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Business Finance Discussion - Hudson Valley Realty




Question;GRADED DISCUSSION 1Hudson Valley RealtyHudson 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)201120102009Sales$949.00$955.10$907.30Cost of goods sold$466.60$472.80$436.60Gross profit$482.40$482.30$470.70Selling and administrative expenses$332.30$320.80$315.60Depreciation$21.30$21.30$21.30Other income (expenses)$1.40($9.20)($11.90)EBIT$130.20$131.00$121.90Interest expense (net of interest income)$0.80$0.60$0.60Taxable income$129.40$130.40$121.30Taxes$49.20$50.10$45.90Net income$80.20$80.30$75.40Dividends$24.06$20.08$18.85Vermont Heritage: Balance Sheets ($ in millions)ASSETS201120102009LIABILITIES201120102009Current assetsCurrent liabilitiesCash and cash items$57.40$61.60$81.90Accounts payable$20.40$22.20$26.10Accounts receivable$28.02$27.00$26.40Short-term notes$4.20$4.70$101.00Inventory$187.13$186.90$198.20Other current liabilities$6.40$7.37$8.00Other current assets$56.52$54.20$53.80Total current assets$329.07$329.70$360.30Total current liabilities$31.00$34.27$135.10Net fixed assets$275.20$277.00$289.40Long-term debt$3.20$4.50$9.20Other assets$88.80$81.70$81.80Other long-term liabilities$5.50$52.40$50.20Total liabilities$39.70$91.17$194.50OWNERS? EQUITYCommon stock$230.00$230.00$230.00Retained earnings$423.37$367.23$307.00Total owners? equity$653.37$597.23$537.00TOTAL ASSETS$693.07$688.40$731.50TOTAL LIABILITIES AND OWNERS? EQUITY$693.07$688.40$731.50In 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#48533 | Written in 18-Jul-2015

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