The Harrison Bicycle Company Had the Following Operating Results for 2018-2019

question 41

Multiple Choice

The Harrison Bicycle Company had the following operating results for 2018-2019. In addition, the company paid dividends in both 2018 and 2019 of $80,000 per year and made capital expenditures in both years of $230,000 per year. The company's stock price in 2018 was $14.20 and $12.50 in 2019. Also in 2019, the industry average earnings multiple for the bicycle industry was 8 and the free cash flow and sales multiples were 16 and 1.35, respectively. The company is publicly owned and has 1,400,000 shares of outstanding stock at the end of 2019.
$\text { Balance Sheet, Dec 31, }$
$\begin{array}{lllll} & 2019 & 2018 \\\text { Cash } & \$ 267,000 & \$ 100,000 \\\text { Accounts Receivable } & \$ 525,000 & \$ 400,000 \\\text { Inventory } & \$ 450,000 & \$ 300,000\\\hline\text { Total Current Assets } & \$ 1,242,000 & \$ 800,000 \\\text { Long-lived Assets } & 1,205,000 & 1,100,000\\\hline\text { Total Assets }&\$2,447,000&\$1,900,000\\\hline\text { Current Liabilities }&\$500,000&\$500\\\text { Long-term Debt } & 600,000 & 500,000 \\\text { Shareholder Equity } & 1,347,000 & 1,100,000\\\hline\text { Total Debt and Equity }&\$2,447,000&\$1,900,000\end{array}$

$\text { Income Statement, for year ended Dec 31, }$
$\begin{array}{lcc} & 2019 & 2018 \\\text { Sales } & \$ 6,250,000 & \$ 5,450,000 \\\text { Cost of Sales } & 5,125,000 & 4,400,000\\\hline\text { Gross Margin } & 1,125,000 & 1,050,000 \\\text { Operating Expenses } & 580,000 & 550,000\\\hline\text { Operating Income } & 545,000 & 500,000 \\\text { Taxes } & 218,000 & 200,000\\\hline\text { Net Income }&\$327,000&\$300,000\\\\\text { Cash Flow from Operations } & 2019 & 2018 \\\text { Net Income } & \$ 327,000 & \$ 300,000 \\\text { Plus Depreciation Expense } & 125,000 & 125,000\\\text { + Decrease (-inc) in AccRec. and Inv. }7(275,000) &-\\\text { + Increase (-dec) in Cur. Liabl. }&200,000&-\\\hline\text { Cash Flow from Operations }&\$377,000&\$425,000\end{array}$
Return on equity for 2019 is (rounded) :

• A)11.6%
• B)15.0%
• C)15.5%
• D)26.7%

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Definitions:

Haplorhines

The subdivision within the primate order based on shared genetic characteristics; includes tarsiers, New World monkeys, Old World monkeys, and apes (including humans).

Hominids

A family of primates that includes all modern and extinct Great Apes and humans.

Evolutionary History

The study of the development of life on Earth over millions of years, including the processes that have shaped the diversity of life.

Old World Monkeys

A group of primates native to Africa and Asia, distinguished from New World monkeys by certain physical traits.