Spring 20 Dr.

Songur FIN 311

Homework # 1 – Ch. 1, 2, 3, and 4

Total: 100 points. Late submission penalty is 20 points per day.
Due Date: 02/23/2020.
Submission: Submit via D2L Dropbox. Show your calculations. Attach additional
sheets if necessary. Submit a single word/pdf file. 10% penalty for submissions with
multiple files. 

TJ Hwang

(7pts) 1. Briefly explain the following concepts;

 Agency Costs:

-when a principal also known as an organization or group of people or person hires an agent
to act on its own behalf.

 Intrinsic value of a stock:

-it is the true risk and true investor of cash flows. It is the calculated value of a company or
stock. It is also the real value but may not be the same as the current market value.

 Hostile takeover:

-an acquisition of one company who targets another company by acquiring them.

 Dividend:

-a payment made by a corporation to shareholders. It is the reward from part the company’s
earnings.

 Earnings Per Share:

-Earnings per share is the profit made by the company divided by their common stock.
EPS= Net Income – Preferred Dividends / Average Outstanding Shares.

 Book Value

-is the value of an asset that is recorded on the balance sheet.

 Market Value

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-is the price of an asset that would have and be sold in a marketplace.

(7pts) 2. Briefly explain the following terms;

 mutual fund:

-is a financial investment that gathers money together by other investors to purchase shares
of securities such as stocks and bonds.

 hedge fund:

-is an investment bund between partnerships of managers and investors by investing with
borrowed money.

 primary market:

-are markets that allow investors to purchase securities directly from issuers.

 secondary market:

-are markets that allow investors to purchase and sell securities that they already own.

 S&P 500 index:

-is a stock market index that measures the United States’ 500 largest companies’ stock
performances.

 liquid security:

-are assets that include things such as cash and many other securities that can be
converted into cash.

 dividend yield

-is a percentage amount of money a company must pay to its shareholders over the
year.

(6pts) 3. Shiner Software's current balance sheet shows total common equity of
$100,000,000. The company has 5,000,000 shares of stock outstanding, and they sell at a
price of $200 per share. By how much do the firm's market and book values per share
differ?

Book Value per share = Total Common Equity / Shares of stock outstanding
Market Value per share = $200
BVPS = 100,000,000/5,000,000 = $20
MVPS = $200

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$200 - $20 = $180 in difference between the firm’s market and book value per share.

(5pts) 4. El Taco Tote's balance sheet showed total current assets of $5,500, all of which
were required in operations. Its current liabilities consisted of $1,000 of accounts payable,
$1,000 short-term notes payable to the bank, and $500 of accrued wages and taxes. What
was its net operating working capital (NOWC)?

NOWC= Current Operating Assets – Current Operating Liabilities

NOWC= $5500 – ($1000 + $500) = $4000
NOWC = $4000
-The Net operating working capital was $4000

(5pts) 5. Alacati Inc. recently reported operating income of $12,000,000, depreciation of

$2,000,000, and had a tax rate of 20%. The firm's expenditures on fixed assets and net
operating working capital totaled $600,000. How much was its free cash flow?

Free Cash Flow = Operating income – Operating income (tax rate) +

Depreciation – NOWC
FCF = 12,000,000 – 12,000,000 (.2) + 2,000,000 – 600,000
FCF = 960,000 + 140,000
FCF = 11,000,000
-The free cash flow is $11,000,000

(5pts) 6. GYOC Mining Inc. recently reported $115,000 of sales, $72,500 of operating
costs other than depreciation, and $9,200 of depreciation. The company had $20,000 of
outstanding bonds that carry a 5% interest rate, and its federal-plus-state income tax rate
was 30%. How much was the firm's net income?

Net Income = Sales – Operating Costs – Depreciation – Outstanding Bonds

(Interest Rate) - (Sales – Operating Costs – Depreciation – Outstanding Bonds
(Interest Rate)) *Tax Rate
NI = 115,000 – 72,500 – 9200 – 20000(.05) – (115,000 – 72,500 – 9200 –
20000(.05)) *.30
NI= 33,300 – 1000 – (33,300 – 1000) *.30
NI= 32,300 – 9690
NI= 22,610
-The firm’s net income is $22,610

(5pts) 7. On 12/31/19, Times Industries reported retained earnings of $1,000,000 on its

balance sheet, and it reported that it had $235,000 of net income during the year. On its
previous balance sheet, at 12/31/18, the company had reported $905,000 of retained
earnings. No shares were repurchased during 2019. How much in dividends did the firm
pay during 2019?

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Dividends = Beginning Retained Earnings + Net Income – Ending Retained

Earnings
Dividends = $905,000 + 235,000 – 1,000,000
Dividends = $140,000
-The firm had to pay $140,000 in dividends in 2019

(5pts) 8. Gebze Shipyards has $15.0 million in total invested operating capital, and its
WACC is 10%. Gebze has the following income statement:
 
Sales $12.0 million
Operating costs 6.0 million
Operating income (EBIT) $ 6.0 million
Interest expense 2.0 million
Earnings before taxes (EBT) $ 4.0 million
Taxes (20%) 0.8 million
Net income $ 3.2 million

What is Gebze’s EVA?

EVA = EBIT (1- Tax Rate) – 9Total Invested Operating Capital – WACC)
EVA = 6,000,000 X (1 – 20%) – (15,000,000 X .10)
EVA = 4,800,000 – 1,5000,000
EVA = 3,300,000
-Gebze’s EVA is $3,300,000

(5pts) 9.  GTYOC Aviation had a profit margin of 8.00%, a total assets turnover of 1.5, and
an equity multiplier of 2.0. What was the firm's ROE?

