on shareholders' equity.c. If the asset turnover ratio is 2.2 times, what is the profit margin?
Using the DuPont method, evaluate the effects of the following relationships for the Lollar Corporation.a. Lollar Corporation has a profit margin of 5 percent and its ROA (investment) is 13.5 percent. What is its asset turnover?b. If Lollar Corporation has a debt-to-total-assets ratio of 60
Acme Transportation Company has the following ratios compared to its industry for 2015.Explain, with supporting calculations, why the return-on-equity ratio is so much less favourable than the return-on-assets ratio, compared to the industry. Acme Transportation Industry Return on assets Return on
Global Healthcare Products has the following ratios compared to its industry for 2015.Explain, with supporting calculations, why the return-on-assets ratio is so much more favourable than the return-on-sales ratio, compared to the industry. Global Healthcare Industry 10% Return on sales. Return on
Sharpe Razor Company has total assets of $2,500,000 and current assets of $1,000,000. It turns over its capital assets five times a year and has $700,000 of total debt. Its return on sales is 3 percent. What is Sharpe's return on shareholder's equity?
What effect will disinflation (after a high inflationary period) have on the reported income of the firm?Why might disinflation prove to be favourable to financial assets?
Hugh Snore Bedding has assets of $400,000 and turns over its assets 1.5 times per year. ROA is 12 percent. What is the firm's profit margin?
Why is trend analysis helpful in analyzing ratios? What are the problems of trend analysis when different bases of accounting are applied to different years?
Walker Glove and Bat Shop can open a new store that will have annual sales of $1,250,000. It will turn over its assets 3.4 times per year. The profit margin on sales will be 8 percent. What would net income and return on assets (investment) for the year be?
Watson Data Systems is considering expanding into a new product line. New assets to support expansion will cost $500,000. It is estimated that Watson can generate $1.2 million in annual sales, with a 6 percent profit margin. What would net income and return on assets (investment) be for the year?
How would our analysis of profitability ratios be distorted if we used income before taxes? Income before interest and taxes?
Easter Egg and Poultry Company has $2,000,000 in assets and $1,400,000 of total debt. It reports net income of $200,000.a. What is its ROA?b. What is the return on shareholders' equity?c. If the firm has an asset turnover ratio of 2.5 times, what is the profit margin?
Griffey Junior Wear has $800,000 in assets and $200,000 of total debt. It reports net income of $100,000.a. What is its ROA?b. What is the return on shareholders' equity?c. If the firm has an asset turnover ratio of 2.75 times, what is the profit margin?
Jasper Corporation has determined that its average bondholder has a marginal tax rate of 39 percent. Jasper's corporate tax rate is 40 percent. A current bond issue would require a 7 percent yield. Considering the tax savings to the firm and the taxes to be paid by the individual bondholder, what
Billie Fruit lives in the Yukon and her income fluctuates from year to year ranging from over $100,000 to about $35,000. She has two investments of $20,000 each in shares both achieving a return of 7 percent; one by dividend, the other by capital gain.a. Calculate the higher return on an after tax
J, B. Wands has $14,000 to invest. He lives in Saskatchewan and has other income of $40,000 for the year. A current bond issue is paying 6 percent, while a popular share issue offers a 5 percent dividend return.a. Calculate the better return on an after tax basis (assume 35% marginal rate on bonds
R. E. Forms Ltd., a CCPC, had taxable income of $75,000 from an active business in 2014. Calculate both federal and provincial tax payable if it operates in Alberta (14%) as compared to operating in Ontario (16.5%).
For Nix Corporation, what is the tax savings due to amortization expense?
Given the following information, prepare, in good form, an income statement for the Nix Corporation. Use the corporate tax rates in Chapter 2 (14.5%) to calculate taxes. Nix is a CCPC manufacturer in Vancouver.Selling and administrative expense ........... ...$ 70,000Amortization expense
David's Magic Stores has an operating profit of $210,000. Interest expense for the year was $30,000; preferred dividends paid were $24, 700; and common dividends paid were $36,000. The tax was $59,300. David's Magic Stores has 16,000 shares of common stock outstanding.a. Calculate the EPS and the
How can we use a statement of cash flows to analyze how a firm's assets were financed?
