Part I1 - Problem Solving 1. (a-14 Points, b-2 Points) - a.) Use the following i

Question

Part I1 - Problem Solving 1. (a-14 Points, b-2 Points) - a.) Use the following information to determine various Income and Earnings Per Share numbers for Company A for the year ending 2017 (show work): $110,000,000 Revenue Gross Margin - 55% SG&A; R&D; 20% of Revenue $15,000,000 Capital Equipment, net (12/31/17) S50,000,000 All Capital Equipment was purchased on January 1, 2017 for $55 million and depreciated over 10 years using the straight line method ($5 million salvage value). Prior to that the company had no Property Plant& Equipment) Total Debt Outstanding-55,000,000 Bond with 10% annual Interest only payment until 2027 Average Cash Balance of $100 million during the year yields an average 2% return (interest income) . · Tax rate (35%) Hint: use this table as a guide to form an income statement Shares outstanding - 10,000,000 Current stock Price $10.00 Warrants outstanding: G Profit RD $3.00 $9.00 Class A -2,000,000 Currently exercisable at Class B -1,000,000 Currently exercisable at Operating Profit/Income (1 point) Pre-Tax Income (1 point) Net Income (1 point) EPS - Basic (I point) EPS - Diluted (8 points) Diluted Shares used to calculate Diluted EPS (2 points) DA Op Pron GP.CE-op Interest hcome nterest Expense E Pre-Tax Income OP IN-PT EPS Shures ostavding SO b.) Of the following four industry groups, which one does company A most likely belong to A.) Pharmaceuticals and Drugs B.) Department Stores C.) Home cleaning services D.) Hotels

Explanation / Answer

A)-

                        0.37

Potential equity shares= (Outstanding warrent*Exercise price)/Current market price

= ((2000000*3)+(1000000*9))/10=1500000

B) Company A is most likely belongs to Pharma industry because in Pharma industry there is major outflow on R&D and Plant, Property and Equipment which is there in company A.

Particulars Amount Revenue         11,00,00,000 COGS ((1-GP Margin)*Revenue)           4,95,00,000 Gross profit           6,05,00,000 SG &A           2,20,00,000 R&D           1,50,00,000 Deprecitaion ((Asset value-Residual Value)/Usefull life)               50,00,000 Operating profit           1,00,00,000 Interest Income               20,00,000 Interest Expense               55,00,000 Interest net             -35,00,000 Pre tax income               65,00,000 Tax @35%               22,75,000 Net Income               42,25,000 Shares outstanding           1,00,00,000 Basic EPS per share                         0.42 Potential shares               15,00,000 Total shares           1,15,00,000 Diluted EPS per share

                        0.37

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