ROE = Profit Margin x TA turnover x Equity Multiplier

ROE = 0.08 X 1.5 X 2.0
ROE = 0.24
-The firms ROE IS 24%

(5pts) 10.  Last year FBGS Inc. had sales of $325,000 and a net income of $19,000, and
its year-end assets were $250,000. The firm's total-debt-to-total-capital ratio was 15.0%.
The firm finances using only debt and common equity and its total assets equal total
invested capital. Based on the DuPont equation, what was the ROE? 

ROE = Profit Margin x TA turnover x Equity Multiplier

ROE = (Net Income / Sales) x (Sales / Total Sales) x (Total Asset/Equity= ASSETS –
ASSETS*TDTCRatio)
ROE = (19,000 /325000) X (325000/2500000) X (250,000/ (250,000-
(250,000*.15)))
ROE = .059 X 1.3 X 1.18

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ROE = .0889
ROE = 8.9%
-The ROE is 8.89%

(5pts) 11.  MUMC Corp's sales last year were $4,500,000, its operating costs were
$1,500,000, and its interest charges were $120,000. What was the firm's times-interest-
earned (TIE) ratio?

TIE = (EBIT = SALES – Operating Costs) / Interest Expense

TIE = $4,500,000 – 1,500,000 / 120,000
TIE = 3,000,000 – 1,500,000 / 120,000
TIE = 25
-The firms times-interest earned ratio is 25

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(40pts): 12. DIS Ratio Analysis (Submit the excel sheet separately)

Using the provided Excel sheet (in D2L) show the income statements, balance sheets,
and cash flow statements, calculate the financial ratios for Walt Disney Co and one of
its Competitor/Peer. You must calculate the financial ratios for the most recent five
full years (2018, 2017, 2016, 2015, and 2014) for Walt Disney Co. and a
competitor/peer firm. Show how you calculated the ratios for both companies. Tax
rate is 20%.

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Current Ratio = Current Assets/ Current Liabilities

Quick Ratio = (Current Assets – Inventories) / Current Liabilities
Inventory Turnover = Revenue / Inventories
Day’s Sales Outstanding = Receivables / (Sales/365)
Fixed Assets Turnover = Sales / NET PPE
Total Assets Turnover = Sales / Total Assets
Debt to Capital = (Short-Term Debt + Long Term Debt) / (Short-Term Debt +
Long-Term Debt + Equity)
TIE = Operating Income (EBIT) / Interest Expense
Operating Margin = EBIT / Revenue
Profit Margin = Net Income / Revenue
Basic = EBIT/ Revenue
ROA = Net income / Total Assets
ROE = Net Income / Total Stockholder equity
ROIC = Sales * (1- Tax Rate) / (Short-Term Debt + Long-Term Debt + Equity)
P/E =Price per share / Basic
M/B= Price per share / (Total Stockholder equity / shares)

1. Explain your findings for each ratio (Current, Quick, ROA, ROE, TIE, and
others).

-Disney Current Ratio was deteriorating while Viacom Current Ratio was
deteriorating.
-Disney Quick Ratio was deteriorating while Viacom Quick Ratio is also
deteriorating.
-Disney Inventory turnover is improving while Viacom inventory turnover is
deteriorating.
-Disney Day Sales Outstanding is deteriorating while Viacom day sales outstanding
was deteriorating but showing improvement.
-Disney Fixed Assets turnover is deteriorating while Viacom fixed assets turnover is
balanced

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-Disney Total Assets turnover is balanced while Viacom Total Assets turnover is
improving
-Disney Debt-to-capital ratio was improving but now deteriorating while Viacom
debt-to-captio ratio is deteriorating
-Disney TIE is deteriorating while Viacom TIE cannot be determined because there
isn’t enough information
-Disney operating margin is balanced while Viacom operating margin is
deteriorating
-Disney profit margin is improving while viacom profit margin is deteriorating
-Disney basic earning power is balanced while viacom basic earning power is
deteriorating
-Disney ROA is improving while Viacom ROA was deteriorating but slightly
improving
-Disney ROE is improving while Viacom ROE did improve but now it is
deteriorating.
-Disney ROIC is balanced while Viacom ROIC is deteriorating
-Disney P/E is deteriorating while Viacom P/E is also deteriorating
-Disney M/B is balanced while Viacom M/B is deteriorating

2. Explain your findings for category of ratios (Liquidity, Debt, Asset

Management and others).
-Disney and Viacom Overall Liquidity was deteriorating show signs of a liquidity
problem.
-Disney and Viacom overall asset management are stable and show that there
are some asset management problems that could be fixed in certain areas.
-Disney overall debt/capital management is stable show that there is an area
that could be fixed while Viacom overall debt/capital management does not
have enough information but debt-to-capital is deteriorating.
-Disney overall profitability ratios are improving and show no immediate
profitability problem while Viacom profitability ratios are declining and show an
immediate profitability problem.
-Disney overall market value is stable and show some signs of problems while
Viacom overall market value is deteriorating and show signs of immediate
market value problems.

3. Which of the ratios may indicate problems? For these, explain the potential
problems.

-Disney and Viacom quick ratio is deteriorating and their firms is likely to have
difficulty to cover their short term cash expenses.

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