Cullumber Limited competes in the fast food industry with Bramble Limited. Cullumber underwent a major expansion in 2021,borrowing a large amount of money and acquiring a small competitor. The acquisition doubled the number of restaurants thatCullumber has. Bramble, on the other hand, took a more conservative approach and did not buy any new assets, focusing instead onmaking existing operations more efficient.Data for the two companies are provided below (in thousands of dollars):CullumberTotal assetsSalesNet incomeBrambleTotal assetsSalesNet income2021$1,8503,1613618071,8221902020$1,099 $1,0701,4901448801,67120192051,6001401,0702,000210 Calculate the (1) profit margin, (2) asset turnover, and (3) return on asset ratios for each company in 2020 and 2021. (Round answers to1 decimal place, e.g. 5.2% or 5.2.)(1)(2)Profit marginAsset turnover(3) Return on assets2020%Cullumbertimes%2021%times%2020

The ratio analysis helps to analyze the financial statements with different elements of financial…

Answered: Cullumber Limited competes in the fast…

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter7: Valuation Of Stocks And Corporations

Section: Chapter Questions

Problem 1aM

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Pronghorn Inc. manufactures a variety of consumer products. The company’s founders have run the company for 30 years and are now interested in retiring. Consequently, they are seeking a purchaser who will continue its operations, and a group of investors, Morgan Inc., is looking into the acquisition of Pronghorn. To evaluate its financial stability and operating efficiency, Pronghorn was requested to provide the latest financial statements and selected financial ratios. Summary information provided by Pronghorn is as follows. Pronghorn Inc.Income StatementFor the Year Ended November 30, 2021(in thousands) Sales (net) $ 30,510 Interest income 510 Total revenue 31,020 Costs and expenses Cost of goods sold 17,610 Selling and administrative expenses 3,560 Depreciation and amortization expense 1,900 Interest expense 910 Total costs and expenses 23,980 Income before taxes 7,040…
In 1994, General Mills Incorporated, a $6 billion consumer goods company, acquired Colombo Frozen Yogurt. General Mills Inc. (GMI) believed they could add Colombo frozen yogurt to their existing product lineup to increase net sales with little addition in marketing cost. Frozen yogurt is sold through two distinct segments – independent shops and impulse locations such as cafeterias, colleges, and buffets. Frozen yogurt is the main business for the shops whereas yogurt is incremental to the impulse locations’ main business. GMI’s large sales force already served the impulse market. The financial results in the first couple of years were mixed. Earnings increased slightly and then dropped each year even though sales volume was relatively flat. In total, merchandising costs dropped, while pricing promotion rates escalated. The GMI sales force focused on the impulse segments and pricing promotions were believed to be driving volume increases. However, volume in the shop segment…
In the current year, Big Burgers, Inc., expanded its fast-food operations by opening several new stores in Texas. The company incurred the following costs in the current year: market appraisal ($50,000), consulting fees ($72,000), advertising ($47,000), and traveling to train employees ($31,000). The company is willing to incur these costs because it foresees strong customer demand in Texas for the next several years. What amount should Big Burgers report as an expense in its income statement associated with these costs?
Richmond, Inc., operates a chain of 44 department stores. Two years ago, the board of directors of Richmond approved a large-scale remodeling of its stores to attract a more upscale clientele. Before finalizing these plans, two stores were remodeled as a test. Linda Perlman, assistant controller, was asked to oversee the financial reporting for these test stores, and she and other management personnel were offered bonuses based on the sales growth and profitability of these stores. While completing the financial reports, Perlman discovered a sizable inventory of outdated goods that should have been discounted for sale or returned to the manufacturer. She discussed the Situation with her management colleagues; the consensus was to ignore reporting this inventory as obsolete because reporting it would diminish the financial results and their bonuses. Required: According to the IMA’s Statement of Ethical Professional Practice, would it be ethical for Perlman not to report the inventory…
A large pet-food manufacturer is considering buying a small boutique cat food business to add to their portfolio of pet foods. The head of the finance division has approached you, a recent TWU graduate, to conduct a financial analysis to determine the value of the cat food business, or the most the pet-food manufacturer should pay to acquire the cat food business. The valuation of the cat food business is based on cash flows of $180,500 per year over a five year period. The target business has the same risk as the firm’s overall operations. The cost of equity is 15 percent and the cost of debt is 3 percent on an after-tax basis. The firm’s capital structure consists of 10 million in equity and 8 million in debt. What is the most the pet-food manufacturer should pay for acquiring the cat food business per its required return (WACC)?
The Home Depot is a leading specialty retailer of hardware and home improvement products and is the second-largest retail store chain in the United States. It operates large warehouse-style stores. Despite declining sales and difficult economic conditions in 20X1 and 20X2, The Home Depot continued to invest in new stores. The following table provides summary hypothetical data for The Home Depot. REQUIRED a. Use the preceding data for The Home Depot to compute average revenues per store, capital spending per new store, and ending inventory per store in 20X2. b. Assume that The Home Depot will add 100 new stores by the end of Year +1. Use the data from 20X2 to project Year +1 sales revenues, capital spending, and ending inventory. Assume that each new store will be open for business for an average of one-half year in Year +1. For simplicity, assume that in Year +1, Home Depots sales revenues will grow, but only because it will open new stores.
Randys, a family-owned restaurant chain operating in Alabama, has grown to the point that expansion throughout the entire Southeast is feasible. The proposed expansion would require the firm to raise about 18.3 million in new capital. Because Randys currently has a debt ratio of 50% and because family members already have all their personal wealth invested in the company, the family would like to sell common stock to the public to raise the 18.3 million. However, the family wants to retain voting control. You have been asked to brief family members on the issues involved by answering the following questions: Describe the typical first-day return of an IPO and the long-term returns to IPO investors.
Randys, a family-owned restaurant chain operating in Alabama, has grown to the point that expansion throughout the entire Southeast is feasible. The proposed expansion would require the firm to raise about 18.3 million in new capital. Because Randys currently has a debt ratio of 50% and because family members already have all their personal wealth invested in the company, the family would like to sell common stock to the public to raise the 18.3 million. However, the family wants to retain voting control. You have been asked to brief family members on the issues involved by answering the following questions: What is meant by going private? What are some advantages and disadvantages? What role do private equity funds play?

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