Question 3 1. Jane Doe, who has substantial personal wealth and income, is consi
ID: 2665279 • Letter: Q
Question
Question 3
1.
Jane Doe, who has substantial personal wealth and income, is considering the possibility of starting a new business in the chemical waste management field. She will be the sole owner, and she has enough funds to finance the operation. The business will have a relatively high degree of risk, and it is expected that the firm will incur losses for the first few years. However, the prospects for growth and positive future income look good, and Jane plans to have the firm pay out all of its income as dividends to her once it is well established. Which of the legal forms of business organization would probably best suit her needs?
Answer
Proprietorship, because of ease of entry.
S corporation, to gain some tax advantages and also to obtain limited liability.
Partnership, but only if she needs additional capital.
Regular corporation, because of the limited liability.
In this situation, the various forms of organization seem equally desirable.
Question 4
1.
Multi-Part 3-1:
The balance sheet and income statement shown below are for Pettijohn Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over.
Balance Sheet (Millions of $)
Assets 2010
Cash and securities $ 1,554.0
Accounts receivable 9,660.0
Inventories 13,440.0
Total current assets $24,654.0
Net plant and equipment 17,346.0
Total assets $42,000.0
Liabilities and Equity
Accounts payable $ 7,980.0
Notes payable 5,880.0
Accruals 4,620.0
Total current liabilities $18,480.0
Long-term bonds 10,920.0
Total debt $29,400.0
Common stock 3,360.0
Retained earnings 9,240.0
Total common equity $12,600.0
Total liabilities and equity $42,000.0
Income Statement (Millions of $) 2010
Net sales $58,800.0
Operating costs except depr'n $54,978.0
Depreciation $ 1,029.0
Earnings bef int and taxes (EBIT) $ 2,793.0
Less interest 1,050.0
Earnings before taxes (EBT) $ 1,743.0
Taxes $ 610.1
Net income $ 1,133.0
Other data:
Shares outstanding (millions) 175.00
Common dividends $ 509.83
Int rate on notes payable & L-T bonds 6.25%
Federal plus state income tax rate 35%
Year-end stock price $ 77.69
Refer to Multi-Part 3-1. What is the firm's current ratio?
Answer
0.97
1.08
1.20
1.33
1.47
Question 5
1.
Multi-Part 3-1:
The balance sheet and income statement shown below are for Pettijohn Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over.
Balance Sheet (Millions of $)
Assets 2010
Cash and securities $ 1,554.0
Accounts receivable 9,660.0
Inventories 13,440.0
Total current assets $24,654.0
Net plant and equipment 17,346.0
Total assets $42,000.0
Liabilities and Equity
Accounts payable $ 7,980.0
Notes payable 5,880.0
Accruals 4,620.0
Total current liabilities $18,480.0
Long-term bonds 10,920.0
Total debt $29,400.0
Common stock 3,360.0
Retained earnings 9,240.0
Total common equity $12,600.0
Total liabilities and equity $42,000.0
Income Statement (Millions of $) 2010
Net sales $58,800.0
Operating costs except depr'n $54,978.0
Depreciation $ 1,029.0
Earnings bef int and taxes (EBIT) $ 2,793.0
Less interest 1,050.0
Earnings before taxes (EBT) $ 1,743.0
Taxes $ 610.1
Net income $ 1,133.0
Other data:
Shares outstanding (millions) 175.00
Common dividends $ 509.83
Int rate on notes payable & L-T bonds 6.25%
Federal plus state income tax rate 35%
Year-end stock price $ 77.69
Refer to Multi-Part 3-1. What is the firm's days sales outstanding? Assume a 360-day year for this calculation.
Answer
48.17
50.71
53.38
56.19
59.14
Question 6
1.
Multi-Part 3-1:
The balance sheet and income statement shown below are for Pettijohn Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over.
Balance Sheet (Millions of $)
Assets 2010
Cash and securities $ 1,554.0
Accounts receivable 9,660.0
Inventories 13,440.0
Total current assets $24,654.0
Net plant and equipment 17,346.0
Total assets $42,000.0
Liabilities and Equity
Accounts payable $ 7,980.0
Notes payable 5,880.0
Accruals 4,620.0
Total current liabilities $18,480.0
Long-term bonds 10,920.0
Total debt $29,400.0
Common stock 3,360.0
Retained earnings 9,240.0
Total common equity $12,600.0
Total liabilities and equity $42,000.0
Income Statement (Millions of $) 2010
Net sales $58,800.0
Operating costs except depr'n $54,978.0
Depreciation $ 1,029.0
Earnings bef int and taxes (EBIT) $ 2,793.0
Less interest 1,050.0
Earnings before taxes (EBT) $ 1,743.0
Taxes $ 610.1
Net income $ 1,133.0
Other data:
Shares outstanding (millions) 175.00
Common dividends $ 509.83
Int rate on notes payable & L-T bonds 6.25%
Federal plus state income tax rate 35%
Year-end stock price $ 77.69
Refer to Multi-Part 3-1. What is the firm's total assets turnover?
Answer
0.90
1.12
1.40
1.68
2.02
Explanation / Answer
1) The correct option is S corporation to gain some tax advantages and also obtain limited liability. 2) Current ratio: The formula for calculating the current ratio is Current ratio = Total current assets / Total current liabilities = $24,654 / $18,480 = 1.334 times Therefore, the correct option is 1.33 3) Days sales in Receivables: The formula for calculating the Days sales in Receivables is Days sales in Receivables = (Total receivables / Total sales) * 360 = ($9,666 / $58,800) * 360 = 59.14 days Therefore, the correct option is 59.14 days. 4) Total asset turnover ratio: The formula for calculating the Total asset turnover ratio is Total asset turnover ratio = Sales / Total assets = $58,800 / $42,000 = 1.4 times Therefore, the correct option is 1.40 times.Related Questions
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