Follow the instruction

1. Each question is worth 10 points. 2. The purpose of the assignment is to help you get familiar with key concepts of finance and to guide you to read the textbook before coming to class. · You do not need to read all content of the textbook: you are only required to read enough to answer questions of this assignment. · The assignment asks you to “use your own words”—you need to read the textbook, UNDERSTAND the concepts, and use your own words to answer questions. · Your answers should be only based on the textbook, 3. Please write all your answers after |

**Read Chapter 1 of the textbook and
use your own words to answer the following questions.
**

**When you read Chapter 1: please focus only on the definition of the financial statement terms and the ratios. You do not need to worry about “The Unidentified Industries Game”. **

1. Based on Chapter 1: Use your own words to explain the following items on the assets side of a company’s balance sheet:

1) Marketable Securities (also called “short-term investment”)

2) Account receivables

3) Current assets

4) Property, plant, and equipment (PP&E)

__Type your answers below:__

2. Based on Chapter 1: Use your own words to explain the following items on the liabilities side of a company’s balance sheet:

1) Account payables

2) Accrued items

3) Current liabilities

__Type your answers below:__

3. Based on Chapter 1: Use your own words to explain the differences of equity, debt, and total assets

__Type your answers below:__

4. Based on Chapter 1: Use your own words to explain the following items on a company’s income statement:

1) Cost of goods sold (also called “COGS”)

2) Selling, general, and administrative expenses (also called “SG&A”)

3) EBIT

__Type your answers below:__

5. A company has the following items for the fiscal year 2023:

· Cash = 2 million

· Marketable securities = 6 million

· Account receivables (A/R) = 1 million

· Inventories = 6 million

· Total current liabilities = 8 million

Calculate the company’s

**
Current Ratio
** and

__Quick Ratio__
__Type your answers below – please show your calculation process: __

6. A company has the following items for the fiscal year 2023:

· Revenue =10 million

· Cost of goods sold = 3 million

· EBIT = 4.5 million

· Net income = 3 million (also called net profit)

Calculate the company’s

__Net Profit Margin__

__Type your answers below – please show your calculation process: __

7.

A company has the following items for the fiscal year 2023:

· Revenue =10 million

· EBIT = 4.5 million

· Net income = 3 million

· Total Equity = 30 million

· Total Assets = 40 million

Calculate the company’s

**
ROA
** and

__ROE__
__Type your answers below – please show your calculation process: __

8. A company has the following items for the fiscal year 2023:

· Total Equity = 20 million

· Total Debt = 5 million

· Total Assets = 30 million

· EBIT = 4 million

· Interest expense = 1 million

Calculate the company’s ratios of

**
Debt to Assets
**,

**and**

__Assets to Shareholders’ Equity__

__Interest Coverage Ratio__
__Type your answers below – please show your calculation process: __

9. Write the

__formula__ for the following ratios and

__what each ratio measures__:

1) Inventory Turnover and Days Inventory

2) Receivable Collection Period

__Type your answers below: __

10. A company has the following items for the fiscal year 2023:

· Sales = 10 million

· Cost of goods sold = 6 million

· Inventory = 2 million

· Account Receivables = 1 million

· Account Payable = 2.5 million

Calculate the company’s ratios of

**
Inventory Turnover
**,

**and**

__Days Inventory__

__Receivable Collection Period__
__Type your answers below – please show your calculation process: __

11. Write down the DuPont framework. How would you explain to your non-MBA non-Finance friends about the DuPont framework and why it is important?

__Type your answers below: __

12. A company has the following items for the fiscal year 2023:

· Revenue = 10 million

· EBIT = 4 million

· Net income = 2 million

· Total Equity = 15 million

· Total Assets = 30 million

Calculate the company’s

**
Net Profit Margin
**,

**and**

__Asset Turnover__

__ROE__
__Type your answers below – please show your calculation process: __

**Read Chapter 2 of the textbook and
use your own words to answer the following questions.
**

**When you read Chapter 2: You only need to read enough on pages 53-69 to finish my questions below. I will spend a lot of class time talking about cash! **

13. Based on Chapter 2:

1) Use your own words to explain Operating Cash Flows (OCF)

2) Use your own words to explain Free Cash Flows (FCF)

__Type your answers below:__

14. Read the section on the Cash Conversion Cycle (or “Cash Cycle”) and use your own words to answer the questions:

1) Explain cash conversion cycle and why it is important to companies?

2) Is it possible that a company has a negative cash cycle? Is it a good thing or a bad thing?

__Type your answers below:__

15. A company has days of inventory 80 days, days receivable of 30 days, and days payable of 60 days. Calculate the company’s funding gap and

__interpret the number__.

__Type your answers below – please show your calculation process:__

16. A company has days of inventory 30 days, days receivable of 30 days, and days payable of 90 days. Calculate the company’s cash cycle and

__interpret the number__.

__Type your answers below – please show your calculation process:__

**Read Chapter 4 of the textbook and
use your own words to answer the following questions.
**

**When you read Chapter 4: You only need to read enough to finish my questions below. **

17. If the risk-free rate is 2%, the market risk premium (also called the equity risk premium) is 5%, and a company has a beta of 1.5. What is the company’s cost of equity?

__Type your answers below – Please first show the formula for CAPM and show your calculation process: __

18. Assume a company has 10 million of total assets: 60% of the total asset is from debt and 40% is from equity. The company has a 12% cost of equity and a 7% cost of debt. The company has a tax rate of 30%. What is the company’s weighted average cost of capital (WACC)?

__Type your answers below – Please first show the formula for WACC and show your calculation process: __

**Read Chapter 5 of the textbook and
use your own words to answer the following questions.
**

**When you read Chapter 5: You only need to read enough to finish my questions below. **

19. Use your own words to answer the following questions:

1) Write the formula for the P/E ratio and what it measures?

2) Should you invest in a company with high P/E or low P/E? Why?

__Type your answers below: __

20. A company has the following items for the fiscal year 2023:

· Revenue = 20 million

· Net income = 5 million

· The company has 2 million shares of stock

· Stock price per share = $50

Calculate the company’s

**
Earnings Per Share
** and

__P/E ratio__
__Type your answers below – please show your calculation process: __

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