MME 3113: 3113: Engineerin Engineering g Managem Management ent ASSIGN ASSIGNMEN MENT T #3 Depreciation Depreciation and computat computation ion of financial financial ratios ratios Total Marks: 50
Problem #1 [2+2+2=6]
A diagnostic center has just purchased a MRI system for $325,000 with an additional $25,000 charge for installation onto a truck for mobility. The expected life is 8 years with a salvage value of 10% of the purchase price. Use classical straight straight line depreciation depreciation to determine (a) the first cost and salvage value, (c) annual depreciation amounts, and (d) book value after 5 years. Problem #2 [2+4=6]
Upjohn Company has bought a new packaging machiine with an estimated useful life of five years. The cost of the equipment was $55,000, and the salvage value was estimated to be $5,000 at the end of year 5. Compute the annual depreciation expenses over the five year life of the equipment under each of the following methods of depreciation: Straight –line method Double-declining Double-declining balance method
Problem #3 [2+3+3+3+2=13]
A special-purpose computer workstation has B = $50,000 with a 4-year recovery period. (a) Tabulate and plot the the values for SL depreciation, depreciation, accumulated depreciation, depreciation, and book value for for each year if there is no salvage value (b) Tabulate and plot the values for SL depreciation, accumulated depreciation, and book value for each year if the salvage value, S=$16,000. (c) Use a spreadsheet to solve this problem by using DDB DDB method. (d) Plot the book value for SL and and DDB depreciation on a single single XY scatter chart. (e) Calculate the DDB annual depreciation depreciation rate for all years 1 through through 4.
Problem #4 [8+2=10] Consider the balance sheet entries in Table 1 for Iron Eagle Corporation.
(a) Compute the firm’s (i) Current assets (ii) Current liabilities (iii) Working capital, (iv) Shareholders’ equity (b) If the firm had a net income of $550,000 after taxes, what is the earnings per share. Table 1. Balance Sheet Statement as of December 31,2009 Assets Cash
$160,000
Marketable securities Accounts receivable Inventories Prepaid taxes and insurance Manufacturing plant at cost Less accumulated depreciation Net fixed assets Goodwill
210,000 160, 000 60,000 40,000 $620,000 100, 000 520,000 30,000
Liabilities and Shareholder’s Equity Notes payable Accounts payable Income taxes payable Long-term mortgage bonds Preferred stock, 6%, $110 par value (1,000 shares) Common stock, $16 par value (10,000 shares) Capital surplus Retained earnings
60,000 110,000 90,000 410,000 110,000 160,000 160,000 80,000
Problem #5 [1½x10 =15] Table 2 summarizes the financial conditions for Apple Computer Corporation. The closing stock price for Apple was $128.24 on September 26, 2008. The average number of outstanding shares was 892.11 million. On the basis of the financial data presented, compute the various financial ratios and make an informed analysis of Apple’s financial health.
(a) Debt ratio (b) Times-interest-earned ratio (c) Current ratio (d) Quick (acid-test) ratio (e) Inventory turnover ratio (f) Day’s-sales-outstanding (g) Total-assets-turnover ratio (h) Profit margin on sales (i) Return on total assets (with a tax rate of 40%) (j) Return on common equity
Table 2 Financial Statements for Apple Computer All numbers in thousands Period Ending
27-Sep-08
29-Sep-07
30-Sep-06
BALANCE SHEET Assets
Current Assets Cash and Cash Equivalents
11,875,000
9,352,000
6,392,000
Short-Term Investment
12,615,000
6,034,000
3,718,000
6,151,000
4,811,000
3,452,000
509,000
346,000
270,000
Other Current Assets
3,540,000
1,413,000
677,000
Total Current Assets
34,690,000
21,956,000
14,509,000
Net Receivables Inventory
Long Term Investment Property Plant and Equipment
-
-
-
2,455,000
1,832,000
1,281,000
Goodwill
207,000
38, 000
38, 000
Intangible Assets
352,000
382,000
160,000
-
-
-
641,000
1,051,000
1,217,000
1,227,000
88,000
-
39,572,000
25,347,000
17,205,000
8,558,000
6,230,000
6,471,000
-
-
-
Accumulated Amortization Other Assets Deferred Long-term Asset Charge Total Assets Liabilities
Current Liabilities Accounts Payable Short/Current Long-Term Debt Other Current Liabilities
5,534,000
3,069,000
-
Total Current Liabilities
14,092,000
9,299,000
6,471,000
Long Term Debt Other Liabilities
746,000
Deferred Long-term Liability Charge 3,704,000 Minority Interest
-
Negative Goodwill
-
Total Liabilities
18,542,000
-
-
67,000
14,000
1,449,000
736,000 -
-
10,815,000
7,221,000
Stockholder’s Equity
Preferred Stock
-
Common stock
7,177,000
5,368,000
4,355,000
13,845,000
9,101,000
5,607,000
Retained Earnings Treasury Stock
-
-
-
-
-
Capital Surplus
-
-
8,000
63,000
22,000
Total Stockholder Equity
21,030,000
14,532,000
9,984,000
Net Tangible Assets
$20,471,000
$14,112,000
Other Stockholder Equity
-
$9,786,000
Continued All numbers in thousands Period Ending
27-Sep-08
29-Sep-07
30-Sep-06
INCOME STATEMENT Total Revenue
32,479,000
24,006,000
19,315,000
Cost of Revenue
21,334,000
15,852,000
13,717,000
1,109,000
782,000
3,718,000
2,963,000
2,433,000
Gross Profit
Operating Expenses Research Development
Selling General and Administrative 3,761,000 Operating Income or Loss
Income from Continuing Operations Total Other Income/Expenses Net
620,000
599,000
365,000
6,895,000
5,008,000
2,818,000
-
-
-
Income Before Tax
6,895,000
5,008,000
2,818,000
Income Tax Expense
2,061,000
1,512,000
829,000
-
-
-
Net Income From Continuing Ops 4,834,000
3,496,000
1,989,000
3,496,000
1,989,000
-
-
-
4,834,000
3,496,000
1,989,000
Earnings Before Interest and Tax Interest Expense
Minority Interest
Net Income
4,834,000
Preferred Stock And Other Adjustments Net Income To Common Shares
Note:
Date of Submission: 15/05/2012 (for Section 1) and 16/5/2012 for sec. 4, 17/05/2012 (for section2,6),
Delay will cost @ 20% marks per day No need of submission after 1 day from the due date. Tips for submission: Use a cover page (will cost you 10 marks), Write down your matric number, name, course title, assignment number etc. Put the ‘Due date for Submission’ and the ‘Date of Submission’
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