FIN 370 Week 3 My Finance Lab

FIN 370 Week 3 My Finance
Lab
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% × 1/12 × $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?