Prof Martey Balance Sheet As of December 31, 2021 follows:

 Prof Martey Balance Sheet As of December 31, 2021 follows:

Assets:

- Current Assets:

   - Cash and Cash Equivalents: $500,000

   - Accounts Receivable: $350,000

   - Inventory: $150,000

   - Prepaid Expenses: $50,000

- Property, Plant, and Equipment: $2,000,000

- Investments: $1,500,000

- Intangible Assets: $300,000

- Other Assets: $100,000

Liabilities and Equity:

- Current Liabilities:

   - Accounts Payable: $200,000

   - Short-term Debt: $150,000

   - Accrued Expenses: $100,000

- Long-term Debt: $1,500,000

- Shareholders' Equity: $2,100,000

Questions:

1. Calculate the current ratio, quick ratio, and working capital of prof Martey using the provided balance sheet.

2. What is the proportion of current assets to total assets for Prof Martey?

3. Determine the debt-to-equity ratio for Prof Martey. Is he relying more on debt or equity for financing?

4. Calculate the equity multiplier for Prof Martey based on the given balance sheet. Interpret the result.

5. What is the book value per share of prof Martey based on the shareholders' equity figure? If there are 500,000 outstanding shares, what is the total book value?

6. Compute the asset turnover ratio for Prof Martey. What does this ratio indicate about the efficiency of asset utilization?

7. Prof Martey plans to acquire additional property, plant, and equipment worth $500,000. How will this investment impact prof Martey's balance sheet? Calculate the new total assets figure.

8. Suppose prof Martey receives $200,000 in cash from a grant. How will this transaction affect the balance sheet? Calculate the new cash and current assets figures.

9. If prof Martey pays off $100,000 of its short-term debt, how will this transaction impact its current ratio? Calculate the new current ratio.

10. What is the net working capital for Prof Martey? How does this measure the his ability to meet short-term obligations?

11. Calculate the return on assets (ROA) for Prof Martey based on the given balance sheet. Interpret the result.

12. Prof Martey decides to write-off intangible assets worth $50,000. How will this adjustment affect the balance sheet? Calculate the new intangible assets and total assets figures.

13. Determine the proportion of long-term debt in relation to total liabilities and equity for Prof Martey

14. Suppose prof Martey issues $500,000 in additional common stock. How will this transaction impact the balance sheet? Calculate the new shareholders' equity figure.

15. Analyze prof Martey balance sheet composition. What is the main contributor to the total assets of Prof Martey

Solutions

1. Calculate the current ratio, quick ratio, and working capital of Prof Martey using the provided balance sheet.

Current ratio = Current Assets / Current Liabilities

= ($500,000 + $350,000 + $150,000 + $50,000) / ($200,000 + $150,000 + $100,000)

= $1,050,000 / $450,000

= 2.33

Quick ratio = (Current Assets - Inventory) / Current Liabilities

= ($500,000 + $350,000 + $50,000) / ($200,000 + $150,000 + $100,000)

= $900,000 / $450,000

= 2.00

Working capital = Current Assets - Current Liabilities

= ($500,000 + $350,000 + $150,000 + $50,000) - ($200,000 + $150,000 + $100,000)

= $1,050,000 - $450,000

= $600,000

2. What is the proportion of current assets to total assets for Prof Martey?

Proportion of current assets to total assets = (Current Assets / Total Assets) * 100

= (($500,000 + $350,000 + $150,000 + $50,000) / ($500,000 + $350,000 + $150,000 + $50,000 + $2,000,000 + $1,500,000 + $300,000 + $100,000)) * 100

= ($1,050,000 / $4,500,000) * 100

= 23.33%

3. Determine the debt-to-equity ratio for Prof Martey. Is he relying more on debt or equity for financing?

Debt-to-equity ratio = Total Debt / Shareholders' Equity

= ($1,500,000 + $200,000 + $150,000 + $100,000) / $2,100,000

= $1,950,000 / $2,100,000

= 0.9286

Based on the debt-to-equity ratio being less than 1, Prof Martey is relying more on equity for financing.

4. Calculate the equity multiplier for Prof Martey based on the given balance sheet. Interpret the result.

Equity multiplier = Total Assets / Shareholders' Equity

= ($500,000 + $350,000 + $150,000 + $50,000 + $2,000,000 + $1,500,000 + $300,000 + $100,000) / $2,100,000

= $4,500,000 / $2,100,000

= 2.143

The equity multiplier of 2.143 indicates that Prof Martey's assets are financed at 2.143 times the amount of shareholders' equity.

5. What is the book value per share of Prof Martey based on the shareholders' equity figure? If there are 500,000 outstanding shares, what is the total book value?

Book value per share = Shareholders' Equity / Outstanding Shares

= $2,100,000 / 500,000

= $4.20 per share.

The total book value is $4.20 multiplied by 500,000 outstanding shares, which equals $2,100,000.

6. Compute the asset turnover ratio for Prof Martey. What does this ratio indicate about the efficiency of asset utilization?

Asset turnover ratio = Revenue / Average Total Assets

Since the revenue is not given in the balance sheet, let's assume it as $3,000,000.

Average Total Assets = (Beginning Total Assets + Ending Total Assets) / 2

= (($500,000 + $350,000 + $150,000 + $50,000 + $2,000,000 + $1,500,000 + $300,000 + $100,000) + ($500,000 + $350,000 + $150,000 + $50,000 + $2,000,000 + $1,500,000 + $300,000 + $100,000)) / 2

= $5,200,000

Asset turnover ratio = $3,000,000 / $5,200,000

= 0.5769

The asset turnover ratio of 0.5769 indicates that, on average, Prof Martey generates $0.5769 in revenue for every dollar of assets invested. A higher ratio indicates more efficient utilization of assets.

