Use the following information for Questions 1 through 8:Assume that you recently graduated and have just reported to work as an investment advisor at the one of the firms on Wall Street. You have been presented and asked to review the following Income Statement and Balance Sheets of one of the firm’s clients. Your boss has developed the following set of questions you must answer.Income Statements and Balance SheetBalance Sheet20122013Cash$9,000$7,282Short-term investments48,60020,000Accounts receivable351,200632,160Inventories715,2001,287,360Total current assets$1,124,000$1,946,802Gross fixed assets491,0001,202,950Less: Accumulated depreciation146,200263,160Net fixed assets$344,800$939,790Total assets$1,468,800$2,886,592Liabilities and EquityAccounts payable$145,600$324,000Notes payable200,000720,000Accruals136,000284,960Total current liabilities$481,600$1,328,960Long-term debt323,4321,000,000Common stock (100,000 shares)460,000460,000Retained earnings203,76897,632Total equity$663,768$557,632Total liabilities and equity$1,468,800$2,886,592Statements20122013Sales$3,432,000$5,834,400Cost of goods sold except depr.2,864,0004,980,000Depreciation and amortization18,900116,960Other expenses340,000720,000Total operating costs$3,222,900$5,816,960EBIT$209,100$17,440Interest expense62,500176,000EBT$146,600($158,560)Taxes (40%)58,640-63,424Net income$87,960($95,136)Other Data20122013Stock price$8.50$6.00Shares outstanding100,000100,000EPS$0.88($0.95)DPS$0.220.11Tax rate40%40%Book value per share$6.64$5.58Lease payments$40,000$40,000Ratio Analysis20122013Current2.31.5Quick0.80.5Inventory turnover44Days sales outstanding37.339.6Fixed assets turnover106.2Total assets turnover2.32Debt ratio35.60%59.60%Liabilities-to-assets ratio54.80%80.70%TIE3.30.1EBITDA coverage2.60.8Profit margin2.60%?1.6%Basic earning power14.20%0.60%ROA6.00%?3.3%ROE13.30%?17.1%Price/Earnings (P/E)9.7?6.3Price/Cash flow827.5Market/Book1.31.11. What is the free cash flow for 2013?2. Suppose Congress changed the tax laws so that Berndt’s depreciation expenses doubled. No changes in operations occurred. What would happen to reported profit and to net cash flow?3. Calculate the 2013 current and quick ratios based on the projected balance sheet and income statement data. What can you say about the company’s liquidity position in 2013?4. Calculate the 2013 inventory turnover, days sales outstanding (DSO), fixed assets turnover, and total assets turnover.5. Calculate the 2013 debt ratio, liabilities-to-assets ratio, times-interest-earned, and EBITDA coverage ratios. What can you conclude from these ratios?6. Calculate the 2013 profit margin, basic earning power (BEP), return on assets (ROA), and return on equity (ROE). What can you say about these ratios?7. Calculate the 2013 price / earnings ratio, price / cash flow ratio, and market / book ratio.8. Use the extended DuPont equation to provide a summary and overview of company’s financial condition as projected for 2013. What are the firm’s major strengths and weaknesses?

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