You are inspired to start your own donut business. You take out a $800 thousand loan to purchase a building, two ovens, and a cash register. In your first year, you made $100 thousand in donut sales and paid $50 thousand to purchase flour, eggs, and sugar (materials you use to make the donuts). You had to pay about $20 thousand in taxes and $10 thousand in interest. Your oven depreciates $5 thousand during the first year. 

4a, What is your company's net income?

4b. How much are your company's fixed assets worth?

5. Please use the selected financial data for The Daily Grind, a Jersey City coffee shop chain, to answer the following questions: 

Year

2020

2021

Free Cash Flow

Capital spending

$700

$200

Change in net

working capital

$200

$100

Operating Cash

Flow

81.100

$850

5a. compute free cash flow for 2020 and 2021.

5b. In what year did shareholders and creditors have more money available to them? Why?

5C. In what year did the Dily Grind open up a new shop (made a large investment in fixed assets? why?

6. Please use the financial ratio data below to answer the following questions. Assume the two firms are in the same industry: [20]

FIRM A

Asset Turnover   0.63

Price-earnings Ratio  15

Current Ratio   0.9

Profit Margin (%)   7.9

Financial Leverage  5.5

Times Interest Earned   2

Return on Equity (%)   27.4

FIRM B

Asset Turnover 0.6  2

Price-earnings Ratio  20

Current Ratio 1

Profit Margin (%)  8.2

Financial Leverage  2.5

Times Interest Earned   5. 12.

Return on Equity (%)     4

6a. Which firm would you prefer to give a short-term loan? Name the ratio/s you looked at tomake your choice.

6b. Which firm would you prefer to give a long-term loan? Name the ratio/s you looked at tomake your choice.

6c. Which firm is the most profitable? Name the ratio/s you looked at to make your choice.

6d. According to the DuPont Identity, which ratio is causing Firm B's ROE to be higher thanFirm A's ROE?

Answer rating: 100% (QA)

Your Donut Business Analysis 4a Net Income Total Revenue 100000 Total Expenses Materials 50000 Taxes ... View the full answer