Preview

Balance Sheet and Net Income

Good Essays
Open Document
Open Document
576 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Balance Sheet and Net Income
DRAGON SOUP QUESTIONS – Professor Naughton Before our final class, please read the Dragon Soup case and analyze the associated Excel Sheet. Kerr had been given the task of valuing Dragon’s equity for a possible acquisition. He was told by his boss to assume a valuation of ten times sustainable earnings, plus the value of cash and marketable investments on the balance sheet. The Excel Sheet completes this calculation for you, based on inputs that are provided in the top portion of the “Assumptions and Statements” tab. In completing this task, you’ll need to address some accounting issues highlighted in the case. Kerr’s job is to try to unwind accounting choices that might provide transitory increases in Net Income, which would have the effect of overstating Net Income, and hence the value of Dragon Soup. The goal is to establish the true value of Dragon. This exercise is not intended to seek out especially high or especially low values. Within the case, there is no need to read the section on “Product Pricing, Production, and Promotion”. In addition, only skim the description of the tomato farm acquisition. We will discuss these issues in class. The spreadsheet asks you to make eight separate decisions, listed below. Please note that the “Notes to Accounts” tab is automatically updated based on your inputs in the “Assumptions and Statements” tab. For example, if you decide to accept Dunwoody’s guarantee, the footnotes are updated to include this guarantee in the description of Accounts Receivable. The eight items you choose are as follows (please note that items #2, #3 and #8 don’t require adjustment; just follow what is stated in bold). 1 Should Dragon Soup lease or purchase the new machine? (Cells D5-9 in Excel). The information on lease structure and financing structure is provided in the case. How do your choices affect Net Income? Why? What should be the regular price of soup (Cell C12 in Excel). Please set this price at $2. Should you run a promotion at the
Continue Reading
View Writing Issues

You May Also Find These Documents Helpful

  • Satisfactory Essays

    Acct 559 Quiz 1 Solution
    • 1502 Words
    • 7 Pages

    Acct 559 Quiz 1 Solution

    Date: Name: ID: Answer the following Questions: 1. Tower Inc. owns 30% of Yale Co. and applies the equity method. During the current year, Tower bought inventory costing $66,000 and then sold it to Yale for $120,000. At year-end, only $24,000 of merchandise was still being held by Yale. What amount of inter-company inventory profit must be deferred by Tower? A. $6,480 B. $3,240 C. $10,800 D. $16,200 E. $6,610 2. All of the following statements regarding the investment account using the equity method are true except A. The investment is recorded at cost B. Dividends received are reported as revenue C. Net income of investee increases the investment account D. Dividends received reduce the investment account E. Amortization of fair value over cost reduces the investment account 3. After allocating cost in excess of book value, which asset or liability would not be amortized over a useful life? A. Cost of goods sold B. Property, plant, & equipment C. Patents D. Goodwill E. Bonds payable…

    • 1502 Words
    • 7 Pages
    Satisfactory Essays
    Read More
  • Powerful Essays

    Bu 312
    • 1316 Words
    • 6 Pages

    Bu 312

    2. (Former Midterm Exam Question) ABC Company is planning a real asset investment. ABC is a start-up firm, and therefore, it has no previous investments. Also, ABC has no other investments planned or contemplated other than the one described in this problem. For an investment of $I today, the expected cash flow to ABC in one year is $140,000. This cash flow is the profit on the investment, plus salvage, net of taxes and commissions, etc. The internal rate of return on the project is 40%. Currently, ABC has no debt in its financial structure and its book equity is zero. Book equity is the sum of share-capital and retained earnings. In order to undertake its investment, ABC needs to do some financing. They plan to sell ABC sells new shares to new shareholders in the amount of $I to finance their business investment. Immediately after the share issue and the required capital expenditure of $I, ABC’s market to book ratio for equity is 1.20 (there remains, nonetheless, one year before the expected cash flow benefit of $140,000 is received).…

    • 1316 Words
    • 6 Pages
    Powerful Essays
    Read More
  • Good Essays

    Balance Sheet and Fair Value
    • 807 Words
    • 4 Pages

    Balance Sheet and Fair Value

    Allfoods Corp. (Allfoods) acquired 80 percent of the outstanding common stock of Baked Beans Corp. in a business combination. After value consideration transferred value of tangible and intangible assets acquired, libilities assumed, I recommend doing this consolidation general entry for the business combination:…

