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Question 1. (30 points total) Use this balance sheet and income statement from Carver Enterprises to complete parts a and b:

a. (15 points) Prepare a common size balance sheet for Carver Enterprises. Complete the common-size balance sheet: (Round to one decimal place.)

Common-Size Balance Sheet 2013

Cash and marketable securities $ 490 ___________%

Accounts receivable 5,990 ___________%

Inventories 9,550 ___________ %

Current assets 16,030 ___________%

Net property plant and equipment 17,030 ___________%

Total assets $ 33,060 ___________%

Accounts payable $7,220 ___________%

Shortterm debt 6,800 ___________%

Current liabilities $14,020 ___________%

Longterm liabilities 7,010 ___________%

Total liabilities $ 21,030 ___________%

Total owners equity 12,030 ___________%

Total liabilities and owners equity $ 33,060 ___________ %

b. (15 points) Prepare a common-size income statement for Carver Enterprises. Complete the common-size income statement: (Round to one decimal place.)

CommonSize Income Statement 2013

Revenues $ 30,020 ______________ %

Cost of goods sold (19,950) ______________%

Gross profit $ 10,070 ______________%

Operating expenses (7,960) ______________%

Net operating income $ 2,110 ______________%

Interest expense (940) ______________%

Earnings before taxes $ 1,170 ______________%

Taxes (425) ______________%

Net income $ 745 ______________%

Question 2. (10 points total) Use this data table of Campbell Industries liabilities and owners' equity to complete parts a and b.

Accounts payable $530,000

Notes payable $252,000

Current Liabilities $782,000

Long-term debt 1,127,000

Common equity 4,939,000

Total liabilities and equity $6,848,000

a. (5 points) What percentage of the firm's assets does the firm finance using debt (liabilities)? (Round to one decimal place.)

b. (5 points) If Campbell were to purchase a new warehouse for $1.3 million and finance it entirely with long-term debt, what would be the firm's new debt ratio? (Round to one decimal place.)

Question 3. (10 points total) (Liquidity analysis) Airspot Motors, Inc. has $2,433,200 in current assets and $869,000 in current liabilities. The company's managers want to increase the firm's inventory, which will be financed using short-term debt. How much can the firm increase its inventory without its current ratio falling below 2.1 (assuming all other assets and current liabilities remain constant)? (Round to one decimal place.)

Question 4. (10 points total) (Efficiency analysis) Baryla Inc. manufactures high quality decorator lamps in a plant located in eastern Tennessee. Last year the firm had sales of $93 million and a gross profit margin of 45 percent.

a. (5 points) How much inventory can Baryla hold and still maintain an inventory turnover ratio of at least 6.3 times? (Round to one decimal place.)

b. (5 points) Currently, some of Baryla's inventory includes $2.3 million of outdated and damaged goods that simply remain in inventory and are not salable. What inventory ratio must the good inventory maintain in order to achieve an overall turnover ratio of at least 6.3 (including the unsalable items)? (Round to one decimal place.)

Question 5. (15 points total) (Profitability and capital structure analysis) In the year that just ended, Callaway Lighting had sales of $5,470,000 and incurred cost of goods sold equal to $4,460,000. The firm's operating expenses were $128,000 and its increase in retained earnings was $42,000 for the year. There are currently 99,000 common stock shares outstanding and the firm pays a $4.770 dividend per share. The firm has $1,180,000 in interest-bearing debt on which it pays 7.7 percent interest.

a. (5 points) Assuming the firm's earnings are taxed at 35%, construct the firm's income statement.

Income Statement

Revenues $ ____________

Cost of Goods Sold $_____________

Gross Profit $_____________

Operating Expenses $_____________

Net Operating Income $_____________

Interest Expense $_____________

Earnings before Taxes $_____________

Income Taxes $_____________

Net Income $_____________

b. (5 points) Calculate the firm's operating profit margin and net profit margin. (Round to one decimal place.)

The operating profit margin is _________ %

The net income margin is __________ %

c. (5 points) Compute the times interest earned ratio.

The times interest earned ratio is ________ %

What does this tell you about Callaway's ability to pay its interest expense? (Fill in the blank with the times interest earned ratio from above and select the best choice.)

1) Callaway's operating income can fall as much as ______ times the interest expense and the company would still be able to service its debt.

2) Callaway's interest expense is _______ times higher than its competitors.

3) Callaway's gross profit can fall as much as ______ times and still be able to service its debt.

4) Callaway's operating income can fall as much as ______ times and still be able to repay its debt.

Answer: ___________

What is the firm's return on equity? (Select the best choice.)

1) The firm's return on equity is the same as the net profit margin, 9.4%.

2) The firm's return on equity is the sum of the operating profit margin and the net profit margin, 25.5%.

3) There is not enough information to answer this question.

4) The firm's return on equity is the same as the operating profit margin, 16.1%.

Answer: ________________

Question 6. (5 points total) (Market value analysis) Lei Materials' balance sheet lists total assets of $1.16 billion, $132 million in current liabilities, $415 million in long-term debt, $613 million in common equity, and 58 million shares of common stock. If Lei's current stock price is $52.08, what is the firm's market-to-book ratio? (Round to one decimal place.)

Question 7. (5 points total) (DuPont analysis) Bryley, Inc. earned a net profit margin of 5.1 percent last year and had an equity multiplier of 3.49. If its total assets are $109 million and its sales are $157 million, what is the firm's return on equity? (Round to one decimal place.)

Question 8. (15 points total) (Calculating financial ratios) Use the balance sheet and income statement for the J. P. Robard Mfg. Company to calculate the following ratios:

Current ratio (Round to two decimal places.) _________

Times interest earned (Round to two decimal places) ________ times

Inventory turnover (Round to two decimal places.) __________ times

Total asset turnover (Round to two decimal places.) __________

Operating profit margin (Round to one decimal places.) ___________%

Operating return on assets (Round to one decimal places.) ____________%

Debt ratio (Round to one decimal places.) ________________%

Average collection period (Round to one decimal places.) ___________ days

Fixed asset turnover (Round to two decimal places.) ____________

Return on equity (Round to one decimal places.) _____________ %