Financial and Management ratio and others
Start Here Instructions to complete and submit the final. In the line below, place your name as it appears in LEO. MSAF 670 is the capstone course for the MSAF degree program. Thus, final exam questions may come from any of the required courses in the MSAF degree program. You may use course resources provided by UMGC professors to complete this exam. You may also perform research if needed. You may not discuss this exam or ask anyone, other than your professor, questions about this exam. Doing so could result in failing this exam, which will prevent you from graduating. The final exam consists of: 10 Multiple choice questions worth 3 points each for a total of 30 points, 2 Essay questions for a total of 15 points, and 8 Comprehensive problems for a total of 55 points. To successfully complete this exam, you will need the Accounting and Financial Management Ratios and Formulas file, which is located in the Final Exam folder. You are expected to know what types of information each financial statement provides. Some exam questions refer to data in the Art Levinsen Corporation financial statements. The financial statement tabs are red. You may also need to refer to th e Industry Averages and Other Information tabs to complete the problems. All references used to complete this exam must be cited in APA Style on the sheet to which they apply. Quoted content is discouraged. Your professors will only assign points to content you write, not content written by others. All cells that require calculations must use Excel functions or formulas. No credit (0%) will be awarded for answers without Excel functions or formulas. Not all of the information and data presented will be used to solve problems. You are expected to know what data is needed to solve each problem and question. Round all answers to 2 decimal places. Add more rows and columns as needed. It is a good idea to print this final exam and the Accounting & Financial Management Ratios and Formulas file before beginning to solve the problems. Balance Sheet Art Levinsen Corporation Comparative Balance Sheet For the 12 Months Ended December 31 20X320X220X1 Current Assets: Cash710,000625,000560,000 Accounts Receivable494,000450,000410,000 Inventory526,000487,000443,000 Prepaid Insurance46,00051,00043,000 Total Current Assets1,776,0001,613,0001,456,000 Property, Plant, & Equipment Land1,520,0001,340,0001,400,000 Buildings2,530,0002,440,0002,350,000 Less: Accumulated Depreciation-550,000-480,000-420,000 Net Buildings1,980,0001,960,0001,930,000 Total Long-Term Assets3,500,0003,300,0003,330,000 Total Assets5,276,0004,913,0004,786,000 Liabilities: Short-term Liabilities: Accounts Payable284,000277,000240,000 Salaries and Wages Payable83,00074,00067,000 Dividends Payable47,04437,99544,000 Notes Payable—Line of Credit212,000230,000210,000 Total Current Liabilities626,044618,995561,000 Long-term Liabilities Notes Payable—Long Term2,090,5871,609,8311,105,421 Bonds Payable1,000,0001,000,0001,000,000 Less: Discount on Bonds Payable-249,244-263,260-275,973 Net Bonds Payable750,756736,740724,027 Total Long-Term Liabilities2,841,3432,346,5711,829,448 Total Liabilities3,467,3872,965,5662,390,448 Stockholder’s Equity: Contributed Capital500,000500,000500,000 Retained Earnings3,424,6132,679,4341,983,552 Treasury Stock-2,116,000-1,232,000-88,000 Total Stockholders’ Equity (SE)1,808,6131,947,4342,395,552 Total Liabilities and SE5,276,0004,913,0004,786,000 Income Statement Art Levinsen Corporation Income Statement For the 12 Months Ended December 31 20X320X220X1 Sales $6,150,000$5,150,000$3,450,000 Cost of Goods Sold -3,890,000-3,215,000-1,680,000 Salaries and Wages-912,000-875,000-823,000 Depreciation-Building -134,000-123,000-120,000 Insurance -78,000-92,000-89,000 Total Expenses -5,014,000-4,305,000-2,712,000 Operating Income 1,136,000845,000738,000 Interest Expense - Notes -134,757-95,410-43,917 Interest Expense - Bonds -74,016-72,713-71,531 Gain (Loss) Sale of Buildings -120,00021,00038,000 Gain (Loss) Sale of Land -31,00027,000-77,000 Total Other Revenues & Expenses-359,773-120,123-154,448 Net Income $776,227$724,877$583,552 Earnings Per Share (EPS) $6.16$4.77$2.98 St. of Cash Flows Art Levinsen Corporation Statement of Cash Flows For the 12 Months Ended December 31 20X3 20X320X2 Cash received from customers $6,106,000$5,110,000 Cash paid to suppliers -3,922,000-3,222,000 Cash paid for salaries and wages -903,000-868,000 Cash paid for insurance -73,000-100,000 Cash paid for interest—Bonds -60,000-60,000 Cash paid for interest—Notes Payable -134,757-95,410 Net Cash from Operating Activities$1,013,243$764,590 Investment in Land -790,000-980,000 Investment in Building -770,000-720,000 Sale of Building 496,000588,000 Sale of Land 579,0001,067,000 Net Cash from Investing Activities($485,000)($45,000) Proceeds (Payment) Notes Pay 462,757524,410 Purchase of Treasury Stock -884,000-1,144,000 Dividends Paid-22,000-35,000 Net Cash from Financing Activities($443,243)($654,590) Net Change in Cash 85,00065,000 Beginning Cash 625,000560,000 Ending Cash $710,000$625,000 Industry Averages Industry Averages for the Art Levinsen, Inc. Industry Industry Averages 20X3 Return on Equity0.16 Dividend Payout0.12 Return on Assets0.09 Return on Sales0.09 Asset Turnover0.9 Current Ratio2.75 Quick Ratio1.82 