CLICK TO DOWNLOAD ANSWERS FIN 370 Week 3 MyFinanceLab 1. (Related to Checkpoint 4.2 on page 86) (Capital structure analysis) The liabilities and owners’ equity for Campbell Industries is found below: Accounts payable $ 453,000 Notes payable 250,000 Current liabilities $ 703,000 Long-term debt $1,263,000 Common equity $5,067,000 Total liabilities and equity $7,033,000 a. What percentage of the firm’s assets does the firm finance using debt (liabilities)? 2. If Campbell was to purchase a new warehouse for $1.1 million and finance it entirely with long term debt, what would be the firm’s new debt ratio? 2. The following table contains current asset and current liability balances for Deere and Company (DE): QQ ($ thousands) 2008 2007 2006 Current assets Cash and cash equivalents 2211400 2278600 1687500 Short-term investments 0 1623300 0 Net receivables 3944200 3680900 3508100 Inventory 3041800 2337300 1957300 Total current assets 9197400 9920100 7152900 Current liabilities Accounts payable 6562800 3186100 4666300 Short/current long-term debt 8520500 9969400 8121200 Other current liabilities 0 2766000 0 Total current liabilities 15083300 15921500 12787500 Measure the liquidity of Deere & Co. for each year using the company’s net working capital and current ratio. Is the trend in Deere’s liquidity improving over this period? Why or why not? 3. You just received a $4,000 bonus. a. Calculate the future value of $4,000, given that it will be held in the bank for9 years and earn an annual interest rate of 8%. b. Recalculate part (A) using a compounding period that (1) semiannual and (2) bimonthly c. Recalculate parts (A) and (B) using an annual interest rate of 16%? d. Recalculate part (A) using a time horizon of 18 years at an annual interest rate of 8%? e. What conclusions can you draw when you compare the answers in parts (c) and (d) with the answers in parts (a) and (b)? 4. Break even analysis 2. The Marvel Mfg. Company is considering whether or not to construct a new robotic
production facility. The cost of it is $582,000 and it’s expected to have a six year life with annual depreciation expense of $97,000 and no salvage value. Annual Sales from the new facility is expected 2,010 units with a price of $930 per unit. Variable production costs are $570 per unit while fixed cash expenses are $75,000 per year a. find the accounting and the cash break-even units of production. (round to nearest interger) b. will the plant make a profit based on its current expected level of operations? c. will the plant contribute cash flow to the firm at the expected level of operations? 5. Given the info below. a. calculate the missing info for each project b. note that projects c and d share the same accounting break even. If the sales are above the breakeven point, which project would you prefer? Why? c. calculate the cash break even for each of the projects. What do the differences in accounting and cash break even tell you about the four projects? project accounting breakeven point units price per unit variable cost per unit fixed costs (fill in the blanks on the chart listed). Breakeven point in units -Price per unit- Variable cost per unit -fixed costs depreciation Project A 6210-(find price per unit) $56- $99,000-$26,000 Project B 770- $960- (findvariable cost per unit)-$499,000-$103,000 Project C 2000- $21- $15 $4,900-(find depreciation) Project D 2000- $21- $6-(find fixed cost)-$12,000 6. (Cash budget) The Sharpe Corporation’s projected sales for the first eight months of 2011 are as follows: January $ 90,600 May $299,000 February 120,700 June 269,300 March 134,900 July 224,400 April 240,000 August149,500 Of Sharpe’s sales, 10 percent is for cash, another 60 percent is collected in the month following sale, and 30 percent is collected in the second month following sale. November and December sales for 2010 were $220,800 and $174,200, respectively. Sharpe purchases its raw materials two months in advance of its sales equal to 60 percent of their final sales price. The supplier is paid one month after it makes delivery. For example, purchases for April sales are made in February and payment is made in March. In addition, Sharpe pays $9,000 per month for rent and $20,100 each month for other expenditures. Tax prepayments of $21,800 are made each quarter, beginning in March. The company’s cash balance at December 31, 2010, was $21,100; a minimum balance of $15,000 must be maintained at all times. Assume that any short-term financing needed to maintain the cash balance is paid off in the month following the month of financing if sufficient funds are available.
Interest on short-term loans (11 percent) is paid monthly. Borrowing to meet estimated monthly cash needs takes place at the beginning of the month. Thus, if in the month of April the firm expects to have a need for an additional $56,110, these funds would be borrowed at the beginning of April with interest of $514 (11% Ă— 1/12 Ă— $56,110) owed for April and paid at the beginning of May. a. Prepare a cash budget for Sharpe covering the first seven months of 2011.(nov sales = $220,800; dec sales = $174,200; jan sales = $90,600; b. Sharpe has $200,900 in notes payable due in July that must be repaid or renegotiated for an extension. Will the firm have sufficient cash to repay the notes?