    • 807 Words
    • 4 Pages
    Good Essays
    Read More
  • Satisfactory Essays

    Balance Sheet and Tax Basis
    • 559 Words
    • 3 Pages

    Balance Sheet and Tax Basis

    b) My recommendation for forming CCS is LLC. I chose LLC because the organizing business members may reduce their individual tax liabilities by operating as a LLC. CCS should be concerned about FICA and self-employment taxes. LLCs must pay self-employment taxes. As the business grows past 3-4 years, I recommend CCS to look at the possibility of switching to and S Corporation. At this point, compensation needs may have reduced and the members would wish to fully benefit from self-employment tax removal.…

    • 559 Words
    • 3 Pages
    Satisfactory Essays
    Read More
  • Satisfactory Essays

    Acc/300 Week 3 Learning Team Assignment
    • 267 Words
    • 2 Pages

    Acc/300 Week 3 Learning Team Assignment

    WEEK THREE LEARNING TEAM B ASSIGNMENT PROBLEM 1-30A OSHEA ENTERPRISES INCOME STATEMENT AT DECEMBER 31, 2002 REVENUE $48,000.00 OPERATING EXPENSES 32,000.00 NET INCOME (change in Net Assets) $16,000.00 OSHEA ENTERPRISES STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY AT DECEMBER 31, 2002 BEGINNING COMMON STOCK 4,000.00 PLUS: COMMON STOCK ISSUED 10,000.00 ENDING COMMON STOCK $14,000.00 BEGINNING RETAINED EARNINGS 8,000.00 PLUS: NET INCOME 16,000.00 LESS: DIVIDENDS (2,000.00) ENDING RETAINED EARNINGS 22,000.00 TOTAL STOCKHOLDERS EQUITY $36,000.00 OSHEA ENTERPRISES BALANCE SHEET AT DECEMBER 31, 2002 ASSETS CASH $48,000.00 LAND TOTAL ASSETS $48,000.00 LIABILITIES NOTES PAYABLE $12,000.00 STOCKHOLDERS EQUITY COMMON STOCK $14,000.00 RETAINED EARNINGS 22,000.00 TOTAL STOCKHOLDERS EQUITY 36,000.00 TOTAL LIABILITY AND STOCKHOLDERS EQUITY $48,000.00 OSHEA ENTERPRISES STATEMENT OF CASH FLOWS AT DECEMBER 31, 2002 CASH FLOWS FROM OPERATING ACTIVITIES: CASH RECEIPTS FROM REVENUE $48,000.00 CASH PAYMENTS FOR EXPENSES (32,000.00) NET CASH FLOW FROM OPERATING EXPENSES $16,000.00 CASH FLOWS FOR INVESTING ACTIVITIES: CASH PAYMENTS TO PURCHASE LAND CASH FLOWS FROM FINANCING ACTIVITIES: CASH RECEIPTS FROM ISSUING COMMON STOCK 10,000.00 CASH PAYMENTS FOR DIVIDENDS (2,000.00) CASH PAYMENTS TO REDUCE LIABILITY (6,000.00) NET CASH…

    • 267 Words
    • 2 Pages
    Satisfactory Essays
    Read More
  • Satisfactory Essays

    Balance Sheet and Sales
    • 351 Words
    • 2 Pages

    Balance Sheet and Sales

    Start with the partial model in the file Ch12 P10 Build a Model.xls on the textbook’s Web site, which contains the 2013 financial statements of Zieber Corporation. Forecast Zeiber's 2014 income statement and balance sheets. Use the following assumptions: (1) Sales grow by 6%. (2) The ratios of expenses to sales, depreciation to fixed assets, cash to sales, accounts receivable to sales, and inventories to sales will be the same in 2014 as in 2013. (3) Zeiber will not issue any new stock or new long-term bonds. (4) The interest rate is 11% for long-term debt and the interest expense on long-term debt is based on the average balance during the year . (5) No interest is earned on cash. (6) Dividends grow at an 8% rate. (6) Calculate the additional funds needed (AFN). If new financing is required, assume it will be raised by drawing on a line of credit with an interest rate of 12%. Assume that any draw on the line of credit will be made on the last day of the year, so there will be no additional interest expense for the new line of credit. If surplus funds are available, pay a special dividend.…

