SPREADSHEET ASSIGNMENT # 1: Foo & Rhee Inc./FIN502-WI16

Foo & Rhee Inc. sells two grades of cement. In 2015 sales for the two grades were $1,518,550 for Grade 1, and $816,750 for Grade 2. Cost of goods sold for the two grades were 70% and 60% of sales, respectively. Selling and G & A expenses continued to increase at a rate of 12% a year. Fixed expenses increased to $65,000, and $110,000 in depreciation allowance was taken.

Foo & Rhee Inc. also had $190,000 in short-term debt at 4.50% interest, and had increased its long-term debt by $121,000 to partially pay for new equipment of $271,500. The remainder of the equipment was paid in cash.

All long-term debt carried an interest rate of 5.30%. The corporations tax rate was 30%. Accounts receivable was at 50% of sales, and inventory at year end was 27% of sales. Accounts payable were held at 25% of the cost of goods sold. Other current liabilities were $11,850. Common stock remained constant.

The firm retained 55% of its earnings, paying the remaining net income out as dividends. (Round retained earnings up to the next dollar.)

1. Prepare Foo & Rhee Inc. s income statement, balance sheet and statement of cash flow for the year 2015, and as of December 31, 2015. The firms 2014 statements are (next page):

2. Compute Foo & Rhee Inc. s free cash flow for 2015, and its Return On Invested Capital (ROIC) for the years 2014, and 2015.

3. Given that Foo & Rhee Inc. s Weighted Average Cost of Capital (WACC) was 10.25% in 2014 and 2015, compute its Economic Value Added (EVA) for the years, 2014 and 2015.

4. The industry averages are also provided. Compute Foo & Rhee Inc. s corresponding ratios for 2014 and 2015, and give a concise evaluation of Foo & Rhee Inc. s financial position.

Balance Sheet

As of December 31, 2014

Assets

Cash and equivalents 295,500

Accounts receivable 875,000

Inventory 437,500

Total Current Assets 1,608,000

Plant and equipment 475,000

Accumulated depreciation (234,550)

Net Fixed Assets 240,450

Total Assets 1,848,450

Liabilities and Owners Equity

Accounts payable 306,250

Short-term notes payable 88,185

Other current liabilities 18,200

Total Current Liabilities 412,635

Long-term debt 495,800

Total Liabilities 908,435

Common Stock 700,000

Retained earnings 240,015

Total Shareholders Equity 940,015

Total Liabilities and Owners Equity 1,848,450

FOO & RHEE Inc.

Income Statement

For the year Ended December 31, 2014

Sales 1,750,000

Cost of goods sold 1,225,000

Gross Profit 525,000

Selling and G & A Expenses 262,500

Fixed Expenses 43,750

Depreciation Expense 80,000

EBIT 138,750

Interest Expense 56,800

Earnings Before Taxes 81,950

Taxes @30% 24,585

Net Income 57,365

Ratio	Industry
Liquidity Ratios
Current	3.00x
Quick	2.20x
Efficiency Ratios
Inventory Turnover	4.50x
A/R Turnover	4.00x
Average Collection Period	90
Fixed Asset Turnover	6.50x
Total Asset Turnover	2.70x
Leverage Ratios
Total Debt Ratios	50.00%
Long-term Debt Ratio	30.00%
Debt to Equity	1.00x
LTD to Equity	55.00%
Coverage Ratios
Times Interest Earned	4.00x
Profitability Ratios
Gross Profit Margin	30.00%
Operating Profit Margin	10.50%
Net Profit Margin	4.95%
Return on Total Assets	4.20%
Return on Equity	8.50%

Note: Inv. Turnover uses C.G.S. instead of Sales.

That is, Inv. Turn. = CGS/