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Dunham Cosmetics Case Assumptions/Clarifications & TEXT Questions: FNCE 4500
A. Note: there are two errors in the Balance Sheet Exhibit data provided; accumulated depreciation is off by '$1' and the transfer to retained earnings is off by '$9'. Make adjustments as necessary.
B. Q.1. The firm's average stock price was $68.40, $61.85, $37.15, in 1993, 1994, and 1995, respectively. The firm has 202,500 outstanding shares. Include a market-to-book ratio into your analysis. The industry market-to-book averages was 2.25, 2.18, and 2.37 over this time period. Remember that market-to-book is the market value of a firm's common equity divided by the book value of a firm's common equity: Common equity includes the common stock accounts (common stock at par plus additional paid in capital accounts) and retained earnings.
C. Include a complete DuPont analysis of the firm vs. the industry average in 1995. In what specific areas is the firm doing better, worse, and/or the same as the industry? Explain. (Note: Complete explanations include, but certainly are not limited to, quantified analysis.) What would have been the ROE if the firm had matched the industry average (in the area in which the firm is most lacking relative to the industry)?
D. Q.5. Hint: Consider the cumulative impact on retained earnings and on notes payable through 1995.
E. Q.7a. Make sure to analyze the results (how realistic are the assumptions made?).
F. Q.7b &c. Use an arithmetic average for cash. Redo and analyze the appropriate pro forma statements.
G. Q.7.d. Construct the Sources & Uses Statement for 1996. Make sure to include an analysis of short-term sources and short-term uses, long-term sources and long-term uses; analyze relative to the 'matching' principle of accounting and in light of realities that firms face in the underlying accounts.
H. Q.8a. Answer...