Group Assignment 1
This question is related to Table 2.7 and Sample Company
Q3.Sample Company is an aerospace manufacturer located in Summer side, PEI. The company’s income statements and balance sheets for the fiscal years ended August 31, 2003 and 2004 are attached.
Required:
A. Use the statements provided in a separate Excel file, Sample Company.xls, to determine the following. Be sure to show your work.
a) The total dollar investment in assets made during 2004 and the sources of the funds
invested.
b) The amortization expense in 2004 calculated using only the balance sheet.
c) The stated value of the preferred shares sold in 2004.
d) The company’s earnings per share (EPS) in 2003 and 2004.
e) The total dividends paid and dividends per share (DPS) in 2003 and 2004.
f) The average amount the company received from the sale of all common shares outstanding
in 2003 and those sold in 2004.
g) Retained earnings as of the beginning of the 2003 fiscal year.
h) Sample Company’s book value and book value per share at the end of the 2003 and 2004
fiscal years.
B. Prepare a statement of cash flows for Sample Company for the 2004 fiscal year and interpret the statement.
C. What tax rate did Sample Company use for their income statement?
D. Assuming the tax rates provided in Table 2.7 in the book apply, determine the actual amount of taxes Sample Company would pay in both 2003 and 2004.
Table 2.7
Week 3 problems
5-11
5–11Bond interest payments before and after taxesZylex Corp. has issued 2,500 bonds with a total principal value of $2,500,000. The bonds have a coupon rate of 9.25 percent.
a.What dollar amount of interest per bond can an investor expect to receive each year from Zylex Corp.?
b.What is Zylex’s total interest expense per year associated with this bond issue?
c.Assuming that Zylex is in a 35 percent corporate tax bracket, what is the company’s net after-tax interest cost associated with this bond issue?
(Hennessey 295)
Hennessey, Lawrence J. Gitman and Sean M..Principles of Corporate Finance VitalSource eBook for Athabasca University.Pearson Learning Solutions.vbk:9781256458005#outline(8.10)>.
Problem 5-20
5–20Restricted voting shares In 1962, Frank Hughes established Hughes Machine Parts in rural Ontario. In 1975, Frank decided to go public and held an IPO. But, for the IPO Frank decided to issue subordinate voting shares, the B share. The B shares were entitled to one vote each. Frank and his family would hold the A shares which were entitled to 200 votes per share. After a number of secondary issues of shares, there were a total of 32,463,412 common shares outstanding; 265,000 of these were Class A shares.
a.Of the total shares issued, what percent are Class B shares?
b.What percent of the votes do the Class B shares hold?
c.What type of share is the Class A? The Class B?
d.Based on the above analysis, what possible danger exists for the Class B shareholders? Is there a protection for these shareholders?
(Hennessey 297)
Hennessey, Lawrence J. Gitman and Sean M..Principles of Corporate Finance VitalSource eBook for Athabasca University.Pearson Learning Solutions.vbk:9781256458005#outline(8.10)>.
Problem 5-17
A zero-coupon bond matures for $1,000 in exactly 12 years’ time. If you paid $385.63 today for the bond, what average yearly rate of return will you earn
5–17Zero-coupon bond Assume you bought the bond in the problem above. Four years go by and you wish to sell the bond in the secondary market. If yields in the market for bonds of this risk level are 6.2 percent, how much money will you receive when you sell the bond? If yields were 10.8 percent, how much would you receive?
(Hennessey 296)
Hennessey, Lawrence J. Gitman and Sean M..Principles of Corporate Finance VitalSource eBook for Athabasca University.Pearson Learning Solutions.vbk:9781256458005#outline(8.10)>.
Problem 5-24
5–24Dilution of earningsGoodwood Golfing’s earnings available for common shareholders (EAC) for this fiscal year is $6.5 million. Goodwood has 5 million common shares outstanding. The current share price is $24. Goodwood is considering issuing 500,000 common shares that will net the company 95 percent of the current share price when all issue costs are considered.
a.Prior to the share issue, what isGoodwood’s earnings per share (EPS)?
b.Assuming Goodwood issues the share this fiscal year, what is the immediate dilution of the new share issue?
c.Assume that the proceeds from the share issue are invested and provide a 12 percent return that flows to EAC. Is there a dilutive effect of the new share issue?
(Hennessey 298)
Hennessey, Lawrence J. Gitman and Sean M..Principles of Corporate Finance VitalSource eBook for Athabasca University.Pearson Learning Solutions.vbk:9781256458005#outline(8.10)>.