Debt/Assets0.2 Accounts Receivable Days32.01 Inventory Days49.53 Accounts Payable Days24.59 Summary: Cash Conversion Days56.95 Other Information Art Levinsen: Other Information Bonds Payable: On December 31, 20X1, Art Levinsen Corp. issued 1,000, 6% bonds with a 20-year maturity. The bonds pay interest every six months (June 30 and December 31), and the market interest rate is 10%. HINTS: the face of a bond is $1,000 unless otherwise stated.1,0001,000,0002010% Stock Price-Firm: The market price of the stock (per the stock exchange) was $34 at year-end 20X3, $26 at year-end 20X2, $22 at year-end 20X1, and $17 at year-end 2006.34262217 Market Information: The average return in the market over 20X1–20X3 is 12%, and its standard deviation 6.50%.12%6.50% Treasury Bonds: The average rate on U.S. Treasury bonds was 5%, which is considered to be the risk free rate of return.5% Stock Shares: Art Levinsen, Inc. has 600,000 authorized shares and 200,000 issued, and 126,000 outstanding at year-end 20X3.200,000126,000 Stock Valuation Data: The required rate of return demanded by some investors is approximately 17%. The firm’s beta is 1.75. The firm estimates that the growth rate in dividends is 20% for 20X4 and 20X5, and 14% for all years thereafter.17%1.7520%14% Treasury Stock: The firm had zero treasury stock at year-end 20X0. The firm purchased: 4,000 treasury shares at year-end 20X1, 44,000 at year-end 20X2, and 26,000 at year-end 20X3. There were no sales of treasury stock during this period—only purchases of treasury stock.4,00044,00026,000shares of TS Treasury Stk (5 points) Recalculate Art Levinsen Corporation's 20X3 total assets, 20X3 total liabilities, and 20X3 total stockholders’ equity assuming Art Levinsen Corp. did not purchase any treasury stock during 20X3. (Total = 5 points) &"-,Bold"Treasury Stock ROI (8 points) During the period 20X1–20X3, Art Levinsen Corporation's closest competitor had stock price activity that resulted in an average stock return of 25.7% with a standard deviation of 19.275%. This competitor’s beta is 1.20. The average rate on U.S. Treasury bonds was 5% and is considered to be the risk free rate of return.(Total = 8 points) a. Calculate the required rates of return for Art Levinsen Corporation and for its competitor. Show calculations. (4 points) b. If the return on the market were to fall from its current level of 12% to 9%, what would be the resulting impact on required return for Art Levinsen Corporation and its competitor? (2 points) c. If an investor held a portfolio consisting of equal percentages of the market portfolio, the firm’s stock, and the competitor’s stock, what would the beta of this portfolio be? HINT: Market beta is always = 1.00. (2 points) &"-,Bold"Return on Investment (ROI) Bond Issuance (8 points) On December 31, 20X1, Art Levinsen Corporation issued 1,000, 6% bonds with a 20-year maturity. The bonds pay interest semiannually (on June 30 and December 31), and the market/effective interest rate is 10%. HINT: the face of all bonds is $1,000 unless otherwise stated. (Total = 8 points) a) Compute the price of the bonds. (4 points) b) Prepare the bond issuance journal entry Art Levinsen Corp. will record on December 31, 20X1. (2 points) ABCDEF c) Use the bond amortization schedule that begins in cell D49to respond to this question. Calculate total interest expense Art Levinsen Corporation will record on the books from January 2, 20X2, through December 31, 20X9 (assume zero interest expense during 20X1). (2 points)PeriodInterest Payments to Investors [Face X 1/2 Contract rate: Cell E12]Interest Expense [F x 1/2 Mkt rate: Cell E14]Amortization of Bond Discount [C - B]UN-Amortized Discount [Prior pd amt - D]Carrying Value of Bonds [Prior pd amt + E] 0343,181.73656,818.27 130,00032,840.912,840.91340,340.81659,659.19 230,00032,982.962,982.96337,357.85662,642.15 330,00033,132.113,132.11334,225.75665,774.25 430,00033,288.713,288.71330,937.03669,062.97 530,00033,453.153,453.15327,483.89672,516.11 630,00033,625.813,625.81323,858.08676,141.92 730,00033,807.103,807.10320,050.98679,949.02 830,00033,997.453,997.45316,053.53683,946.47 930,00034,197.324,197.32311,856.21688,143.79 1030,00034,407.194,407.19307,449.02692,550.98 1130,00034,627.554,627.55302,821.47697,178.53 1230,00034,858.934,858.93297,962.55702,037.45 1330,00035,101.875,101.87292,860.67707,139.33 1430,00035,356.975,356.97287,503.71712,496.29 1530,00035,624.815,624.81281,878.89718,121.11 1630,00035,906.065,906.06275,972.84724,027.16 1730,00036,201.366,201.36269,771.48730,228.52 1830,00036,511.436,511.43263,260.05736,739.95 1930,00036,837.006,837.00256,423.05743,576.95 2030,00037,178.857,178.85249,244.21750,755.79 2130,00037,537.797,537.79241,706.42758,293.58 2230,00037,914.687,914.68233,791.74766,208.26 2330,00038,310.418,310.41225,481.32774,518.68 2430,00038,725.938,725.93216,755.39783,244.61 2530,00039,162.239,162.23207,593.16792,406.84 2630,00039,620.349,620.34197,972.82802,027.18 2730,00040,101.3610,101.36187,871.46812,128.54 2830,00040,606.4310,606.43177,265.03822,734.97 2930,00041,136.7511,136.75166,128.28833,871.72 &"-,Bold"Bond Issuance Ratio Analysis (8 points) Sasha Morgan is interested in investing in Art Levinsen Corporation. The CFO has asked you, a financial analysis, to calculate basic ratios to present to Sasha and other potential investors.