Track Software. Inc
Track Software Inc.
Case Study Assignment 1 Prof. DelPiano ACCT3020 10/1/2014
De’ Vonte Watson
Kristina Bridges
Daniel Bell
A.
1.) Stanley’s financial goal he seems to be focusing on is maximizing profits. This is the correct goal because the goal of any firm and therefore its financial manager, should be to maximize its value and by extension the wealth of the shareholders.
2.) There is potential for an agency problem if Stanley decides to go ahead and invest in the software developer. This investment will cause a temporary decrease in the earnings per share of the firm which will mean fewer earnings at the present time for the stakeholders. This may be a problem if the goal of the shareholders is to gain money sooner than later. Since, the goal of the shareholders is simply to maximize wealth, there may not be an agency problem since the goal of the financial manager, Stanley, is the same as the shareholders.
B. Since there is no preferred stock; Earnings available for common stockholders ≡ Net profit after taxes.
No of shares of common stock outstanding = 50,000
Earnings per share = ______Net profit after taxes____________ No. of shares of common stock outstanding EPS show a steady increase over the past five years indicating that Stanley is achieving his goal of maximizing profits.
C. Operating Cash Flow (OCF) for 2012
OCF = {Earnings before Interest and Taxes × (1 – Tax rate)} + Depreciation
OCF = {EBIT × (1 – T)} + Depreciation = {$89 000 × (1 – 0.20)} + $11 000 = $82 200
Free Cash Flow (FCF) for 2012
FCF = OCF1 – Net Fixed Assets Investments – Net Current Assets Investment
FCF = OCF – NFAI – NCAI
NFAI = Change in net fixed assets + Depreciation = ($132 000 – $128 000) + $11 000 = $15 000
NCAI = Chance in current assets – Change in (Accounts Payable + Accruals) = ($421 000 – $62 000) – {($136 000 + $27 000) – ($126 000 + $25 000)} =$47 000
Case Study Assignment 1 Prof. DelPiano ACCT3020 10/1/2014
De’ Vonte Watson
Kristina Bridges
Daniel Bell
A.
1.) Stanley’s financial goal he seems to be focusing on is maximizing profits. This is the correct goal because the goal of any firm and therefore its financial manager, should be to maximize its value and by extension the wealth of the shareholders.
2.) There is potential for an agency problem if Stanley decides to go ahead and invest in the software developer. This investment will cause a temporary decrease in the earnings per share of the firm which will mean fewer earnings at the present time for the stakeholders. This may be a problem if the goal of the shareholders is to gain money sooner than later. Since, the goal of the shareholders is simply to maximize wealth, there may not be an agency problem since the goal of the financial manager, Stanley, is the same as the shareholders.
B. Since there is no preferred stock; Earnings available for common stockholders ≡ Net profit after taxes.
No of shares of common stock outstanding = 50,000
Earnings per share = ______Net profit after taxes____________ No. of shares of common stock outstanding EPS show a steady increase over the past five years indicating that Stanley is achieving his goal of maximizing profits.
C. Operating Cash Flow (OCF) for 2012
OCF = {Earnings before Interest and Taxes × (1 – Tax rate)} + Depreciation
OCF = {EBIT × (1 – T)} + Depreciation = {$89 000 × (1 – 0.20)} + $11 000 = $82 200
Free Cash Flow (FCF) for 2012
FCF = OCF1 – Net Fixed Assets Investments – Net Current Assets Investment
FCF = OCF – NFAI – NCAI
NFAI = Change in net fixed assets + Depreciation = ($132 000 – $128 000) + $11 000 = $15 000
NCAI = Chance in current assets – Change in (Accounts Payable + Accruals) = ($421 000 – $62 000) – {($136 000 + $27 000) – ($126 000 + $25 000)} =$47 000