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BUSI 320 Corporate Finance Week 2 Assignmnt,,,,

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Question;Question1.00 pointAt the end of January, Mineral Labs had an inventory of 925 units, which cost $9 per unit to produce. DuringFebruary, the company produced 1,650 units at a cost of $13 per unit.a. If the firm sold 2,350 units in February, what was the cost of goods sold? (Assume LIFO inventoryaccounting.)Cost of goods sold$b. If the firm sold 2,350 units in February, what was the cost of goods sold? (Assume FIFO inventoryaccounting.)Cost of goods sold$Worksheet2.Difficulty: BasicLearning Objective: 04-02 The three financial statements forforecasting are the pro forma income statement, the cashbudget, and the pro forma balance sheet.award:1.00 pointConvex Mechanical Supplies produces a product with the following costs as of July 1, 2012:MaterialLaborOverhead$532$ 10Beginning inventory at these costs on July 1 was 11,500 units. From July 1 to December 1, Convexproduced 26,000 units. These units had a material cost of $7 per unit. The costs for labor and overheadwere the same. Convex uses FIFO inventory accounting.a. Assuming that Convex sold 28,000 units during the last six months of the year at $14 each, what wouldgross profit be?Gross profit$b. What is the value of ending inventory?Ending inventory$View Hint #1Worksheet3.Difficulty: IntermediateLearning Objective: 04-02 The three financial statements forforecasting are the pro forma income statement, the cashbudget, and the pro forma balance sheet.award:1.00 pointThe Bradley Corporation produces a product with the following costs as of July 1, 2014:MaterialLaborOverhead$ 4 per unit2 per unit2 per unitBeginning inventory at these costs on July 1 was 3,150 units. From July 1 to December 1, 2014,Bradley produced 12,300 units. These units had a material cost of $4, labor of $6, and overhead of $3 perunit. Bradley uses LIFO inventory accounting.a. Assuming that Bradley sold 13,600 units during the last six months of the year at $18 each, what is itsgross profit?Gross profit$b. What is the value of ending inventory?Ending inventory$View Hint #1Learning Objective: 04-02 The three financial statements forhttp://ezto.mheducation.com/hm.tpxPage 1 of 10Assignment Print View10/25/14, 7:45 PMWorksheet4.Difficulty: Intermediateforecasting are the pro forma income statement, the cashbudget, and the pro forma balance sheet.award:3.00 pointsWatt?s Lighting Stores made the following sales projection for the next six months. All sales are credit sales.MarchAprilMay$ 38,00044,00033,000June$ 42,000July50,000August 52,000Sales in January and February were $41,000 and $40,000, respectively.Experience has shown that of total sales, 10 percent are uncollectible, 35 percent are collected in themonth of sale, 45 percent are collected in the following month, and 10 percent are collected two monthsafter sale.a. Prepare a monthly cash receipts schedule for the firm for March through August.$$Total cash receipts$$$$$$$$Credit salesCollections:In month of saleOne month after saleTwo months after saleFebruaryWatt's Lighting StoresCash Receipts ScheduleMarchApril$$$January$$$$MayJuneJulyb. Of the sales expected to be made during the six months from March through August, how much will stillbe uncollected at the end of August? How much of the uncollected amount does the firm actually expectto collect? (Leave no cells blank - be certain to enter "0" wherever required.)Month of saleAugustJulyJuneMayAprilMarchSales$Watt?s Lighting StoresCash Receipts ScheduleUncollected %Uncollected $%$Totals:Expect to collect %%$Expect to collect $$$View Hint #1Worksheet5.Difficulty: IntermediateLearning Objective: 04-02 The three financial statements forforecasting are the pro forma income statement, the cashbudget, and the pro forma balance sheet.award:4.00 pointsThe Volt Battery Company has forecast its sales in units as follows:JanuaryFebruaryMarchApril3,000 May2,850 