Corporate Finance Assignment:
Question #1
Sample Company is an aerospace manufacturer located in Summerside, PEI. The companys income statements and balance sheets for the fiscal years ended August 31, 2003 and 2004 are attached as Excel Spreadsheet files.
Required:
Use the statements provided in a separate Excel file, Sample Company.xls, to determine the following. Be sure to show your work.
a) The total dollar investment in assets made during 2004 and the sources of the funds invested.
b) The amortization expense in 2004 calculated using only the balance sheet.
c) The stated value of the preferred shares sold in 2004.
d) The companys earnings per share (EPS) in 2003 and 2004.
e) The total dividends paid and dividends per share (DPS) in 2003 and 2004.
f) The average amount the company received from the sale of all common shares outstanding in 2003 and those sold in 2004.
g) Retained earnings as of the beginning of the 2003 fiscal year.
h) Sample Companys book value and book value per share at the end of the 2003 and 2004fiscal years.
B.Prepare a statement of cash flows for Sample Company for the 2004 fiscal year and interpret the statement.
C. What tax rate did Sample Company use for their income statement?
D. Assuming the tax rates provided in Table 2.7 in the book apply, determine the actual amount of taxes Sample Company would pay in both 2003 and 2004.
Question #2:
Bond A is a premium bond with a 10 percent coupon. Bond B is a 6 percent coupon bond currently trading at a discount. Both bonds make annual coupon payments, have a YTM of 8 percent, and have eight years to maturity.
a. What is the current yield for Bond A? For Bond B?
[Note: Current yield = annual coupon payment / current price of the bond.]
b. If interest rates remain unchanged, what is the expected capital gains yield, stated as a percentage, over the next year for Bond A? For Bond B?
c. Briefly explain the interrelationship among your answers.