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Fin 534 Set 1

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Homework Set 1

Fin 534

Pro. Jeffery Woo

Fannie Spears

January 17, 2016

Strayer University

1. What is the free cash flow for 2014?

NOPAT = 502,640 (1-0.40) “ =301,584
NOWC = operating current assets-operating current liabilities “ = 2,608,480 – 739,800
NOWC = 1,868,680

Total net operating capital = NOWC + operating long term assets Total net operating capital = 2,705,520

Net income in operating capital = total net operating capital 2014 – total net operating 2013
Net investment in operating capital = 2,705,520 – 2,257,632
Net investment in operating capital = 447,888

Free cash flow = NOPAT – NIOC
Free cash flow = 301,584 – 447,888
Free cash flow = (146,304)

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?

Net income would drop down, while net cash flow would go up.

3. Calculate the 2014 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?

Quick ratio = Current assets – Inventories Quick ratio = 2,680,112 – 1,716,480 Current liabilities 1,039,800 Quick ratio = 0.9

Current ratio = Current Assets Current ratio = 2,680,112 Current liabilities 1,039,800 Current ratio – 2.6
Both ratios are under industry standards.

4. Use the extended DuPont equation to provide a summary and overview of company’s financial condition as projected for 2014. What are the firm’s major strengths and weaknesses?

Equity multiplier = Total assets Equity multiplier = 3,516,952

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