Compute the book value per common share for 2014 and 2015 for the Maris Corporation.WINFIELD CORPORATIONIncome StatementYear Ended December 31 , 2015Sale..............................................................$210,000Cost of Goods..................................................87,500Gross
Prepare a statement of cash flows for the Maris Corporation.MARIS CORPORATIONIncome StatementYear ended December 31,2015Sales................................................................................$3,300,000Cost of goods sold .. ... . ..... . . . .. .. . ... . .... .. . . .... .. ...
The following information is provided for the Waif Corporation.During 2015, the following occurred:1. Net income was $91,000.2. Bonds were retired by issuing new common stock.3. No equipment was sold.4. Cash dividends were paid.a. Prepare a statement of cash flows for the Waif Corporation.b.
The following information is provided for the Loofa Corporation.During 2015, the following occurred:1. Net income was $54,610.2. Equipment was purchased for cash, and no equipment was sold.3. Shares were sold for cash.4. Dividends were declared and paid.a. Prepare a statement of cash flows for the
Identify whether each of the following items increases or decreases cash flow:Increase in inventory...........................Increase in short-term notes payableDecrease in prepaid expenses...........Amortization expenseDecrease in accounts receivable........Decrease in accounts payableDecrease in
Fill in the blank spaces with categories 1 through 7:1. Balance sheet (BS)2. Income statement (IS)3. Current assets (CA)4. Capital assets (Cap A)5. Current liabilities (CL)6. Long-term liabilities (LL)7. Shareholders' equity (SE)Indicate whether Item is on Balance If on Balance Sheet, Sheet (BS) or
Phelps Labs has assets of $1,800,000, current liabilities of $595,000, and long-term liabilities of $630,000. There is $165,000 in preferred stock outstanding; 20,000 shares of common stock have been issued.a. Compute book value (net worth) per share.b. If there is $45,000 in earnings available to
Monique's Boutique has assets of $600,000, current liabilities of $150,000, and long term liabilities of $120,000. There is $75,000 in preferred stock outstanding; 30,000 shares of common stock have been issued.a. Compute book value (net worth) per share.b. If there is $33,600 in earnings
Bengal Wood Company has current assets of $100,000 and capital assets of $140,000. Current liabilities are $60,000 and long-term liabilities are $90,000. There is $20,000 in preferred stock outstanding and the firm has issued 17,500 shares of common stock. Compute book value (net worth) per share.
Arrange the following items in proper balance sheet presentation:Accumulated amortization....................................$300,000Retained earnings. . ................ .. .. .. .. ...................96,000Cash ................ . . .. .. .. ......... . . .. .. .. ...................10,000Bonds
Classify the following balance sheet items as current or noncurrent:Common stock................InvestmentsAccounts payable............Marketable securitiesPreferred stock................Accounts receivablePrepaid expenses...........Plant and equipmentBonds payable................Accrued wages
Brandon Fast Foods Inc. has operating profit of $210,000. The company has 16,000 common shares outstanding and paid corporate taxes of $59,300. Interest expense for the year was $30,000, preferred dividends paid were $24,700, and common dividends paid of $36,000.a. Compute EPS and common dividends
Thermo Dynamics had $450,000 of retained earnings on December 31, 2015. The company paid dividends of $25,000 in 2015 and had retained earnings of $400,000 on December 31, 2014.a. How much did Thermo earn during 2015?b. What would EPS be if 20,000 shares of common stock are outstanding?c. What is
Arrange the following income statement items so they are in the proper order of an income statement:Taxes...................................Earnings after taxesShares outstanding.............Earnings available to common shareholdersGross profit.........................Cost of goods soldInterest
Carr Auto Wholesalers had sales of $900,000 in 2015, and cost of goods sold represented 65 percent of sales. Selling and administrative expenses were 9 percent of sales. Amortization expense was $10,000, and interest expense for the year was $8,000. The firm's tax rate is 30 percent.a. Compute
The Aztec Book Company sold 1,400 finance textbooks to High Tuition College for $84 each in 2015. These books cost $63 to produce. In addition, Aztec Books spent $2,000 (selling expense) to persuade the college to buy its books. Aztec Books borrowed $50,000 on January 1, 2015, on which it paid 10
The Moore Enterprise has gross profit of $880,000 with amortization expense of $360,000. The Kipling Corporation has $880,000 in gross profits but only $60,000 in amortization expense. The selling and administration expenses are $120,000; the same for each company. If the tax rate is 40 percent,
Compare the balance based on IFRS with that based on ASPE, and describe limitations of the balance sheet information for financial analysis.