    • 351 Words
    • 2 Pages
    Satisfactory Essays
    Read More
  • Good Essays

    Chef's Toolkit
    • 806 Words
    • 4 Pages

    Chef's Toolkit

    Define the Issues Chef’s Toolkit has exhausted all of their financial resources trying to develop their product. The owner, Peter Jeffery, is seeking external investment to fund the launch of his product, and the potential investor, Dale Reid, has asked for projected financial statements for the company’s pessimistic, expected, and optimistic projected sales for the first year of operation ending July 30, 1995. Analyzing the Case Data Fragmented information was given in the case, along with a balance sheet and a production schedule for the expected sales of 10,000 units. There was no statement of cash flows, income statement or any information about their cash account or their accounts payable account. Generating Alternatives Dale Reid could choose to either invest $85,000 for 50% of the company, choose to invest more or less for a negotiated percentage of the company, or not invest in Chef’s Toolkit. The pessimistic projected sales is 5,000 units per month, totaling 60,000 units in the year. The expected amount of sales is 10,000 units, summing to 120,000 units per year. The optimistic projected sales is 30,000 units per month resulting in a total of 360,000 units sold in the year. In the optimistic option, a double mold is needed since the total required production exceeds the maximum amount for the single mold. Selecting Decision Criteria • Low additional investment • High revenues with low expenses • Return on Investment • Break Even Analysis Analyzing and evaluating alternatives Break Even…

    • 806 Words
    • 4 Pages
    Good Essays
    Read More
  • Good Essays

    Revenue and Financial Statements
    • 410 Words
    • 2 Pages

    Revenue and Financial Statements

    This summary is a review of the annual report and financial statements of the Patton-Fuller financial information. This paper will summarize the relationship between revenue sources and expenses and explain the effect of revenue sources on financial reporting and reviewing the annual reports of 2008-2009, and the differences between the audited and the unaudited statements, as well as determine how the hospital’s revenues and expenses are grouped for planning and control.…

    • 410 Words
    • 2 Pages
    Good Essays
    Read More
  • Good Essays

    Net Present Value and Net Cash Flow
    • 1220 Words
    • 5 Pages

    Net Present Value and Net Cash Flow

    Indicate the best answer for each question in the space provided. 1 Which of the following is not a capital budgeting decision? a Whether to acquire a subsidiary company. b Whether to expand a product line. c Whether to fill a special order. d Whether to purchase a fleet of trucks. 2 Which of the following is an example of a nonfinancial consideration in capital budgeting? a Will an investment generate adequate cash flows to promptly recover its cost? b Will an investment generate an acceptable rate of return? c Will an investment have a positive net present value? d Will an investment have an adverse effect on the environment? 3 Which of the following is not considered when using the payback period to evaluate an investment? a The profitability of the investment over its entire life. b The annual net cash flow of the investment. c The cost of the investment. d The expected life of the investment. Use the following data for questions 4 and 5. Stone Mfg. is considering expanding operations by investing $300,000 in equipment. The equipment has a useful life of eight years, with no salvage value. Straight-line depreciation is used. Stone predicts that net income will increase $37,500 per year as a result of this strategy. 4 Refer to the above data. The payback period for this investment is: a 8 years. b 4 years. c Over 13 years. d 2.5 years. 5 Refer to the above data. Return on average investment for this investment is: a 25%. b 20%. c 12 1/2%. d 15%.…

    • 1220 Words
    • 5 Pages
    Good Essays
    Read More
  • Good Essays

    Balance Sheet and Value
    • 1704 Words
    • 7 Pages

    Balance Sheet and Value

    Assuming that economic conditions remain stable, any management action that would cause current and prospective stockholders to raise their dividend expectations should decrease the firm's value. True or False…

    • 1704 Words
    • 7 Pages
    Good Essays
    Read More
  • Satisfactory Essays

    Personal Finance Case 6-1
    • 339 Words
    • 2 Pages

    Personal Finance Case 6-1

    EXERCISE 6-8 (35-- 45 minutes) CONSTANTINE CAVAMANLIS INC. Statement of Cash Flows For the Year Ended December 31, 2008 Cash flows from operating activities Net income ............................................................. Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense .............................................. Increase in accounts receivable .................... Increase in accounts payable ................................. Net cash provided by operating activities ........... Cash flows from investing activities Purchase of equipment .........................................…

