# Pfizer and Mylan

1. The income statement and balance sheet for Galaxy Interiors (for 2011) are shown below:

A. What is the firm's operating cash flow for 2011 (as defined in Chapter 2)?

B. What is the "Net cash from operating activities" on the Statement of Cash Flows (see Chapter 3)?

C. What was the amount of dividends paid in 2011?

D. What is the amount of the net capital spending for 2011?

2. ABC Pharmaceuticals has current assets of $6,500, net fixed assets of $37,500, current liabilities of $4,900, and long term debt of $16,800. In addition, the firm just received approval from the FDA to start selling product XYZ, which it has developed (from R&D spending) over the past several years. This product (which is owned by ABC) has a market value of $750,000 (this is the present value of the expected future cash flows).

A. What is the amount of Shareholder's Equity on this firm's accounting balance sheet?

B. Do you think the firm's asset market value is greater than, less than, or equal to its asset book value? How do you know? (You do not need to give a precise numerical answer to this question.)

3. Given the following information for Cutting-Edge Cure Company, calculate depreciation expense: sales = $34,000; administrative costs (excluding depreciation) = 12,000; R&D costs (excluding depreciation) = 4,000; addition to retained earnings = $4,300; dividends paid = $1,200; interest expense = $2,300; tax rate = 35%.

4. What is the sustainable growth rate (assuming the following ratios are constant)?

Answer:

1/1.20 = .833

1/[1/1.20) - 1]

1/.833

1.200 - 1 = D/E .200

(.08) (1.46)(1 +.200)

ROE = .14016

1 - .32 = .68

[.14016 (.68)] / (1-.14016 (.68)

= 0.953/.9047

SGR = .1053

5. Natural Country Cures has sales of $35 million, total debt of $36 million, and a debt-to-equity ratio of 1.2. The firm's net profit margin is 6 percent.

A. What is the firm's net income (in dollars)?

B. What is the firm's ROA?

- Net Income/Assets =(NI/Sales) x (Sales/Assets) =

C. What is the firm's ROE?

- Net Income/Equity = (Net Income/Assests) x (Assests/Equity) = ROA x (Assets/Equity)

Question 6 is on the next page

6. Define the gross profit margin (GPM) as follows:

Note that cost of goods sold (COGS) includes only the raw material (or inventory) acquisition costs, the direct production costs, and the packaging costs of items sold.

In addition, define the R&D/Sales ratio as:

Obtain the 2011 annual reports for Pfizer and Mylan Inc. from the internet. You must use numbers obtained from the firms' 2011 income statements in parts A, C, and D (show your work!).

A. Calculate the gross profit margin for each firm for 2011.

B. Why do these firms have dramatically different gross profit margins? What fundamental difference in their business models causes this difference? (Use your own words).

C. Calculate the R&D/Sales ratio for each firm in 2011.

D. Why do these firms have dramatically different R&D/Sales ratios? (This answer is similar to part B, but specifically address R&D expense in Part D).

Question 7 is on the next page

7. The most recent financial statements for Watchtower Inc. are shown here (assume no income taxes, and ignore interest expense):

Income Statement

Sales $5,100

Costs 3,480

Net Income 1,620

Balance Sheet

Assets 14,500 Debt 10,200

Equity 4,300

Total 14,500 Total 14,500

Assets and costs are proportional to sales; debt and equity are not. No dividends are paid. Next year's sales are projected to be $5,967.

A. What is the external financing needed?

B. What maximum sales amount (in dollars) could the firm support next with no external financing?

C. What is the sales growth rate implied by the sales amount you identify in part B? What is this growth rate called? (Hint: This term is in the book!)

https://brainmass.com/business/european-union/pfizer-mylan-521115

#### Solution Preview

1. Operating cash flow = EBIT+Depreciation-Taxes

OCF = 3396+1611-740 = $4267 million

b. Net cash from operating activities:

Net Income $1374

Depreciation: 1611

(Incr)/Decr in a/r: 84

(Incr)/Decr in inventory: 901

Incr/(Decr) in a/p: (162)

Net cash flow from operating activities = $3808 million

c. Need EPS information

d. Net capital spending = ending fixed assets - beginning fixed assets + depreciation

= 17107-17489+1611 = $1229m

2. Assets = liabilities + owners' equity

6500+37500 = 4900+16800+OE

OE = 44000-21700 = $22,300

b. Yes, assets' market value is more than book value.

Book value is the net asset value of the firm value obtained by subtracting all liabilities on the firm's balance sheet from the total value of the firm's assets. This value is $22,300 while market value of assets is ...

#### Solution Summary

The expert examines the firm's operation cash flows and the net cash from operation activities.

Statistics: probablitiles, confidence intervals, hyothesis testing for population of stocks

See attached data file.

Using Excel, assume that the distribution of the population of all stocks on that index is normal, and using the mean and standard deviation from your sample as point estimates, find the following probabilities:

P (a price is greater than $20)

P (a price is less than $90)

P (a price is between $30 and $40)

Determine the actual percentage of your sample stocks in Sample "A" that were greater than $20, less than $90, and between $30 and $40 by counting the number. Give reasons why these percentages may differ from those found in Part I above.

Using Sample "A" construct, explain and interpret a 90% confidence interval for the mean of all stocks in your index.

Using Sample "A" construct, explain and interpret a 95% confidence interval for the mean of all stocks in the index based on your sample of 50 stocks.

Conduct a test of the hypothesis that the mean price (current) of the stocks on Sample "A" is the same as the mean price (current) of all of the stocks in Sample "B." Show all five steps.

Discuss the implications of the results of this hypothesis test. In this discussion, reference the current value of each index.

Use the Sample "A" 50 stocks with the current price and the price for one year ago to conduct a paired test to determine if there has been a significant change in these stock values in the last year. Compute the mean change as a percent and compute the mean change in the index for the two dates. Explain your results.

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