Sheridan Travel had earnings after taxes of $600,000 in 2014 with 300,000 common shares outstanding. On January 1, 2015, the firm issued 40,000 new common shares. There is a 25 percent increase in after tax earnings resulting from the issue of the new shares.a. Compute EPS for the year 2014.b.
What is the difference between accumulated amortization and amortization expense? How are they related?
Far East Fast Foods had earnings after taxes of $230,000 in the year 2014 with 200,000 shares outstanding. On January 1, 2015, the firm issued 30,000 new shares. Because of the proceeds from these new shares and other operating improvements, earnings after taxes increased by 25 percent.a. Compute
Explain how amortization generates actual cash flows for the company.
Dover River Company has current operating profit of $200,000 before taxes. Interest expense is $10,000, dividends paid on preferred shares were $18,750, and common dividends paid of $30,000. The company paid taxes of $61,250. The company has 20,000 outstanding common shares.a. Calculate the EPS and
Prepare a statement of cash flows for the Win field Corporation for 2015.WINFIELD CORPORATIONIncome StatementYear Ended December 31 , 2015Sale..............................................................$210,000Cost of Goods..................................................87,500Gross profits
For December 31 , 2014, the balance sheet of the Gardner Corporation is as follows:Sales for 2015 were $220,000, with cost of goods sold being 60 percent of sales. Amortization expense was 10 percent of plant and equipment (net) at the beginning of the year. Interest expense for the bonds payable
Ron's Aerobics Ltd., a CCPC located in downtown Winnipeg, Manitoba, has the following taxable income for 2014 and 2015.2014 ........$ 68,0002015 ........142,000a. Compute the total tax obligation for Ron's Aerobics each year. (assume 16.5% tax rate)b. What is the tax rate and after tax yield for
Inland Fisheries Corp. anticipates cash flows from operating activities of $6 million in 2016. It will need to spend $2 million on capital investments in order to remain competitive within the industry. Common share dividends are projected at $0.75 million and preferred dividends at $0.35
What was the first area of study to generate newfound enthusiasm for decision related analysis in finance?
Incubus Corporation began with an investment by shareholders of $40,000.a. In its first year its income showed a deficit of $7,000. What would the equity section of its balance sheet show?b. In the second year it had income of $15,000 and a dividend of $6,000 was paid. What would the equity
If shares of both a high-tech startup company and the Royal Bank promised cash flow of $2 per share over the next year, for which shares would you be prepared to pay the higher price? Why?
Puppet Corporation began with an investment by shareholders of $20,000.a. In its first year its income earned $2,000. What would the equity section of its balance sheet show?b. In the second year it had income of $9,000 and a dividend of $3,000 was paid. What would the equity section of its
What is meant by the goal of maximization of shareholder wealth? Why is profit maximization, by itself, an inappropriate goal?
Two-to-Ten Dollar Corporation has expected earnings per share of $2.00 in its first year, $4.00 its second year, and then $10.00 per year for many more years. Ten Dollar Corporation has expected earnings of $10.00 a share for three years only. Which company would you value higher and why?
What issue does agency theory examine? Why has it become more important in recent times?
A well-known financial institution expects that it will have no earnings for the next three years as the result of restructuring activities. Then it will begin to return to earnings of $3.00 a share. A somewhat new health services company expects $3.00 a share beginning immediately. Which company
Why are institutional investors important in today's financial markets?
The board of directors is faced with making a decision on one of the following projects:a) A new product with high profit margins and with preliminary research showing strong consumer acceptance.b) New software that will produce more-detailed disclosure of relevant and required financial
The government has passed regulations over the years that require pollution controls, development restrictions, hiring equity, and pay equity. Can a firm still achieve the maximization of shareholder wealth?
The senior management of corporations have often received generous compensation even after the firms have suffered significant losses. Are senior managers paid too much?
Suggest two forms of daily functions and two forms of occasional functions that the financial manager performs.
Contrast the liability provisions for a sole proprietorship, a partnership, a limited partnership, and a corporation.
Why is the corporate form of organization best suited to a large organization?
What effect do government debt loads have on the financial markets?
Who are the stakeholders in the corporation?
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