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Hudson Valley Realty owns a number of commercial




Question;RADED;DISCUSSION 1;Hudson;Valley Realty;Hudson Valley Realty owns a number of commercial properties;in suburban towns north and east of New York City. One of them used to be;rented to an upscale department store that was best known for jewelry and fine china;but also sold everything from chandeliers to bed linens to lawn furniture. The;building became vacant two years ago when the tenant broke a ten-year lease;after only three years of occupancy and unexpectedly filed for bankruptcy.;Hudson Valley considered any effort to recover early termination penalties a;waste of time and money.;Interest expense, high real estate taxes, insurance, and;security costs make it extremely expensive to hold vacant property in this;area. Although Hudson Valley is obviously eager to find a new tenant, it does;not want another unexpected vacancy to have a serious negative effect on its;investment returns. Hudson Valley wants to be sure the new tenant will be;financially stable and will likely stay for at least the full term of the;lease.;Vermont Heritage, a well-known furniture chain that targets;affluent customers with traditional tastes, has expressed interest in the;location. Peter Cortland, Hudson Valley?s rental manager, wants to take a close;look at the potential tenant?s financial statements before entering into more;serious negotiations. Vermont Heritage has submitted the following audited;income statements and balance sheets for the last three years.;Vermont Heritage: Income Statement ($ in;millions);2011;2010;2009;Sales;$949.00;$955.10;$907.30;Cost of goods sold;$466.60;$472.80;$436.60;Gross profit;$482.40;$482.30;$470.70;Selling and administrative expenses;$332.30;$320.80;$315.60;Depreciation;$21.30;$21.30;$21.30;Other income (expenses);$1.40;($9.20);($11.90);EBIT;$130.20;$131.00;$121.90;Interest expense (net of interest income);$0.80;$0.60;$0.60;Taxable income;$129.40;$130.40;$121.30;Taxes;$49.20;$50.10;$45.90;Net income;$80.20;$80.30;$75.40;Dividends;$24.06;$20.08;$18.85;Vermont Heritage: Balance Sheets ($ in millions);ASSETS;2011;2010;2009;LIABILITIES;2011;2010;2009;Current assets;Current liabilities;Cash and cash items;$57.40;$61.60;$81.90;Accounts payable;$20.40;$22.20;$26.10;Accounts receivable;$28.02;$27.00;$26.40;Short-term notes;$4.20;$4.70;$101.00;Inventory;$187.13;$186.90;$198.20;Other current liabilities;$6.40;$7.37;$8.00;Other current assets;$56.52;$54.20;$53.80;Total current assets;$329.07;$329.70;$360.30;Total current liabilities;$31.00;$34.27;$135.10;Net fixed assets;$275.20;$277.00;$289.40;Long-term debt;$3.20;$4.50;$9.20;Other assets;$88.80;$81.70;$81.80;Other long-term liabilities;$5.50;$52.40;$50.20;Total liabilities;$39.70;$91.17;$194.50;OWNERS? EQUITY;Common stock;$230.00;$230.00;$230.00;Retained earnings;$423.37;$367.23;$307.00;Total owners? equity;$653.37;$597.23;$537.00;TOTAL ASSETS;$693.07;$688.40;$731.50;TOTAL LIABILITIES AND OWNERS? EQUITY;$693.07;$688.40;$731.50;In your initial response to the;topic you have to answer 2 or 3 of the first set of questions as well as the;last question.;You are expected to;make your own contribution in a main topic as well as respond with value added;comments to at least two of your classmates as well as to your instructor.;1.;Look at Vermont Heritage?s;sales revenue, EBIT, and net income over the three-year period. Would you;classify it as a growing, diminishing, or stable company? Please explain;your answer.;2.;Look at Vermont Heritage?s;expense accounts, cost of goods sold, and selling and administrative expenses.;Do they seem to be roughly proportional to sales? Do any of these categories;seem to be growing out of control? Please explain your answer.;3.;Depreciation expense is the;same for all three years. What does that tell you about Vermont Heritage?s;growth? Please explain your answer.;4.;Look at Vermont Heritage?s;EBIT, interest expense, and debt accounts (current liabilities, long-term;debt,and other liabilities) over the three-year period. Comparing debt to;equity, do you think the company seems to have excessive debt? Would you expect;the company to have any problems meeting its interest payments? Please;explain your answer.;5.;Dividends have increased as a;percentage of net income. Why do you think the company decided to pay out more;of its earnings to shareholders? Please explain your answer.;6.;Compare current assets with;current liabilities. Would you expect Vermont Heritage to have any problems;meeting its short-term obligations? Please explain your answer.;Overall, do you think Vermont;Heritage will be a relatively safe tenant for Hudson Valley?s building?;Please explain your answer.


Paper#48456 | Written in 18-Jul-2015

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