7. Prof Martey plans to acquire additional property, plant, and equipment worth $500,000. How will this investment impact Prof Martey's balance sheet? Calculate the new total assets figure.

The new total assets figure would be the current value plus the investment in property, plant, and equipment.

New Total Assets = Old Total Assets + Investment

= $5,200,000 + $500,000

= $5,700,000

The new total assets for Prof Martey would be $5,700,000.

8. Suppose Prof Martey receives $200,000 in cash from a grant. How will this transaction affect the balance sheet? Calculate the new cash and current assets figures.

The new cash and current assets figures would increase by $200,000.

New Cash = Old Cash + Cash Received

= $500,000 + $200,000

= $700,000

New Current Assets = Old Current Assets + Cash Received

= ($500,000 + $350,000 + $150,000 + $50,000) + $200,000

= $1,250,000

The new cash figure would be $700,000 and the new current assets figure would be $1,250,000.

9. If Prof Martey pays off $100,000 of its short-term debt, how will this transaction impact its current ratio? Calculate the new current ratio.

The new current ratio would be affected by reducing the current liabilities by $100,000.

New Current Ratio = New Current Assets / Old Current Liabilities

= $1,250,000 / ($200,000 + $150,000 + $100,000 - $100,000)

= $1,250,000 / $350,000

= 3.57

The new current ratio would be 3.57.

10. What is the net working capital for Prof Martey? How does this measure his ability to meet short-term obligations?

Net working capital = Current Assets - Current Liabilities

= ($500,000 + $350,000 + $150,000 + $50,000) - ($200,000 + $150,000 + $100,000)

= $1,050,000 - $450,000

= $600,000

The net working capital for Prof Martey is $600,000. Net working capital measures the liquidity and ability of a company to meet its short-term obligations. A positive net working capital indicates that Prof Martey has sufficient current assets to cover its current liabilities, which is positive for its operations.

10. What is the net working capital for Prof Martey? How does this measure his ability to meet short-term obligations?

Net working capital = Current Assets - Current Liabilities

= ($500,000 + $350,000 + $150,000 + $50,000) - ($200,000 + $150,000 + $100,000)

= $1,050,000 - $450,000

= $600,000

The net working capital for Prof Martey is $600,000. Net working capital is a measure of a company's liquidity and ability to meet its short-term obligations. With a positive net working capital, Prof Martey has enough current assets to cover its current liabilities, indicating its ability to meet short-term obligations.

11. Calculate the return on assets (ROA) for Prof Martey based on the given balance sheet. Interpret the result.

ROA = Net Income / Average Total Assets

Assuming Net Income is not given, let's assume it as $300,000.

Average Total Assets = (Beginning Total Assets + Ending Total Assets) / 2

= (($500,000 + $350,000 + $150,000 + $50,000 + $2,000,000 + $1,500,000 + $300,000 + $100,000) + ($500,000 + $350,000 + $150,000 + $50,000 + $2,000,000 + $1,500,000 + $300,000 + $100,000)) / 2

= $5,200,000

ROA = $300,000 / $5,200,000

= 0.0577 or 5.77%

The return on assets (ROA) for Prof Martey is 5.77%. This indicates that for every dollar invested in assets, Prof Martey generates approximately $0.0577 in net income. It signifies the efficiency of asset utilization and profitability generated from the assets employed.

12. Prof Martey decides to write-off intangible assets worth $50,000. How will this adjustment affect the balance sheet? Calculate the new intangible assets and total assets figures.

New Intangible Assets = Old Intangible Assets - Write-Off

= $300,000 - $50,000

= $250,000

New Total Assets = Old Total Assets - Write-Off

= ($500,000 + $350,000 + $150,000 + $50,000 + $2,000,000 + $1,500,000 + $300,000 + $100,000) - $50,000

= $5,850,000

The new intangible assets for Prof Martey would be $250,000, and the new total assets would be $5,850,000.

13. Determine the proportion of long-term debt in relation to total liabilities and equity for Prof Martey.

Proportion of long-term debt = Long-term Debt / (Long-term Debt + Current Liabilities + Shareholders' Equity)

Proportion of long-term debt = $1,500,000 / ($1,500,000 + $200,000 + $150,000 + $100,000 + $2,100,000)

= $1,500,000 / $3,050,000

= 0.4918 or 49.18%

The proportion of long-term debt in relation to total liabilities and equity for Prof Martey is 49.18%.

14. Suppose Prof Martey issues $500,000 in additional common stock. How will this transaction impact the balance sheet? Calculate the new shareholders' equity figure.

New Shareholders' Equity = Old Shareholders' Equity + Additional Issued Common Stock

= $2,100,000 + $500,000

= $2,600,000

The new shareholders' equity figure for Prof Martey would be $2,600,000.

15. Analyze Prof Martey's balance sheet composition. What is the main contributor to the total assets of the university?

Upon analyzing Prof Martey's balance sheet composition, the main contributor to the total assets is Property, Plant, and Equipment, which has a value of $2,000,000. This indicates that the university has significant investments in physical assets such as buildings, equipment, and land. These assets play a crucial role in the university's operations and contribute significantly to its overall value.