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This document contains three financial management exercises providing balance sheet and income statement information for three different companies: 1) ABC Ltd's balance sheet is presented and market values for debt and shares are given. The question asks to calculate the approximate market value of ABC's non-current assets. 2) XYZ Ltd's balance sheet is presented along with market values for debt, shares, and retained earnings. The question asks to calculate the estimated market value of XYZ's non-current assets. 3) Information is given about a coffee shop's annual sales, expenses, assets, and tax rate. The questions ask to construct the income statement and calculate profit after tax and operating cash flow.

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138 views2 pages

Tutorial 1 PDF

This document contains three financial management exercises providing balance sheet and income statement information for three different companies: 1) ABC Ltd's balance sheet is presented and market values for debt and shares are given. The question asks to calculate the approximate market value of ABC's non-current assets. 2) XYZ Ltd's balance sheet is presented along with market values for debt, shares, and retained earnings. The question asks to calculate the estimated market value of XYZ's non-current assets. 3) Information is given about a coffee shop's annual sales, expenses, assets, and tax rate. The questions ask to construct the income statement and calculate profit after tax and operating cash flow.

Uploaded by

chirag chhabra
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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25742 Financial Management

Autumn 2020
Tutorial 1

Exercise 1.
The follwing balance sheet was published by ABC Ltd:

ABC Balance Sheet


Assets ($ 000) Liabilities and owners’ equity ($ 000)
Current assets Current liabilities
Cash 5,000 Accounts payable 50,000
Accounts receivable 55,000 Credit card debt 5,000
Inventory 50,000 Bank operating credit 25,000
Prepaid expenses 10,000 Accrued expenses 10,000
Taxes payable 5,000
Non-current assets Current portion of long-term debt 5,000
Vehicles 15,000
Equipment 50,000 Non-current liabilities
Land and buildings 100,000 Debentures 70,000
Investments 5,000 Long-term notes 60,000
Patents and good will 10,000
Owners’ equity
Common shares 25,000
Preferences shares 25,000
Retained earnings 50,000
300,000 330,000

The market values of the debentures and long-term notes are $68,000,000 and $55,000,000,
respectively. ABC issued 50,000,000 ordinary shares and 10,000,000 preference shares, which
are currently trading in the market for $0.95 and $2.90, respectively. Assuming that the retained
earnings are held as cash and the book and market values of current assets and current liabilities
are equal, what is the approximate market value of ABC’s non-current assets?

1
Exercise 2.
The following balance sheet has been issued by XYZ Ltd:

XYZ Balance Sheet


Assets ($ 000) Liabilities and owners’ equity ($ 000)
Current assets Current liabilities
Cash and cash equivalents 100,000 Accounts payable 30,000
Accounts receivable 20,000 Notes payable 10,000
Inventory 15,000 Accrued expenses 5,000
Prepaid expenses 4,000 Deferred revenue 2,000
Short-term investments 10,000
Non-current liabilities
Non-current assets Long-term debt 200,000
Land 24,300
Buildings and improvements 250,000 Owners’ equity
Equipment 45,000 Ordinary shares 50,000
Intangible assets 3,800 Preference shares 20,000
Retained earnings 155,100
472,100 472,100

The company’s long-term capital consists of 1,000 long-term bonds, 50,000,000 ordinary shares
and 10,000,000 preference shares. The bonds are trading at $1,120, while the ordinary shares
and the preference shares are trading at $2.10 and $2.50, respectively. What is the estimated
market value of XYZ’s non-current assets? You may assume that the retained earnings are held
as cash and that the market values of the current assets and the current liabilities are approxi-
mately equal to their book values.

Exercise 3.
A coffee shop has annual sales of $950,000. The annual wage bill is $330,000 and the annual
cost of ingredients (coffee, milk and pastries) is $180,000. The shop pays rent of $120,000
per year and incurs additional miscellaneous expenses of $60,000 per year. The shop owns an
Italian coffee machine that depreciates at $7,500 per year and it has a bank overdraft facility
that costs $15,000 in annual interest expenses. Answer the following questions, given that the
corporate tax rate is 30%:
(a) Construct the income statement for the coffee shop.
(b) What is its profit after tax?
(c) What is its operating cash flow?

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