HOMEWORK #1A (Financial statements) Purple Dalia, Inc. has th ✓ Solved

Purple Dalia, Inc. has the following balance sheet items: current liabilities of $712,728; net fixed and other assets of $1,560,920; total assets of $2,913,380; and long-term debt of $736,080. What is the amount of the firm’s total stockholders’ equity?

Paper For Above Instructions

Total Stockholders’ Equity Calculation

To calculate the total stockholders' equity for Purple Dalia, Inc., we can use the accounting equation, which states:

Total Assets = Total Liabilities + Total Stockholders' Equity

From the provided balance sheet items, we know the following:

  • Total Assets = $2,913,380

  • Current Liabilities = $712,728

  • Long-term Debt = $736,080

First, we need to calculate the total liabilities:

Total Liabilities = Current Liabilities + Long-term Debt

Substituting in the values:

Total Liabilities = $712,728 + $736,080 = $1,448,808

Now, we can rearrange the accounting equation to solve for total stockholders' equity:

Total Stockholders' Equity = Total Assets - Total Liabilities

Substituting in the known values:

Total Stockholders' Equity = $2,913,380 - $1,448,808 = $1,464,572

Thus, the amount of the firm’s total stockholders’ equity is $1,464,572.

Annualized Holding Period Return for Jack

Jack purchased 100 shares of Green Forest Inc. stock for $157.65 each and sold them for $158.57. The dividends he received were $5.67 per share. To calculate Jack's annualized holding period return, we can use the formula:

HPR = (Ending Value - Beginning Value + Dividends) / Beginning Value

Substituting in the values:

Beginning Value = 100 shares * $157.65/share = $15,765

Ending Value = 100 shares * $158.57/share = $15,857

Dividends = 100 shares * $5.67/share = $567

Now, calculating the holding period return:

HPR = ($15,857 - $15,765 + $567) / $15,765

HPR = ($15,857 - $15,765 + $567) = $659 / $15,765 = 0.0418

To annualize this return, we multiply by the number of periods (assuming Jack held the stock for 3 months or 0.25 years):

Annualized HPR = 0.0418 * (12/3) = 0.1672

Expressed as a percentage, Jack's annualized holding period return is approximately 16.72%.

Annual Coupon Interest Payments for Fresh Bakery, Inc. Bonds

The par value of Fresh Bakery Inc.'s bond is $5,000. With an annual coupon rate, let’s assume it is provided as “X%.” To calculate the annual coupon interest payment, we can use the formula:

Annual Coupon Payment = Par Value * Coupon Rate

Assuming the coupon rate, say for instance, is 6%. Then:

Annual Coupon Payment = $5,000 * 0.06 = $300

Therefore, the annual coupon interest payment would be $300.

Operating Cycle Calculation for American Bacon Inc.

For the operating cycle calculation, we need additional line items from American Bacon Inc's financials:

  • Accounts Receivable = $299,000

  • Inventories = $628,000

  • Net Sales = $6,387,700

  • Cost of Goods Sold = $4,726,898

The formula for calculating the operating cycle is as follows:

Operating Cycle = Inventory Period + Receivables Period

To compute these periods:

  • Inventory Period = Average Inventory / Cost of Goods Sold per Day

  • Receivables Period = Average Accounts Receivable / Sales per Day

First, calculate per day figures based on a 365-day year:

Cost of Goods Sold per Day = $4,726,898 / 365 = $12,950.00

Sales per Day = $6,387,700 / 365 = $17,526.03

Next, calculate the average periods:

Inventory Period = $628,000 / $12,950.00 = 48.6 days

Receivables Period = $299,000 / $17,526.03 = 17.06 days

Thus, the operating cycle is:

Operating Cycle = 48.6 + 17.06 = 65.66 days

So, the operating cycle for American Bacon Inc. is approximately 65.66 days.

Annualized Holding Period Return for General Electric Stock

If you purchased 300 shares of General Electric stock at $66.19 per share and sold them for $61.71 while receiving $4.03 per share in dividends, we can find the annualized holding period return using the previously provided formulas:

Beginning Value = 300 shares * $66.19/share = $19,857

Ending Value = 300 shares * $61.71/share = $18,513

Dividends = 300 shares * $4.03/share = $1,209

Now we use the HPR formula:

HPR = ($18,513 - $19,857 + $1,209) / $19,857

HPR = ($18,513 - $19,857 + $1,209) = -$135 / $19,857 = -0.0068

To annualize this return for four years:

Annualized HPR = -0.0068 * (12/48) = -0.0017 or -0.17%

Jack's annualized holding period return for his General Electric stock is approximately -0.17%.

References

  • Investopedia. "Understanding Stockholders' Equity." Retrieved from https://www.investopedia.com/terms/s/stockholdersequity.asp

  • Investopedia. "Annualized Return Definition." Retrieved from https://www.investopedia.com/terms/a/annualizedreturn.asp

  • Corporate Finance Institute. "Understanding the Operating Cycle." Retrieved from https://corporatefinanceinstitute.com/resources/knowledge/accounting/operating-cycle/

  • Investopedia. "HPR - Holding Period Return." Retrieved from https://www.investopedia.com/terms/h/holdingperiodreturn.asp

  • Investopedia. "Coupon Rate Definition." Retrieved from https://www.investopedia.com/terms/c/couponrate.asp

  • Corporate Finance Institute. "Calculating Cash Flow from Operations." Retrieved from https://corporatefinanceinstitute.com/resources/knowledge/accounting/cash-flow-from-operations/

  • Morningstar. "Stocks Overview." Retrieved from https://www.morningstar.com/stocks/overview

  • Yahoo Finance. "How to Calculate Returns." Retrieved from https://finance.yahoo.com/guide/how-to-calculate-returns/

  • Financial Accounting Standards Board. "Stockholder’s Equity." Retrieved from https://www.fasb.org/home

  • Harvard Business Review. "Financial Statements: A Beginner's Guide." Retrieved from https://hbr.org/2020/05/financial-statements-a-beginners-guide