June2,800 July3,3003,5503,7003,400Volt Battery always keeps an ending inventory equal to 120% of the next month?s expected sales. Theending inventory for December (January?s beginning inventory) is 3,160 units, which is consistent with thispolicy.Materials cost $13 per unit and are paid for in the month after purchase. Labor cost is $6 per unit and ispaid in the month the cost is incurred. Overhead costs are $17,000 per month. Interest of $10,200 isscheduled to be paid in March, and employee bonuses of $15,400 will be paid in June.a. Prepare a monthly production schedule for January through June. (Negative amounts should beindicated by a minus sign.)Volt Battery Companyhttp://ezto.mheducation.com/hm.tpxPage 2 of 10Assignment Print View10/25/14, 7:45 PMJanuaryFebruaryProduction ScheduleMarchAprilMayJuneJulyProjected unit salesDesired ending inventoryTotal units requiredBeginning inventoryUnits to be producedb. Prepare a monthly summary of cash payments for January through June. Volt produced 2,800 units inDecember.DecemberUnits producedPayments:Material costLabor costOverhead costInterestEmployee bonusesTotal cash paymentsSummary Of Cash PaymentsFebruaryMarchJanuaryAprilMayJune$$$$$$$$$$$$View Hint #1Worksheet6.Learning Objective: 04-02 The three financial statements forforecasting are the pro forma income statement, the cashbudget, and the pro forma balance sheet.Difficulty: Intermediateaward:5.00 pointsHarry?s Carryout Stores has eight locations. The firm wishes to expand by two more stores and needs abank loan to do this. Mr. Wilson, the banker, will finance construction if the firm can present an acceptablethree-month financial plan for January through March. The following are actual and forecasted salesfigures:ActualForecastAdditional InformationNovember $ 340,000 January$ 560,000 April forecast$ 480,000December500,000 February600,000March490,000Of the firm?s sales, 35 percent are for cash and the remaining 65 percent are on credit. Of credit sales, 20percent are paid in the month after sale and 80 percent are paid in the second month after the sale.Materials cost 30 percent of sales and are purchased and received each month in an amount sufficient tocover the following month?s expected sales. Materials are paid for in the month after they are received.Labor expense is 40 percent of sales and is paid for in the month of sales. Selling and administrativeexpense is 15 percent of sales and is also paid in the month of sales. Overhead expense is $35,000 in cashper month.Depreciation expense is $11,400 per month. Taxes of $9,400 will be paid in January, and dividends of$9,000 will be paid in March. Cash at the beginning of January is $108,000, and the minimum desired cashbalance is $103,000.a. Prepare a schedule of monthly cash receipts for January, February, and March.SalesCredit salesCollections:Cash salesOne month after saleTwo months after saleHarry?s Carryout StoresCash Receipts ScheduleNovemberDecember$$$January$$$$$Total cash receiptsFebruary$March$$b. Prepare a schedule of monthly cash payments for January, February, and March.Payments for purchasesLabor expenseSelling and administrativeOverheadhttp://ezto.mheducation.com/hm.tpxHarry?s Carryout StoresCash Payments ScheduleJanuary$February$March$Page 3 of 10Assignment Print View10/25/14, 7:45 PMTaxesDividendsTotal cash payments$$$c. Prepare a monthly cash budget with borrowings and repayments for January, February, and March.