The King Mattress Company Had the Following Operating Results for 2018-2019

question 5

Multiple Choice

The King Mattress Company had the following operating results for 2018-2019. In addition, the company paid dividends in both 2018 and 2019 of $60,000 per year and made capital expenditures in both years of $30,000 per year. The company's stock price in 2018 was $8 and $7 in 2019. The industry average earnings multiple for the mattress industry was 9 in 2019 and the free cash flow and sales multiples were 18 and 1.5, respectively. The company is publicly owned and has 1,200,000 shares of outstanding stock at the end of 2019.
$\text { Balance Sheet, Dec 31, }$
$\begin{array}{lllll} & 2019 & 2018 \\\text { Cash } & \$ 340,000 & \$ 100,000 \\\text { Accounts Receivable } & \$ 350,000 & \$ 400,000 \\\text { Inventory } & \$ 250,000 & \$ 300,000 \\\hline\text { Total Current Assets }&\$940,000&\$800,000\\\text { Long-lived Assets }&1,080,000&1,100,000\\\hline\text { Total Assets }&\$2,020,000&\$1,900,000\\\hline \text { Current Liabilities }&\$200,000&\$300,000\\\text { Long-term Debt } & 600,000 & 500,000 \\\text { Shareholder Equity } & 1,220,000 & 1,100,000\\\hline\text { Total Debt and Equity }&\$2,020,000&\$1,900,000\end{array}$

$\text { Income Statement, for year ended Dec } 31 \text {, }$
$\begin{array}{lcc} & 2019 & 2018 \\\text { Sales } & \$ 4,750,000 & \$ 4,500,000 \\\text { Cost of Sales } & 4,100,000 & 4,000,000\\\hline\text { Gross Margin } & 650,000 & 500,000 \\\text { Operating Expenses } & 350,000 & 400,000 \\\hline\text { Operating Income } & 300,000 & 100,000 \\\text { Taxes } & 120,000 & 40,000\\\hline\text { Net Income }&\$180,000&\$60,000\\\\\text { Cash Flow from Operations } & 2019 & 2018 \\\text { Net Income } & \$ 180,000 & \$ 60.000\\\text { Plus Depreciation Expense } & 50,000 & 50,000 \\\text { + Decrease (-inc) in AccRec. and Inv. } & 100,000&-\\\text { + Increase (-dec) in Cur. Liabl. }&(100,000) &-\\\text { Cash Flow from Operations }&\$230,000&\$110,000\end{array}$
The current ratio for 2019 is:

• A)1.8
• B)2.0
• C)3.9
• D)4.7

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Definitions:

Manufacturing Costs

The total expenses involved in the production of goods, including raw materials, labor, and factory overhead.

Plantwide Predetermined Manufacturing Overhead Rate

A single overhead rate calculated using the total estimated overhead costs for a factory divided by the estimated amount of base activity, applied uniformly across all products.

Markup

Markup refers to the amount added to the cost price of goods to cover overhead and profit when determining the selling price.

Selling Prices

The amount a product is sold for, which can be influenced by market demand, cost of production, and competitive pricing.