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19assignment_1_financial_statements.pdf
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Assignment 1: Financial Statements
Please answer all questions.
1. What is the main problem in using a balance sheet to provide an
accurate assessment of the value of a company’s equity?
2. Explain what a firm’s “gross profit” is.
3.
Balance Sheet
Assets
Current Assets
Cash
Accounts receivable
Inventories
Total current assets
46
23
20
89
Long-Term Assets
Net property, plant,
and equipment
121
Total long-term assets 121
Total Assets
210
Liabilities
Current Liabilities
Accounts payable
39
Notes payable/short-term debt
5
Total current liabilities
44
Long-Term Liabilities
Long-term debt
Total long-term liabilities
Total Liabilities
Stockholders’ Equity
Total Liabilities and
Stockholders’ Equity
133
133
177
33
210
The above diagram shows a balance sheet for a certain company. All
quantities shown are in millions of dollars. What is the company’s net
working capital? Explain.
4. A company has a share price of $22.15 and 118 million shares
outstanding. Its market-to-book ratio is 4.2, its book debt-equity ratio is
3.2, and it has cash of $800 million. How much would it cost to take
over this business assuming you pay its enterprise value?
…
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