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

question 20

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.
$\text { Balance Sheet, Dec 31, }$
$\begin{array}{lllll} & 2019 & 2018 \\\text { Cash } & \$ 267,000 & \$ 100,000 \\\text { Accounts Receivable } & \$ 525,000 & \$ 400,000 \\\text { Inventory } & \$ 450,000 & \$ 300,000\\\hline\text { Total Current Assets } & \$ 1,242,000 & \$ 800,000 \\\text { Long-lived Assets } & 1,205,000 & 1,100,000\\\hline\text { Total Assets }&\$2,447,000&\$1,900,000\\\hline\text { Current Liabilities }&\$500,000&\$500\\\text { Long-term Debt } & 600,000 & 500,000 \\\text { Shareholder Equity } & 1,347,000 & 1,100,000\\\hline\text { Total Debt and Equity }&\$2,447,000&\$1,900,000\end{array}$

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

• A)$1,072,000
• B)$1,347,000
• C)$1,620,000
• D)$2,520,000
• E)$8,437,500

---

Definitions:

Fair Use

A legal doctrine that permits limited use of copyrighted material without the need to obtain permission from the rights holders, under certain conditions.

U.S. Law

The system of laws and legal norms that govern and regulate the social, economic, and political behaviours within the United States of America.

EIN

An Employer Identification Number (EIN) is a unique identification number that is assigned to a business entity so that it can easily be identified by the IRS.

Hiring Employees

The process of recruiting, evaluating, and selecting individuals to fill job vacancies within an organization.