There are 76 red xxx’s – each worth 1.18 points. You only need to fill in where you see red xxx’s (big or small) CHAPTER 1 THE McGEE CAKE COMPANY 1. The advantages to a LLC are: xxxx The biggest disadvantage is: xxxx 2. .xxxx C-2 CASE SOLUTIONS 3. .xxxx CHAPTER 2 CASH FLOWS AND FINANCIAL STATEMENTS Below are the financial statements that you are asked to prepare. 1. The income statement for each year will look like this: Income Statement 2010 2011 Sales xxxx xxxx Cost of goods sold 163,849 206,886 Selling and administrative xxxx xxxx Depreciation 46,255 52,282 EBIT $79,110 $90,584 Interest 10,056 11,526 EBT $69,054 $79,058 Taxes (use the problem to figure This amount out xxxx xxxx Net income $55,243 $63,246 Dividends(read the case to find out how much this is) xxxx xxxx Addition to retained earnings (this would be whatever the net income is less the dividends paid out) xxxx xxxx 2. The balance sheet for each year will be: Balance Sheet as of Dec. 31, 2010 Cash xxxx Accounts payable xxxx Accounts receivable xxxx Notes payable xxxx Inventory xxxx Current liabilities $60,832 Current assets $72,651 Long-term debt xxxxx Net fixed assets xxxxxx Owners' equity xxxxx Total assets $276,719 Total liab. and equity $276,719 In the first year, equity is not given. Therefore, we must calculate equity as a plug variable. Since total liabilities and equity is equal to total assets, equity can be calculated as: Equity = $276,719 – 60,832 – 103,006 Equity = $112,881 Balance Sheet as of Dec. 31, 2011 Cash xxxx Accounts payable xxxx Accounts receivable xxxx Notes payable xxxx Inventory xxxx Current liabilities $68,121 Current assets $100,834 Long-term debt xxxx Net fixed assets xxxx Owners' equity Xxxx(see below) Total assets $349,459 Total liab. and equity $349,459 The owner’s equity for 2011 is the beginning of year owner’s equity, plus the addition to retained earnings, plus the new equity, so: Equity = $112,881 + 31,623 + 20,500 Equity = $165,004 3-6 are completed for you so you can answer the questions 3. Using the OCF equation: ( OCF = EBIT + Depreciation – Taxes The OCF for each year is: OCF2010 = $79,110 + 46,255 – 13,811 OCF2010 = $111,554 OCF2011 = $90,584 + 52,282 – 15,812 OCF2011 = $127,054 4. To calculate the cash flow from assets, we need to find the capital spending and change in net working capital. The capital spending for the year was: Capital spending Ending net fixed assets $248,625 – Beginning net fixed assets 204,068 + Depreciation 52,282 Net capital spending $96,839 And the change in net working capital was: Change in net working capital Ending NWC $32,713 – Beginning NWC 11,819 Change in NWC $20,894 So, the cash flow from assets was: Cash flow from assets Operating cash flow $127,054 – Net capital spending 96,839 – Change in NWC ...

1. There are 76 red xxx’s – each worth 1.18 points. You only need
to fill in where you see red xxx’s (big or small)
CHAPTER 1
THE McGEE CAKE COMPANY
1. The advantages to a LLC are: xxxx
The biggest disadvantage is: xxxx
2. .xxxx
C-2 CASE SOLUTIONS
3. .xxxx
CHAPTER 2
CASH FLOWS AND FINANCIAL STATEMENTS
Below are the financial statements that you are asked to
prepare.
1. The income statement for each year will look like this:
Income Statement
2010
2011
Sales
xxxx

2. xxxx
Cost of goods sold
163,849
206,886
Selling and administrative
xxxx
xxxx
Depreciation
46,255
52,282
EBIT
$79,110
$90,584
Interest
10,056
11,526
EBT
$69,054
$79,058
Taxes (use the problem to figure
This amount out
xxxx

3. xxxx
Net income
$55,243
$63,246
Dividends(read the case to find out how much this is)
xxxx
xxxx
Addition to retained earnings
(this would be whatever the net income is less the dividends
paid out)
xxxx
xxxx
2. The balance sheet for each year will be:
Balance Sheet as of Dec. 31, 2010
Cash
xxxx
Accounts payable
xxxx
Accounts receivable
xxxx

4. Notes payable
xxxx
Inventory
xxxx
Current liabilities
$60,832
Current assets
$72,651
Long-term debt
xxxxx
Net fixed assets
xxxxxx
Owners' equity
xxxxx
Total assets
$276,719

