Directions: Answer the following questions on a separatedocument. Explain how you reached the answer

or show your work if a mathematical calculation is needed, orboth. Submit your assignment using the

assignment link in the course shell.

This homework assignment is worth 100 points. Use the followinginformation for Questions 1 through 4:

Assume that you recently graduated and have just reported towork as an investment advisor at the one of the firms on WallStreet. You have been presented and asked to review the followingIncome Statement and Balance Sheets of one of the firm’s clients.Your boss has developed the following set of questions you mustanswer.

Income Statements and Balance Sheet

Balance Sheet 2012 2013 2014

Cash   $9,000 $7,282 $14,000

Short term investments 48,600 20,000 71,632

Accounts receivable 351,200 632,160 878,000

Inventories 715,200   1,287,360    1,716,480

Total current assets    $1,124,000  $1,946,802      $2,680,112

Gross fixed assets 491,000   1,202,950       1,220,000

Less: Accumulated depreciation 146,200    263,160383,160

Net fixed assets      $344,800$939,790       $836,840

Total assets   $1,468,800    $2,886,592     $3,516,952

Liabilities and Equity

Accounts payable $145,600    $324,000    $359,800

Notes payable    200,000    720,000    300,000

Accruals     136,000    284,960    380,000

Total current liabilities    $481,600     $1,328,960    $1,039,800

Long term debt    323,432     1,000,000    500,000

Common stock (100,000 shares) 460,000    460,000     1,680,936

Retained earnings    203,768     97,632    296,216

Total equity    $663,768     $557,632    $1,977,152

Total liabilities and equity    $1,468,800    $2,886,592   $3,516,952

Income Statements     2012   2013     2014

Sales     $3,432,000    $5,834,400     $7,035,600

Cost of goods sold except depr.    2,864,000     4,980,000    5,800,000

Depreciation and amortization    18,900     116,960    120,000

Other expenses    340,000     720,000    612,960

Total operating costs    $3,222,900    $5,816,960     $6,532,960

EBIT    $209,100     $17,440     $502,640

Interest expense    62,500     176,000    80,000

EBT     $146,600    ($158,560)    $422,640    

Taxes (40%)    58,640    -63,424     169,056

Net income    $87,960     ($95,136)    $253,584

Other Data    2012    2013     2014

Stock price    $8.50    $6.00    $12.17

Shares outstanding    100,000     100,000 250,000

EPS    $0.88   ($0.95)     $1.104

DPS     $0.22     0.11     0.22

Tax rate     40%    40%     40%

Book value per share    $6.64     $5.58     $7.909

Lease payments    $40,000     $40,000    $40,000

Ratio Analysis    2012     2013    IndustryAverage

Current                2.3     1.5          2.7

Quick              0.8         0.5          1.0

Inventory turnover    4       4          6.1

Days sales outstanding    37.3       39.6   32.0

Fixed assets turnover     10       6.2          7.0

Total assets turnover      2.3       2         2.5

Debt ratio    35.60%        59.60%       32.0%

Liabilities-to-assets ratio      54.80%   80.70%      50.0%

TIE      3.3     0.1     6.2

EBITDA coverage    2.6     0.8     8.0

Profit margin    2.60%     −1.6%      3.6%

Basic earning power     14.20%     0.60%     17.8%

ROA      6.00%    −3.3%     9.0%

ROE     13.30%    −17.1%     17.9%

Price/Earnings (P/E)    9.7     −6.3    16.2    

Price/Cash flow    8      27.5    7.6

Market/Book     1.3    1.1     2.9

1. What is the free cash flow for 2014?

2. Suppose Congress changed the tax laws so thatBerndt’s depreciation expenses doubled. No

changes in operations occurred. What would happen toreported profit and to net cash flow?

3. Calculate the 2014 current and quick ratios based onthe projected balance sheet and income

statement data. What can you say about the company’sliquidity position in 2013?

4. Use the extended DuPont equation to provide a summaryand overview of company’s financial

condition as projected for 2014. What are the firm’smajor strengths and weaknesses?