    • 339 Words
    • 2 Pages
    Satisfactory Essays
    Read More
  • Satisfactory Essays

    accounting
    • 360 Words
    • 5 Pages

    accounting

    Homework Week 2 Exercise E1-1 SEC – K Audit – G Sole Proprietorship – I Corporation – E Accounting – A Accounting Entity – D Audit Report – J Cost Principle – F Partnership – C FASB – L IASB – H Unit of Measure – B GAAP – N IFRS – M E1-2 Accounts receivable – Asset Cash and cash equivalents – Asset Net sales – Revenue Notes payable – Liability Taxes payable – Liability Retained earnings – Stockholders’ Equity Cost of products sold – Expense Marketing, administrative and other operating expenses – Expense Income taxes – Expense Accounts payable – Liability Land – Asset Property, plant and equipment – Asset Long term debt – Liability Inventories – Asset Interest expense – Expense E1-3 Notes payable to banks – Liability General and administrative – Expense Accounts payable – Liability Dividends payable – Liability Retained earnings – Stockholders’ Equity Cash and cash equivalents – Asset Accounts receivable – Asset Provision for income taxes – Expense Cost of goods sold – Expense Machinery and equipment – Asset Net sales – Revenue Inventories – Asset Marketing, selling and advertising – Expense Buildings – Asset Land – Asset Income taxes payable – Liability Distribution and warehousing costs – Expense Investments (in other companies) – Asset E1-11 Henshelwood Limitd Income Statement For the Month of January 2013 Total Revenues $ 448,500.00 Less: Total expenses (excluding income tax) $ 283,500.00 Pretax income $ 165,000.00 Less: Income tax expense $ 51,750.00 Net Income $ 113,250.00 Henshelwood Limited Balance Sheet At January 31st, 2013 Assets Assets 2013 Cash 97,725.00 Receivables from customers 51,750.00 Merchandise inventory 144,900.00 Total Assets 294,375.00 Liabilities Liabilities 2013…

    • 360 Words
    • 5 Pages
    Satisfactory Essays
    Read More
  • Good Essays

    Balance Sheet and Inventory Turnover
    • 530 Words
    • 3 Pages

    Balance Sheet and Inventory Turnover

    Suppose the Robinson Company had a cost of goods sold of $1,000,000 in 2010 and $1,200,000 in 2011. a. Calculate the inventory turnover for each year. Comment on your findings b. What would have been the amount of inventories in 2011 if the 2010 turnover ratio had been maintained?…

    • 530 Words
    • 3 Pages
    Good Essays
    Read More
  • Better Essays

    Balance Sheets and Income Statements
    • 1118 Words
    • 5 Pages

    Balance Sheets and Income Statements

    Federal Trade Commission. (2009, February). CVS Caremark Settles FTC Charges:Failed to Protect Medical and Financial Privacy of Customers and Employees. Retrieved from http://www.ftc.gov…

    • 1118 Words
    • 5 Pages
    Better Essays
    Read More
  • Satisfactory Essays

    American Chemical Corporation Case
    • 364 Words
    • 2 Pages

    American Chemical Corporation Case

    GROUP SUBMISSION: Due 27 June 2011 Midnight American Chemical Corporation CASE QUESTIONS Read the American Chemical Corporation case that was handed to you. The underlying question to be answered is should Dixon acquire the Collinsville plant. In your case write-up, you can discuss the questions given below. Please note that the given questions are to be used only as a guide for your discussion. You do not need to answer the questions in the sequence they are presented. You can use the spreadsheet called AmericanChemCorp.xls (posted on instructor) to do your computations. Financial analysis 1. Extract all the important information given in the case study (text, footnotes and exhibits) that you will need as part of your set of assumptions in cash flow analysis, e.g. the marginal tax rate, net working capital, salvage value of the Collinsville plant, etc. 2. Using the information extracted in (1) above and relevant tables in the exhibits, estimate the expected incremental free cash flows associated with the acquisition of the Collinsville plant a. Without the laminate technology. b. With the laminate technology. 3. What is the IRR for the Collinsville investment with and without the laminate technology? Using the IRR, which of the two options is better? Estimating the discount rate 4. What is the appropriate beta for the Collinsville project? 5. Estimate the cost of equity capital appropriate for the evaluation of the incremental cash flows associated with the Collinsville investment. 6. Determine the after-tax cost of debt for the project. 7. Estimate the weighted average cost of capital (WACC) appropriate for the valuation of the Collinsville investment. Project Valuation 8. Using the discount rate determined above, estimate the net present value (NPV) of the Collinsville investments a. without the laminate technology b. with the laminate technology 9. Should Dixon Corporation acquire the plant? Is the Collinsville investment attractive on economic grounds?…

    • 364 Words
    • 2 Pages
    Satisfactory Essays
    Read More

Related Topics