5. Total liab. and equity
$276,719
In the first year, equity is not given. Therefore, we must
calculate equity as a plug variable. Since total liabilities and
equity is equal to total assets, equity can be calculated as:
Equity = $276,719 – 60,832 – 103,006
Equity = $112,881
Balance Sheet as of Dec. 31, 2011
Cash
xxxx
Accounts payable
xxxx
Accounts receivable
xxxx
Notes payable
xxxx
Inventory
xxxx
Current liabilities
$68,121
Current assets
$100,834

6. Long-term debt
xxxx
Net fixed assets
xxxx
Owners' equity
Xxxx(see below)
Total assets
$349,459
Total liab. and equity
$349,459
The owner’s equity for 2011 is the beginning of year
owner’s equity, plus the addition to retained earnings, plus the
new equity, so:
Equity = $112,881 + 31,623 + 20,500
Equity = $165,004
3-6 are completed for you so you can answer the questions

7. 3. Using the OCF equation: (
OCF = EBIT + Depreciation – Taxes
The OCF for each year is:
OCF2010 = $79,110 + 46,255 – 13,811
OCF2010 = $111,554
OCF2011 = $90,584 + 52,282 – 15,812
OCF2011 = $127,054
4.
To calculate the cash flow from assets, we need to find the
capital spending and change in net working capital. The capital
spending for the year was:
Capital spending

8. Ending net fixed assets
$248,625
– Beginning net fixed assets
204,068
+ Depreciation
52,282
Net capital spending
$96,839
And the change in net working capital was:
Change in net working capital
Ending NWC
$32,713
– Beginning NWC
11,819
Change in NWC
$20,894
So, the cash flow from assets was:
Cash flow from assets
Operating cash flow
$127,054

9. – Net capital spending
96,839
– Change in NWC
20,894
Cash flow from assets
$ 9,321
5. The cash flow to creditors was:
Cash flow to creditors
Interest paid
$11,526
– Net new borrowing
13,328
Cash flow to creditors
–$1,802
6. The cash flow to stockholders was:
Cash flow to stockholders
Dividends paid
$31,623
– Net new equity raised
20,500

10. Cash flow to stockholders
$11,123
Answers to questions
1. xxxx
2. xxxx
CHAPTER 3
RATIOS ANALYSIS AT S&S AIR
1. The calculations for the ratios listed are:
Current ratio = (put the numbers here)
Current ratio = (put the ratio here)
Quick ratio = (put the numbers here)
Quick ratio = (put the ratio here)
Cash ratio (put the numbers here)
Cash ratio = (put the ratio here)
Total asset turnover = (put the numbers here)
Total asset turnover = (put the ratio here)
Inventory turnover = (put the numbers here)
Inventory turnover = (put the ratio here)
Receivables turnover = (put the numbers here)
Receivables turnover = (put the ratio here)
Total debt ratio = (put the numbers here)
Total debt ratio = (put the ratio here)

11. Debt-equity ratio = (put the numbers here)
Debt-equity ratio = (put the ratio here)
Equity multiplier = (put the numbers here)
Equity multiplier = (put the ratio here)
Times interest earned = (put the numbers here)
Times interest earned = (put the ratio here)
Cash coverage = (put the numbers here)
Cash coverage = (put the ratio here)
Profit margin = (put the numbers here)
Profit margin = (put the ratio here)
Return on assets = (put the numbers here)
Return on assets = (put the ratio here)
Return on equity = (put the numbers here)
Return on equity = (put the ratio here)
Below is a list of possible reasons it may be good or bad
that each ratio is higher or lower than the industry. Note that
the list is not exhaustive, but merely one possible explanation
for each ratio.
Ratio
Good
Bad
Current ratio
Better at managing current accounts.
May be having liquidity problems.

