Enterprise Finance

Chapter 1,2,3 Problem Set
We encourage you to use Excel to do these problems but that is not necessary.
1. Answer the following questions about business forms:
a) What are the strengths and weaknesses of a sole proprietorship?
b) What is the difference between a general and a limited partnership?
c) Why is it best to raise money under the corporate form?
2. Corporate finance looks into three major areas, according to the lecture, please briefly talk about what’s the
major problem that each area would solve.
Capital Budgeting;
Capital Structure;
Working Capital Management;
3. Please give an example of a noncash item and briefly explain it.
4. Please fill in the blank below:
In the lectures, we have talked about two types of financial markets. According to what we learned in
class, ___ is the market that involves the issuing of new shares; ___ is the market that includes both
sellers and buyers after the initial offering of new shares.
5. Please fill in the blank below:
In a corporation, the Agency relationship is the relationship between ___ and ___.
6. Calculate each ratio for Company A using the 2020 information from the balance sheets and income
statements given below.
Current Ratio
Debt/Equity
Times Interest Earned
Return on Equity (ROE)
Company A Consolidated Balance Sheet (in thousands)
December 31
2020 2019

Assets
Current Assets:
Cash and Cash Equivalents $370,626 $349,953
Accounts Receivable, net $81,545 $62,312
Inventory $31,096 $21,555
Prepaid Expenses and other current assets $56,076 $54,129
Total Current Assets $539,343 $487,949
Property and Equipment $1,558,690 $1,379,254
Operating Lease Assets $2,800,222 $1,258,293
Other Assets $18,450 $19,332
Goodwill $29,939 $21,939
Total Assets $4,946,644 $3,166,767
Liabilities and Shareholders’ Equity
Current Liabilities:
Accounts Payable $116,816 $113,071
Accrued Liabilities $158,843 $147,849
Current Operating Lease Liabilities $207,139 $146,938
Current Portion of Debt $218,784 $261,593
Total Current Liabilities $701,582 $669,451
Long Term Operating Lease Liabilities $855,371 $698,562
Long Term Debt $330,298 $314,015
Deferred Income Tax Liabilities $38,814 $11,566
Other Liabilities $39,797 $31,638
Total Liabilities $1,965,862 $1,725,232

Stockholders’ Equity
Additional Paid-In Capital $1,465,697 $974,154
Accumulated Other Comprehensive Loss ($5,363) ($6,236)
Retained Earnings $1,520,448 $473,617
Total Shareholders’ Equity $2,980,782 $1,441,535
Total Liabilities and Shareholders’ Equity $4,946,644 $3,166,767
Company A Consolidated Income Statement (in thousands)
December 31st
2020 2019 2018
Revenue $5,586,369 $4,864,985 $4,476,412
Costs and Expenses:
Cost of Sales $4,454,879 $3,953,993 $3,720,196
General Administrative Expenses $475,646 $442,099 $309,733
Depreciation $210,778 $201,979 $163,348
Pre-opening costs $12,108 $8,546 $12,341
Total Operating Expenses $5,153,411 $4,606,617 $4,205,618
Operating Income(EBIT) $432,958 $258,368 $270,794
Interest Expense ($17,327) ($10,068) ($4,949)
Income before Income Taxes $415,631 $248,300 $265,845
Provision for Income Taxes ($109,127) ($91,883) ($99,490)
Net Income $306,504 $156,417 $166,355
Assume Market Cap (Value) for Company A is $38,064,500 (in thousands)

7. Refer to the Income Statement below. What is the operating cash flow for 2020?
ABC Corporation
2020 Income Statement
($ in millions)
Net Sales 27,500
Cost of Goods Sold 14,448
Depreciation 1,280
Earnings before interest and taxes 11,772
Interest paid 2,048
Taxable income 9,724
Less Taxes 440
Net income 9,284
8. Reorder the following 6 assets in order of most liquid to least liquid (REMINDER: Liquidity is defined as the
quickest to turn into cash without taking a material discount in value):
Inventory, Cash, Property Plant and Equipment, Receivables, Goodwill, Short Term Investments
9. The table above shows the 2022 tax rate of different income ranges. Suppose that your firm earned $250,000
in 2022, what is the tax liability? What is the average tax rate? What is the marginal tax rate?
10. enter “increase/decrease” in the answer box below:
Cash inflow is:
___ in Inventory
___ in Stockholders’ Equity
___ in Accounts Receivable
___ in Accounts Payable

Cash outflow is:
___ in Inventory
___ in Stockholders’ Equity
___ in Accounts Receivable
___ in Accounts Payable