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1. Define financial management. Differentiate between the profit maximization and the wealth maximization objectives of financial management.

Mugs Company Comparative Balance Sheet December 31, 2007 2007 2006

Assets Cash Marketable securities Accounts Receivable (net) Inventory Property,plant and equipment (net) Total Assets $ 25,000 20,000 40,000 150,000 170,000 $405,000 $ 40,000 60,000 30,000 170,000 200,000 $500,000

Liabilities and stockholders' equity Accounts payable Bond Interest payable Bonds payable Common Stock Retained earnings Total liabilities and stockholders' equity $ 25,000 40,000 75,000 175,000 90,000 $405,000 $ 30,000 90,000 160,000 145,000 75,000 $500,000

Mugs Company Income Statement For the Year Ended 12/31/07 Net Sales Cost of goods sold $360,000 184,000

Gross profit Expenses Interest Expense Selling Expense Administrative Expenses Total expenses Income before income taxes Income tax expense Net Income $21,000 30,000 20,000

176,000

71,000 105,000 30,000 $75,000

AdditionalInformation: 1. 2. Cash dividends of $50,000 were declared and paid in 2007. Weighted average number of shares of common stock outstanding during 2007 were 62,000 shares. Market value of common stock on December 31,2007 was $15 per share. Net cash provided by operating activities for 2007 was $65,000.

3. 4.

Using the financial statements and additional information, compute the following ratios for the Mugs Company for 2007. You need to label your ratios and show your calculations for maximum credit. 1. 2. 3. 4. 5. 6. 7. 8. 9. Current ratio Return on common stockholders' equity Price-earnings ratio Inventory turnover ratio Average days in inventory Receivable turnover Average days to collect receivables Profit margin ratio Payout ratio

10. Return on assets

2.