MME 3113: Engineering Management ASSIGNMENT #3

Depreciation and computation of financial ratios

Total Marks: 50 Problem #1 [2+2+2=6] A diagnostic center has just purchased a MRI system for $325,000 with an additional $25,000 charge for installation onto a truck for mobility. The expected life is 8 years with a salvage value of 10% of the purchase price. Use classical straight line depreciation to determine (a) the first cost and salvage value, (c) annual depreciation amounts, and (d) book value after 5 years. Problem #2 [2+4=6] Upjohn Company has bought a new packaging machiine with an estimated useful life of five years. The cost of the equipment was $55,000, and the salvage value was estimated to be $5,000 at the end of year 5. Compute the annual depreciation expenses over the five year life of the equipment under each of the following methods of depreciation: Straight line method Double-declining balance method Problem #3 [2+3+3+3+2=13] A special-purpose computer workstation has B = $50,000 with a 4-year recovery period. (a) Tabulate and plot the values for SL depreciation, accumulated depreciation, and book value for each year if there is no salvage value (b) Tabulate and plot the values for SL depreciation, accumulated depreciation, and book value for each year if the salvage value, S=$16,000. (c) Use a spreadsheet to solve this problem by using DDB method. (d) Plot the book value for SL and DDB depreciation on a single XY scatter chart. (e) Calculate the DDB annual depreciation rate for all years 1 through 4.

Problem #4 [8+2=10] Consider the balance sheet entries in Table 1 for Iron Eagle Corporation. (a) Compute the firms (i) Current assets (ii) Current liabilities (iii) Working capital, (iv) Shareholders equity (b) If the firm had a net income of $550,000 after taxes, what is the earnings per share. Table 1. Balance Sheet Statement as of December 31,2009 Assets Cash $160,000

Marketable securities Accounts receivable Inventories Prepaid taxes and insurance Manufacturing plant at cost Less accumulated depreciation Net fixed assets Goodwill Liabilities and Shareholders Equity Notes payable Accounts payable Income taxes payable Long-term mortgage bonds Preferred stock, 6%, $110 par value (1,000 shares) Common stock, $16 par value (10,000 shares) Capital surplus Retained earnings

210,000 160, 000 60,000 40,000 $620,000 100, 000 520,000 30,000

60,000 110,000 90,000 410,000 110,000 160,000 160,000 80,000

Problem #5 [1x10 =15] Table 2 summarizes the financial conditions for Apple Computer Corporation. The closing stock price for Apple was $128.24 on September 26, 2008. The average number of outstanding shares was 892.11 million. On the basis of the financial data presented, compute the various financial ratios and make an informed analysis of Apples financial health. (a) Debt ratio (b) Times-interest-earned ratio (c) Current ratio (d) Quick (acid-test) ratio (e) Inventory turnover ratio (f) Days-sales-outstanding (g) Total-assets-turnover ratio (h) Profit margin on sales (i) Return on total assets (with a tax rate of 40%) (j) Return on common equity

Table 2 Financial Statements for Apple Computer

All numbers in thousands Period Ending BALANCE SHEET Assets Current Assets Cash and Cash Equivalents 11,875,000 9,352,000 6,392,000 27-Sep-08 29-Sep-07 30-Sep-06

Short-Term Investment Net Receivables Inventory Other Current Assets Total Current Assets Long Term Investment Property Plant and Equipment Goodwill Intangible Assets Accumulated Amortization Other Assets Deferred Long-term Asset Charge Total Assets Liabilities Current Liabilities Accounts Payable Short/Current Long-Term Debt Other Current Liabilities Total Current Liabilities Long Term Debt Other Liabilities Minority Interest Negative Goodwill Total Liabilities Stockholders Equity Preferred Stock Common stock Retained Earnings Treasury Stock

12,615,000 6,151,000 509,000 3,540,000 34,690,000 2,455,000 207,000 352,000 641,000 1,227,000 39,572,000

6,034,000 4,811,000 346,000 1,413,000 21,956,000 1,832,000 38, 000 382,000 1,051,000 88,000 25,347,000

3,718,000 3,452,000 270,000 677,000 14,509,000 1,281,000 38, 000 160,000 1,217,000 17,205,000 -

8,558,000 5,534,000 14,092,000 746,000 18,542,000 7,177,000 13,845,000 -

6,230,000 3,069,000 9,299,000 67,000 1,449,000 10,815,000

6,471,000 6,471,000 14,000 736,000 7,221,000 -

Deferred Long-term Liability Charge 3,704,000

5,368,000 9,101,000

4,355,000 5,607,000 -

Capital Surplus Other Stockholder Equity Total Stockholder Equity Net Tangible Assets Continued

8,000 21,030,000 $20,471,000

63,000 14,532,000 $14,112,000

22,000 9,984,000 $9,786,000

All numbers in thousands Period Ending INCOME STATEMENT Total Revenue Cost of Revenue Gross Profit Operating Expenses Research Development Operating Income or Loss Income from Continuing Operations Total Other Income/Expenses Net Earnings Before Interest and Tax Interest Expense Income Before Tax Income Tax Expense Minority Interest Net Income Net Income To Common Shares 620,000 6,895,000 6,895,000 2,061,000 4,834,000 4,834,000 1,512,000 3,496,000 3,496,000 3,496,000 599,000 5,008,000 5,008,000 365,000 2,818,000 2,818,000 829,000 1,989,000 1,989,000 1,989,000 1,109,000 782,000 2,963,000 3,718,000 2,433,000 Selling General and Administrative 3,761,000 32,479,000 21,334,000 24,006,000 15,852,000 19,315,000 13,717,000 27-Sep-08 29-Sep-07 30-Sep-06

Net Income From Continuing Ops 4,834,000 Preferred Stock And Other Adjustments

Note: Date of Submission: 15/05/2012 (for Section 1) and 16/5/2012 for sec. 4, 17/05/2012 (for section2,6), Delay will cost @ 20% marks per day No need of submission after 1 day from the due date.
Tips for submission: Use a cover page (will cost you 10 marks), Write down your matric number, name, course title, assignment number etc. Put the Due date for Submission and the Date of Submission Try to solve the problems yourself for deeper understanding. (In case of dire need, u can seek help from your friends, but dont do it at the first time)