12. Quick ratio
Better at managing current accounts.
May be having liquidity problems.
Cash ratio
Better at managing current accounts.
May be having liquidity problems.
Total asset turnover
Better at utilizing assets.
Assets may be older and depreciated, requiring extensive
investment soon.
Inventory turnover
Better at inventory management, possibly due to better
procedures.
Could be experiencing inventory shortages.
Receivables turnover
Better at collecting receivables.
May have credit terms that are too strict. Decreasing receivables
turnover may increase sales.
Total debt ratio
Less debt than industry median means the company is less likely
to experience credit problems.
Increasing the amount of debt can increase shareholder returns.
Especially notice that it will increase ROE.
Debt-equity ratio
Less debt than industry median means the company is less likely
to experience credit problems.
Increasing the amount of debt can increase shareholder returns.
Especially notice that it will increase ROE.
Equity multiplier

13. Less debt than industry median means the company is less likely
to experience credit problems.
Increasing the amount of debt can increase shareholder returns.
Especially notice that it will increase ROE.
TIE
Higher quality materials could be increasing costs.
The company may have more difficulty meeting interest
payments in a downturn.
Cash coverage
Less debt than industry median means the company is less likely
to experience credit problems.
Increasing the amount of debt can increase shareholder returns.
Especially notice that it will increase ROE.
Profit margin
The PM is slightly below the industry median. It could be a
result of higher quality materials or better manufacturing.
Company may be having trouble controlling costs.
ROA
Company may have newer assets than the industry.
Company may have newer assets than the industry.
ROE
Lower profit margin may be a result of higher quality.
Profit margin and EM are lower than industry, which results in
the lower ROE.
CHAPTER 4
PLANNING FOR GROWTH AT S&S AIR

14. (No need to complete #1 – please review for understanding)
1. To calculate the internal growth rate, we first need to find
the ROA and the retention ratio, so:
ROA = NI / TA
ROA = xxx/xxx
ROA = .xxx
b = Addition to RE / NI
b = $1,285,242 / $1,845,242
b = 0.70
Now we can use the internal growth rate equation to get:
Internal growth rate = (ROA × b) / [1 – (ROA × b)]
Internal growth rate = [0.1062(.70)] / [1 – 0.1062(.70)]
Internal growth rate = .0799, or 7.99%
To find the sustainable growth rate, we need the ROE,
which is:
ROE = NI / TE
ROE = xxx/xxx
ROE = xxxx
Using the retention ratio we previously calculated, the
sustainable growth rate is:
Sustainable growth rate = (ROE × b) / [1 – (ROE × b)]
Sustainable growth rate = [0.1931(.70)] / [1 – 0.1931(.70)]
Sustainable growth rate = .1554, or 15.54%
The internal growth rate is the growth rate the company
can achieve with no outside financing of any sort. The
sustainable growth rate is the growth rate the company can

15. achieve by raising outside debt based on its retained earnings
and current capital structure.
2. Pro forma financial statements for next year at a 12 percent
growth rate are:
Take the 2011 Income Statement and apply the growth rate to
the numbers:
Income Statement
Sales
XXXX
COGS
XXXX
Other expenses
XXXX
Depreciation (stays same)
1,640,200

16. EBIT
xxxx
Interest (stays same)
573,200
Taxable income
XXXX
Taxes (40%)
xxxx
Net income
XXXX

17. Dividends
$675,565
Add to RE
1,550,472
BALANCE SHEET IS ALREADY PREPARED FOR YOU
Balance Sheet
Assets
Liabilities and Equity
Current assets
Current liabilities
Cash
xxxx
Accounts payable
xxxxx
Accounts rec.
xxxx

18. Notes payable
xxxx
Inventory
xxxx
Total CL
$2,874,396
Total CA
$2,204,003
Long-term debt
$5,050,000
Fixed Assets
$17,261,014
Shareholder equity

19. Common stock
$322,500
Retained earnings
10,784,402
Total equity
$11,106,902
Total Assets
$19,465,018
Total L&E
$19,031,298
Look at the total assets and the total L&E. They are supposed
to be equal. Since they are not we need to borrow some money

20. – what is the EFN (External Financing Needed)?
So, the EFN is:
EFN = Total assets – Total liabilities and equity
EFN = XXXXXX
CAN THE COMPANY’S SALES INCREASE AT THIS
GROWTH RATE? XXXXX
IF THE ANSWER IS YES, WHAT ratio must increase? XXXX
IF THE ANSWER IS NO, why? XXXXX
There are 76
red xxx’s
–
each
worth 1.18
points. You only need to fill in where you see
red xxx’s (big or small)
CHAPTER 1
THE McGEE CAKE COMPANY
1.
The advantages to a LLC are:
xxxx

21. The biggest disadvantage is:
xxxx
2.
.
xxxx
3.
.
xxxx
There are 76 red xxx’s – each worth 1.18
points. You only need to fill in where you see
red xxx’s (big or small)
CHAPTER 1
THE McGEE CAKE COMPANY
1. The advantages to a LLC are: xxxx
The biggest disadvantage is: xxxx
2. .xxxx
3. .xxxx