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    Ratios, Investment in bonds

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    1.Using the Data in the Balance Sheet Attached, calculate the following:

    Balance Sheet
    ABC CORPORATION
    June 30, 1988

    Assets Liabilities
    Cash $165,000 Accounts payable $166,000
    Marketable securities 18,000 Accrued taxes 70,000
    Accounts receivable 260,000 Notes payable 84,000
    Inventory 455,000 Accrues Expenses 151,000

    Total Current Assets $898,000 Total current Liabilities $471,000

    First mortgage bonds: 500,000
    7 1/2% ----due 1/1/94
    Total Liabilities $971,000

    Property, plant and equipment: Stockholders' Equity
    Land $ 75,000
    Buildings 506,000
    Equipment 89,000 Preferred stock 100,000
    Machinery 164,000 ($100 par)
    834,000 1,000 shares authorized,
    issued , and outstanding

    Less: Accumulated -217,000 Common Stock ($25 par) 300,000
    Depreciation 12,000 shares authorized,
    issued and outstanding
    Net property, plant & $ 617,000
    Equipment Paid-in capital 58,000
    Intangibles 204,000 Accumulated retained 290,000
    earnings

    Total Assets $1,719,000 Total stockholders' $ 748,000
    _________ equity
    Total liabilities and
    Stockholders' equity $ 1,719,000
    __________

    a- ABC's capitalization or capital structure
    b- ABC's working capital
    c- ABC's current ratio
    d- ABC's Acid-test ratio

    2. Assuming that the following is the Income Statement for ABC Corporation is :
    Income Statement
    ABC Corporation
    June 87 - June 88

    Net Sales $60,000
    Cost of goods sold $10,000
    General Operating Expenses $30,000 $40,000

    Operating Income $20,000
    Interest expenses $4,000
    Pretax Income $16,000
    Taxes $6,000
    Net Income after tax $10,000
    Preferred Dividend $1,000

    Earning Available to Common $9,000

    a- What is ABC's EPS?
    b- What is ABC's return on equity?
    c- What is ABC's preferred dividend rate?
    d- What is ABC's book value per share?

    3. If you are in a 28% tax bracket, which of the following two investments you pick
    a- A $10,000 Municipal Bond with 7% coupon rate, or
    b- A $10,000 Corporate Bond with 8.5% coupon rate?

    4. What is the tax-free yield equivalent of a taxable 9.2% corporate bond for an individual in a 25% tax bracket?

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    https://brainmass.com/economics/bonds/ratios-investment-in-bonds-104682

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    1.Using the Data in the Balance Sheet Attached, figure out the following:

    a- ABC's capitalization or capital structure

    Long-term debt ratio =Long-term debt/ (Long-term debt + Total Equity)

    Long term debt= $500,000
    Total Equity= $748,000
    $1,248,000

    Long-term debt ratio =Long-term debt/ (Long-term debt + Total Equity)= 0.40 =500000 / 1248000

    b- ABC's working capital

    Current Assets= $898,000
    Current Liabilities= $471,000
    Working Capital = Current Assets- Current Liabilities= $427,000 =898000 - 471000

    c- ABC's current ratio

    Current ratio = Current Assets ÷ Current Liabilities= 1.91 =898000 ÷ 471000

    d- ABC's Acid-test ratio

    Acid-test ratio = (Cash + Short-term investments + Net current receivables) ÷ Total current liabilities
    Or Acid-test ratio = (Current Assets - Inventory) ÷ Total current liabilities

    Current Assets= $898,000 ...

    Solution Summary

    Calculates capital structure, working capital, current ratio, acid-test ratio, EPS, return on equity, preferred dividend rate, book value per share, tax-free yield equivalent.

    $2.49

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