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Problem - Margaret O'Flaherty, a portfolio manager for MCF Investments, is considering investing in Alpine Chemical 7% bonds, which mature in 10 years. She asks you to analyze the company to determine the riskiness of the bonds.
Alpine Chemical Company Financial Statements
Years Ended December 31
($ in millions)
2006
2007
2008
2009
2010
Assets
Cash
$190
$55
$--
$157
$249
Accounts receivable
1,637
2,087
1,394
2,143
3,493
3,451
Inventories
2,021
945
1,258
1,293
1,322
1,643
Other current assets
17
27
55
393
33
171
Current assets
3,865
3,114
2,707
3,986
5,097
5,265
Gross fixed assets
4,650
5,038
5,619
5,757
6,181
7,187
Less: accumulated depreciation
2,177
2,543
2,841
3,138
3,465
3,893
Net fixed assets
2,473
2,495
2,778
2,619
2,716
3,294
Total assets
$6,338
$5,609
$5,485
$6,605
$7,813
$8,559
Liabilities and net worth
Notes payable
$525
$750
$1,300
$1,750
$1,900
Accounts payable
673
638
681
338
743
978
Accrued liabilities
303
172
359
483
761
Current liabilities
1,501
1,560
1,040
1,997
2,976
3,639
Long-term debt
1,985
1,044
1,401
1,457
1,542
1,491
Deferred tax credits
352
347
363
336
345
354
Total liabilities
3,838
2,951
2,804
3,790
4,863
5,484
Common Stock
50
100
Capital surplus
-
Retained earnings
2,350
2,508
2,581
2,715
2,850
2,975
Net worth
2,500
2,658
2,681
2,815
2,950
3,075
Total liabilities and net worth
Income Statement
($ millions)
2011
Net sales
$14,100
$15,508
$13,875
$14,750
$19,133
$19,460
Cost of goods sold
10,200
11,220
9,366
10,059
13,400
13,117
Gross profit
3,900
4,288
4,509
4,691
5,733
6,343
Operating expense
2,065
2,203
2,665
2,685
3,472
3,885
Operating profit
1,835
2,085
1,844
2,006
2,261
2,458
Interest expense
275
465
319
376
318
Depreciation expense
475
477
479
478
495
511
Profit before tax
1,085
1,143
1,090
1,209
1,390
1,629
Income taxes
193
115
265
145
192
150
Net income
$892
$1,028
$825
$1,064
$1,198
$1,479
Required - Using the data provided in the accompanying financial statement, calculate the following ratios for Alpine Chemical for 2011:
a) EBIT/Interest Expense
b) Long-term debt Total Capitalization
c) Funds from operations/total debt
d) Operating income/Sales
Use the following conventions: EBIT is earnings before interest and taxes; Total capitalization is interest-bearing long-term debt plus net worth; Funds from operations means net income plus depreciation expense; and Total debt includes interest-bearing short-term and long-term debt.
Briefly explain the significance of each ratio calculated to the assessment of Alpine Chemical's creditworthiness.
Hubbard argues that the Fed can control the Fed funds rate, but the interest rate that is important for the economy is a longer-term real rate of interest. How much control does the Fed have over this longer real rate?
Coures:- Fundamental Accounting Principles: - Explain the goals and uses of special journals.
Accounting problems, Draw a detailed timeline incorporating the dividends, calculate the exact Payback Period b) the discounted Payback Period. the IRR, the NPV, the Profitability Index.
Term Structure of Interest Rates
Write a report on Internal Controls
Prepare the bank reconciliation for company.
Create a cost-benefit analysis to evaluate the project
Theory of Interest: NPV, IRR, Nominal and Real, Amortization, Sinking Fund, TWRR, DWRR
Distinguish between liquidity and profitability.
Your Corp, Inc. has a corporate tax rate of 35%. Please calculate their after tax cost of debt expressed as a percentage. Your Corp, Inc. has several outstanding bond issues all of which require semiannual interest payments.
Simple Interest, Compound interest, discount rate, force of interest, AV, PV
CAPM and Venture Capital
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