Question : 106) Refer to the balance sheet above. a. What Little Company’s : 1253049

 

106) Refer to the balance sheet above.

a. What is Little Company’s debt-to-equity ratio now?

b. If Little Company buys a $10,000 warehouse by paying $1,000 down and signing a ten-year mortgage note for the remainder, what will Little Company’s debt-to-equity ratio be?

c. If Little Company buys a $10,000 warehouse by paying cash for the full amount, what will Little Company’s debt-to-equity ratio be?

d. Is it ethical to structure business transactions so that the company’s ratios look as good as possible?

 

The following information has been adapted from the 2005 and 2006 annual reports of Microsoft Corporation’s worldwide operations, available online at http://www.microsoft.com/msft/reports/default.mspx:

 

Microsoft Corporation

Income Statements

For the Years Ended June 30

 

200620052004

Revenue$44,282$39,788$36,835

Operating expenses:

Cost of goods sold7,6506,0316,596

Research & development6,5846,0977,735

Sales & marketing9,8188,5638,195

  General & administrative         3,758      4,536      5,275

    Total operating expenses      27,810     25,227     27,801

Operating income16,47214,5619,034

Investment income               1,790      2,067      3,162

Income before income taxes18,26216,62812,196

Income tax expense               5,663      4,374      4,028

Net income$12,599    $12,254     $8,168

 

Additional information that might be useful:

Cash dividends declared per common share              $0.35$3.40$0.16

Weighted average shares outstanding10,43810,83910,808

Market price per share$24.63$25.10

 

In 2005, Microsoft declared and paid a one-time cash dividend of $3.00 per share. At the same time, Microsoft announced plans to repurchase a large amount of its own stock.

 

Microsoft Corporation

Condensed Statement of Cash Flows

For the Year Ended June 30

 

200620052004

Net cash from operating activities$  14,404$  16,605$14,626

Net cash from (used in) investing8,00315,027(3,342)

Net cash used for financing     (20,562)    (41,078)    (2,364)

Net change in cash$   1,845$ (9,446)$  8,920

 

Microsoft Corporation

Balance Sheets

June 30

200620052004

Assets

Current assets:

Cash$  6,714$  4,851$ 14,304

Short-term investments27,44732,90046,288

Accounts receivable9,3167,1805,890

Inventory1,478491421

  Other current assets               4,055     3,315    3,663

Total current assets49,01048,73770,566

Property & equipment, net3,0442,3462,326

Long-term investments9,23211,00412,210

Goodwill3,8663,3093,115

Intangible assets, net539499569

Other long-term assets                3,906     4,920    5,582

Total assets$69,597$70,815$94,368

 

Liabilities & shareholders’ equity

Current liabilities:

Accounts payable$  2,909$  2,086$  1,717

Wages payable1,9381,6621,339

Income taxes payable1,5572,0203,478

Short-term unearned revenue9,1387,5026,514

  Other payables                  6,900     3,607    1,921

Total current liabilities22,44216,87714,969

Long-term unearned revenue1,7641,6651,663

Other long-term liabilities             5,287     4,158    2,911

Total liabilities29,49322,70019,543

Shareholders’ equity:

Common stock & paid-in capital59,00560,41356,396

Retained earnings (deficit)           (18,901)   (12,298)   18,429

    Total shareholders’ equity       40,104    48,115   74,825

Total liabilities & shareholders’ equity              $69,597              $70,815$94,368