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HW-1122 Week 3 Problems
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Question-1
(Capital Structure Analysis) The liabilities and owners’ equity for Campbell Industries is found here.
Account Payable: $490,000
Notes Payable: $247,000
Current liabilities $737,000
Long-term debt: $1,194,000
Common equity: $5,082,000
Total liabilities and equity $7,013,000
a. What percentage of the firms’ assets does the firm finance using debt (liabilities)?
b. If Campbell were to purchase a new warehouse for 1.3 million and finance it entirely with long-term debt, what would be the firm’s new debt ratio?
Question-2
(Related to checkpoint 5.2) (Future Value) To what amount will $5,100 invested for 10 years at 11 percent compounded annually accumulate?
Question-3
((Related to checkpoint 5.2) (Compound interest with non-annual periods) You just received a bonus of $1,000
a. Calculate the future value of $1,000, given that it will be held in the bank for 5 years and earn an interest rate of 8 percent.
b. Recalculate part (a) using compounding period that is (1) semiannual and (2) bimonthly.
c. Recalculate part (a) and (b) using an annual interest rate of 16 percent.
d. Recalculate part (a) using a time horizon of 10 years at an annual interest rate of 8 percent.
e. What conclusion can you draw when you compare the answers in parts ( c) and (d) with the answers in part (a) and (b)?
Question-4
(Related to checkpoint 13.4) (Break-even Analysis) The Marvel Mfg company is considering whether or not to construct a new robotic production facility. The cost of this new facility is $606,000 and it is expected to have a six-year life with annual depreciation expense of $101,000 and no salvage value. Annual sales from the new facility are expected to be 2,000 units with a price of $950 per unit. Variably production costs are $550 per unit, while fixed cash expenses are $83,000 per year.
A. Find the accounting and the cash break-even units of production
B. Will the plane 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?
Question-6
(Preparation of a Cash budget) The Sharpe Corporation’s projected sales for the first eight months of 2014 are as follows:
January $ 90,300 May $300,800
February 119,300 June 270,600
March 135,600 July 225,000
April 239,500 August 150,600
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 2013 were $219,100 and $175,200, 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 $10,600 per month for rent and $20,700 each month for other expenditures.
Tax prepayments of $22,400 are made each quarter, beginning in March.
The company’s cash balance at December 31, 2013, was $22,500; 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 (12 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 $65,340, these funds would be borrowed at the beginning of April
with interest of $653 (i.e., 0.12x1/12x65,340) owed for April and paid at the beginning of May.
a. Prepare a cash budget for Sharpe covering the first seven months of 2014
b. Sharpe has $199,500 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?
Questions solved in Excel so that if you have different data, you can update in excel and get right answer.
Answer will be sent by email as attachment.
(Capital Structure Analysis) The liabilities and owners’ equity for Campbell Industries is found here.
Account Payable: $490,000
Notes Payable: $247,000
Current liabilities $737,000
Long-term debt: $1,194,000
Common equity: $5,082,000
Total liabilities and equity $7,013,000
a. What percentage of the firms’ assets does the firm finance using debt (liabilities)?
b. If Campbell were to purchase a new warehouse for 1.3 million and finance it entirely with long-term debt, what would be the firm’s new debt ratio?
Question-2
(Related to checkpoint 5.2) (Future Value) To what amount will $5,100 invested for 10 years at 11 percent compounded annually accumulate?
Question-3
((Related to checkpoint 5.2) (Compound interest with non-annual periods) You just received a bonus of $1,000
a. Calculate the future value of $1,000, given that it will be held in the bank for 5 years and earn an interest rate of 8 percent.
b. Recalculate part (a) using compounding period that is (1) semiannual and (2) bimonthly.
c. Recalculate part (a) and (b) using an annual interest rate of 16 percent.
d. Recalculate part (a) using a time horizon of 10 years at an annual interest rate of 8 percent.
e. What conclusion can you draw when you compare the answers in parts ( c) and (d) with the answers in part (a) and (b)?
Question-4
(Related to checkpoint 13.4) (Break-even Analysis) The Marvel Mfg company is considering whether or not to construct a new robotic production facility. The cost of this new facility is $606,000 and it is expected to have a six-year life with annual depreciation expense of $101,000 and no salvage value. Annual sales from the new facility are expected to be 2,000 units with a price of $950 per unit. Variably production costs are $550 per unit, while fixed cash expenses are $83,000 per year.
A. Find the accounting and the cash break-even units of production
B. Will the plane 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?
Question-6
(Preparation of a Cash budget) The Sharpe Corporation’s projected sales for the first eight months of 2014 are as follows:
January $ 90,300 May $300,800
February 119,300 June 270,600
March 135,600 July 225,000
April 239,500 August 150,600
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 2013 were $219,100 and $175,200, 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 $10,600 per month for rent and $20,700 each month for other expenditures.
Tax prepayments of $22,400 are made each quarter, beginning in March.
The company’s cash balance at December 31, 2013, was $22,500; 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 (12 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 $65,340, these funds would be borrowed at the beginning of April
with interest of $653 (i.e., 0.12x1/12x65,340) owed for April and paid at the beginning of May.
a. Prepare a cash budget for Sharpe covering the first seven months of 2014
b. Sharpe has $199,500 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?
Questions solved in Excel so that if you have different data, you can update in excel and get right answer.
Answer will be sent by email as attachment.
