Homework 1
Homework Set #1
1. At the end of 2014, the Long Life Light Bulb Company announced it had produced a gross profit of $1 million. The company has also established that over the course of this year it has incurred $345,000 in operating expenses and $125,000 in interest expenses.
The company is subject to a 30% tax rate and has declared $57,000 total preferred stock dividends. (a) How much is the earnings available for common stockholders?
(b) Compute the increased retained earnings for 2014 if the company were to declare a
$4.25 common stock dividend. The company has 15,000 shares of common stock outstanding. 2. Terrel Manufacturing expects stable sales through the summer months of June, July, and August of $500,000 per month. The firm will make purchases of $350,000 per month during these months. Wages and salaries are estimated at $60,000 per month plus 7 percent of sales. The firm must make a principal and interest payment on an outstanding loan in June of $100,000. The firm plans a purchase of a fixed asset costing $75,000 in
July. The second quarter tax payment of $20,000 is also due in June. All sales are for cash. (a) Construct a cash budget for June, July, and August, assuming the firm has a beginning cash balance of $100,000 in June.
(b) The sales projections may not be accurate due to the lack of experience by a newly-hired sales manager. If the sales manager believes the most optimistic and pessimistic estimates of sales are $600,000 and $400,000, respectively, what are the monthly net cash flows and required financing or excess cash balances?
3.
Income Statement
Ace Manufacturing, Inc.
For the Year Ended December 31, 2014
Ace Manufacturing, Inc., is preparing pro forma financial statements for 2015. The firm utilized the percent-of-sales method to estimate costs for the next year. Sales in 2014 were $2 million and are expected to increase to $2.4 million in 2015. The firm has a 40
percent tax rate.
(a)
Given the 2014 income statement above,
1. At the end of 2014, the Long Life Light Bulb Company announced it had produced a gross profit of $1 million. The company has also established that over the course of this year it has incurred $345,000 in operating expenses and $125,000 in interest expenses.
The company is subject to a 30% tax rate and has declared $57,000 total preferred stock dividends. (a) How much is the earnings available for common stockholders?
(b) Compute the increased retained earnings for 2014 if the company were to declare a
$4.25 common stock dividend. The company has 15,000 shares of common stock outstanding. 2. Terrel Manufacturing expects stable sales through the summer months of June, July, and August of $500,000 per month. The firm will make purchases of $350,000 per month during these months. Wages and salaries are estimated at $60,000 per month plus 7 percent of sales. The firm must make a principal and interest payment on an outstanding loan in June of $100,000. The firm plans a purchase of a fixed asset costing $75,000 in
July. The second quarter tax payment of $20,000 is also due in June. All sales are for cash. (a) Construct a cash budget for June, July, and August, assuming the firm has a beginning cash balance of $100,000 in June.
(b) The sales projections may not be accurate due to the lack of experience by a newly-hired sales manager. If the sales manager believes the most optimistic and pessimistic estimates of sales are $600,000 and $400,000, respectively, what are the monthly net cash flows and required financing or excess cash balances?
3.
Income Statement
Ace Manufacturing, Inc.
For the Year Ended December 31, 2014
Ace Manufacturing, Inc., is preparing pro forma financial statements for 2015. The firm utilized the percent-of-sales method to estimate costs for the next year. Sales in 2014 were $2 million and are expected to increase to $2.4 million in 2015. The firm has a 40
percent tax rate.
(a)
Given the 2014 income statement above,