1) Utilize the below comparative balance sheets to calculate the net cash flow provided by operating activities (utilizing the indirect method) for 2010. Please show all of you work. You do not need to complete an entire statement of cash flows, simply provide the net cash provided by operating activities and show how you arrived at that answer.

There were no dividends issued in 2010. And the depreciation expense was \$100,000 in 2010.

ASSETS 2010 2009
Cash 106,000 88,000
Accounts Receivable 36,000 44,000
Inventory 790,000 660,000
Prepaid Expenses 3,000 3,000
Long Term Assets 800,000 890,000
Total Assets 1,735,000 1,685,000

LIABILITIES
Accounts Payable 22,000 26,000
Salaries Payable 9,000 7,000
Notes Payable 2,000 3,000
Total Liabilities 33,000 36,000

STOCKHOLDER EQUITY
Common Stock 1,200,000 1,200,000
Retained Earnings 502,000 449,000
TOTAL STOCKHOLDER 1,702,000 1,649,000
Total Liabilities & equity 1,735,000 1,685,000

2. Utilizing the information from problem 2 for 2010, compute the ratios below. Assume that sales were \$850,000 for the year, all on credit. Please show all of your work, including the formulas you use.
a. Profit Margin
b. Return On Assets
c. Return On Equity
d. Receivables Turnover
e. Inventory Turnover
f. Current Ratio
g. Quick Ratio

3. Assume the Watson Corporation projects to sell 350,000 units in May, 200,000 units in June, and 300,000 units in July. They maintain an ending inventory equal to 20% of the following month’s sales. What are the production requirements for June? Please show your work in arriving at your answer

a. Break-Even Point In Units
b. Degree of Operating Leverage
c. Degree of Financial Leverage
d. Degree of Combined Leverage
Watson Corp
Income Statement
Sales (300,000 units @ \$2 Each) \$600,000
Less: Variable Costs \$225,000
Less: Fixed Costs \$80,000
Earnings Before Interest and Taxes (EBIT) \$295,000
Interest Expense \$45,000
Earnings Before Taxes (EBT) \$250,000
Income Tax Expense (30%) \$75,000
Earnings After Taxes (EAT) \$175,000

5) The Watson Corporation has projected to sell 300,000 spools of thread this month. They have a ordering cost of \$.50 per order and carrying costs of \$.25 per spool. What is the economic ordering quantity for the month? Please show your work in arriving at your answer

6) The Watson Corporation needs to borrow \$100,000 for one year. (Please show your work.)
What is the effective rate on a loan with a 6% interest rate and a compensating balance requirement of 20%?

7.) Compute the cost of not taking the following cash discounts. Please show your work.
a. 2/10, net 60
b. 2/10, net 30
c. 2/20, net 90

8.) If you invest \$10,000 today, how much will your investment be worth in 5 years at an interest rate of 6%? Please show your work in arriving at your answer.