HomeworkChpt2.pdf

1. See Table 2.5 showing financial statement data and stock price data for Mydeco Corp.

a. What is Mydeco’s market capitalization at the end of each year?

b. What is Mydeco’s market-to-book ratio at the end of each year?

c. What is Mydeco’s enterprise value at the end of each year?

2015–2019 Financial Statement Data and Stock Price Data for Mydeco Corp.

2. a. By what percentage did Mydeco’s revenues grow each year from 2016–2019?

b. By what percentage did net income grow each year?

c. Why might the growth rates of revenues and net income differ?

d. Suppose Mydeco’s costs and expenses had been the same fraction of revenues in 2016–2019 as they were

in 2015. What would Mydeco’s EPS have been each year in this case?

3. See Table 2.5 showing financial statement data and stock price data for Mydeco Corp.

a. In what year was Mydeco’s net income the lowest?

b. In what year did Mydeco need to reduce its cash reserves?

c. Why did Mydeco need to reduce its cash reserves in a year when net income was reasonably high?

4. Use the data from the balance sheet and cash flow statement in 2015 to determine the following:

a. How much cash did Mydeco have at the end of 2014?

b. What were Mydeco’s accounts receivable and inventory at the end of 2014?

c. What were Mydeco’s total liabilities at the end of 2014?

d. Assuming goodwill and intangibles were equal in 2014 and 2015, what was Mydeco’s net property,

plant, and equipment at the end of 2014?

5. See Table 2.5 showing financial statement data and stock price data for Mydeco Corp.

a. Compute Mydeco’s PE ratio each year from 2012 to 2016. In which year was it the highest?

b. What was Mydeco’s Enterprise Value to EBITDA ratio each year? In which year was it the highest?

c. What might explain the differing time pattern of the two valuation ratios?

6. See Table 2.5 showing financial statement data and stock price data for Mydeco Corp.

a. Compute Mydeco’s ROE each year from 2015 to 2019.

b. Compute Mydeco’s ROA each year from 2015 to 2019.

c. Which return is more volatile? Why?

7. Last year, Michelson Manufacturing reported $10,250 of sales, $3,500 of operating costs other than depreciation,

and $1,250 of depreciation. The company had no amortization charges, it had $3,500 of bonds outstanding that carry

a 6.5% interest rate, and its federal-plus-state income tax rate was 35%. This year's data are expected to remain

unchanged except for one item, depreciation, which is expected to increase by $725. By how much will the

depreciation change cause the firm's net after-tax income and its net cash flow to change? (Net Cash Flow = Net

Income + depreciation).