Powerful Tools Inc.			Powerful Tools Inc.
Income Statement			Balance Sheet
For the Year Ended December 31, 2017			As of December 31, 2017
	2017			2017
Sales	Ratio		Assets
Cost of Goods Sold	Formula		Cash	70,000
Gross Profit	Ratio		Accounts Receivable	50,000
Operating Expenses	Formula		Inventories	Ratio
Earnings Before Interest and Taxes	Ratio		Total Current Assets	Formula
Interest Expense	Formula		Gross Fixed Assets	1,000,000
Earnings Before Taxes	Formula		Accumulated Depreciation	Formula
Taxes	Formula		Net Fixed Assets	Formula
Net Income	50,000		Total Assets	Ratio
			Liabilities and Owner's Equity
Notes: Tax Rate	40%		Accounts Payable	20,000
			Short-term Bank Notes	Formula
Ratio	Value		Total Current Liabilities	Formula
Inventory Turnover	5.00x		Long-term Debt	Ratio
Net Profit Margin	7%		Total Liabilities	Ratio
Total debt ratio	60.00%		Common Equity	Formula
Gross Profit Margin	30.00%		Total Liabilities and Owner's Equity	Formula
Operating Profit Margin	15.00%
Return on Total Assets	5.00%
Long-Term Debt Ratio	50.00%
Z-Score Model: =1.2X1+1.4X2+3.3X3+0.6X4+X5
Assumptions: RE= $200,000, MV of equity = $600,000
X1
X2
X3
X4
X5
Altman's Z-score
Economic Profit Calculations
Assumptions: After-tax Cost of Capital = 10%
Tax Rate
NOPAT
Total Operating Capital
After-tax Cost of Capital
Dollar Cost of Capital
Economic Profit

a) Using the ratios provided, recreate the financial statements as shown using formulas. b) Complete the financial statements by using formulas that refer to existing data to fill in the remaining cells.

c) Using the Altmans model for publicly traded firms, calculate the Z-score for Powerful Tools Corp. Assume that the market value of equity is $600,000 and retained earnings is $200,000. d) Calculate Powerful Tools Corp.s economic profit for 2017 and compare it to net income. Assume that the weighted average cost of capital is 10%.

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