Question

T.AS. Turnover = sales) Total Assets 3. Calculate Harley Davidson's (a) operating income Return on Investment (ROI), (b) calculate the Total Asset Turnover, (c), what does it mean if Harley has a good Total Asset Turnover and a bad ROI?, (d), specifically what is Harley Davidson doing wrong to have a bad ROI and what margins or ratios would you use to draw conclusions (answer all parts to receive full credit). USE MOST RECENT YEAR WHEN CALCULATING Great news!! Our favorite pizza shop loe's had a record year. They had $4,743,823 in sales. For the year they had cash operating expenses of $523,854. They had COGS of $1,240,000. They had depreciation of $100,000 (not counted in cash operating expenses). They paid interest on their bonds of $114,000. They decided to pay $52,000 in dividends. They also received $27,000 in dividend income in a company they have a 45% ownership stake in. What is their tax liability? 9 41.465 5. Using Harley Davidson's statement (next page), calculate the companies Free Cash Flow? If there is Free Cash Flow, what would you suggest management do with the money? 6. XYZ Company had a Gross Profit Margin of 48% last year. XYZ Company had sales of $13,500,000 last year, of which 71% were on credit and the remainder in cash? XYZ has current assets of $1,400,000 and current liabilities of $450,000, and $100,000 in cash. (a), If account receivable is $662,000, what's the Average Collection Period, (b), if they reduce Average Collection Period to 14 days, what's the new account receivable, (c), XYZ has an inventory turnover ratio of 7.5, what's their level of inventory? 7. MSFT has a coupon of 6.9%. The bond is currently trading for 93. (a), what is the companies yield?, (b), if the bond rises to 104, does the yield increase or decrease?, (c), why does MSFT pay a coupon of 6.9 but my stock brokerage company (smaller firm) pay's a coupon of 14.3%

question 4 only the taxable income
question 5 only the free cash flow
question 6 everything please

Answer 1

Q4. Sales =    $ 47,43,823

Less: Cost of Goods Sold =   $ 12,40,000

Gross Profit = $ 35,03,823

Less : Cash operating expenses = $ 5,23,854

EBITDA = $ 29,79,969

Less : Depreciation = $ 100,000

EBIT = $ 28,79,969

Less : Interest = $ 114,000

EBT = $ 27,65,969

Add : Dividend income received (Other income) = $ 27,000

Total taxable income = $ 27,92,969

Note : Dividend paid is not a part of taxable income, instead it is an appropriation of income post taxes and other exp.

Q5. Free Cash Flows = Cash from Operations - Capital Expenditure

= Net income + Non- cash expenses - Increase in working capital - Capital Expenditure

  

Net income = $ 2580217

Non-cash exp = Depreciation = $ 160119

Increase in Working Capital = (2010 Accounts Receivable - 2009 Accounts Receivable ) + (2010 inventory - 2009 inventory ) - (2010 Accounts payable - 2009 Accounts payable )

= ($964465 - $775264) + ($218156 - $181115) - ($386579 - $217051)

= $ 56714

Capital Expenditure = 2010 PP&E - 2009 PP&E + Depreciation&Amortization

= $1032596 - $891820 + $ 160119

= $ 300895

Free cash flows = $ 2580217 + $160119 + $56714 - $300895 = $ 2382727

Q6. Total sales = $ 13,500,000

Credit sales = 71% of total sales = $ 13,500,000 * 0.71 = $ 9,585,000

Cash sales = $ 13,500,000 - $ 9,585,000 = $ 3,915,000

Gross Profit = $ 13,500,000 * 0.48 = $ 6,480,000

CA = $ 1,400,000

CL = $ 450,000

Cash = $ 100,000

(a) Accounts receivable = $ 662,000

Average collection period = 365 days / Accounts receivable turnover ratio

Accounts receivable turnover ratio = Net credit sales / Average Accounts receivable

= $ 9,585,000 / $ 662,000 = 14.48

Therefore, average collection period = 365 days / 14.48 = 25 days

(b) If ACP is 14 days, accounts receivable turnover ratio = 365 / 14 = 26.07

Average accounts receivable = Net credit sales / accounts receivable turnover ratio = $ 9,585,000 / 26.07

= $ 367,643.80

(c) Inventory turnover ratio = 7.5

Inventory turnover ratio = Cost of goods sold / Average inventory

Cost of Goods Sold = Total Sales - Gross Profit Margin @ 48%

= $ 13,500,000 - 48/100 * $ 13,500,000

= $ 7,020,000

In the above equation, 7.5 = $ 7,020,000 / Average inventory

Average inventory = $ 7,020,000 / 7.5 = $ 936,000