(Leave no cells blank - be certain to enter "0" wherever required. Negative amounts should beindicated by a minus sign. Assume the January beginning loan balance is $0.)DecemberTotal cash receiptsTotal cash paymentsHarry?s Carryout StoresCash BudgetJanuary$February$$MarchNet cash flowBeginning cash balance$$$Cumulative cash balanceMonthly loan (repayment)$$$Ending cash balance$$$$$$Cumulative loan balance$Worksheet7.Learning Objective: 04-02 The three financial statements forforecasting are the pro forma income statement, the cashbudget, and the pro forma balance sheet.Difficulty: Challengeaward:1.00 pointThe Manning Company has financial statements as shown next, which are representative of the company?shistorical average.The firm is expecting a 25 percent increase in sales next year, and management is concerned about thecompany?s need for external funds. The increase in sales is expected to be carried out without anyexpansion of fixed assets, but rather through more efficient asset utilization in the existing store. Amongliabilities, only current liabilities vary directly with sales.Income StatementSalesExpenses$ 220,000171,200Earnings before interest and taxes $ 48,800Interest7,200Earnings before taxesTaxes$ 41,60015,200Earnings after taxes$ 26,400Dividends$9,240CashAccounts receivableInventoryBalance SheetLiabilities and Stockholders' Equity$ 8,000 Accounts payable$ 29,00061,000 Accrued wages2,60085,000 Accrued taxes3,600Current assets$154,000AssetsFixed assets82,000Current liabilities$ 35,200Notes payable7,200Long-term debtCommon stockRetained earningsTotal assets$236,00016,000122,00055,600Total liabilities andstockholders' equity$236,000Using the percent-of-sales method, determine whether the company has external financing needs, or asurplus of funds. (Hint: A profit margin and payout ratio must be found from the income statement.) (Do notround intermediate calculations. Input the amount as a positive value.)The firm(Click to select)$in (Click to select).View Hint #1Worksheethttp://ezto.mheducation.com/hm.tpxDifficulty: ChallengeLearning Objective: 04-03 The percent-of-sales method mayalso be used for forecasting on a less precise basis.Page 4 of 10Assignment Print View8.10/25/14, 7:45 PMaward:1.00 pointThe Hartnett Corporation manufactures baseball bats with Pudge Rodriguez?s autograph stamped on them.Each bat sells for $39 and has a variable cost of $21. There are $32,940 in fixed costs involved in theproduction process.a. Compute the break-even point in units.Break-even pointunitsb. Find the sales (in units) needed to earn a profit of $18,270.Sales quantity neededunitsView Hint #1Worksheet9.Difficulty: BasicLearning Objective: 05-02 Break-even analysis allows the firmto determine the magnitude of operations necessary to avoidloss.award:1.00 pointEaton Tool Company has fixed costs of $366,600, sells its units for $84, and has variable costs of $45 perunit.a. Compute the break-even point. (Round your answer to the nearest whole number.)Break-even pointunitsb. Ms. Eaton comes up with a new plan to cut fixed costs to $290,000. However, more labor will now berequired, which will increase variable costs per unit to $48. The sales price will remain at $84. What isthe new break-even point? (Round your answer to the nearest whole number.)New break-even pointunitsc. Under the new plan, what is likely to happen to profitability at very high volume levels (compared to theold plan)?Profitability will be moreProfitability will be lessView Hint #1Worksheet10.Difficulty: BasicLearning Objective: 05-02 Break-even analysis allows the firmto determine the magnitude of operations necessary to avoidloss.award:2.00 pointsHealthy Foods Inc. sells 50-pound bags of grapes to the military for $10 a bag. The fixed costs of thisoperation are $90,000, while the variable costs of grapes are $.10 per pound.a. What is the break-even point in bags? (Round your answer to 2 decimal places.)Break-even pointbagsb. Calculate the profit or loss (EBIT) on 10,000 bags and on 35,000 bags. (Input all amounts as positivevalues. Round your answers to the nearest whole number.)BagsProfit/Loss10,000(Click to select)$Amount35,000(Click to select)$c. What is the degree of operating leverage at 24,000 bags and at 35,000 bags? (Round your answers to2 decimal places.)Bags24,00035,000Degree ofOperating Leveraged. If Healthy Foods has an annual interest expense of $15,000, calculate the degree of financial leverageat both 24,000 and 35,000 bags. (Round your answers to 2 decimal places.)http://ezto.mheducation.com/hm.tpxPage 5 of 10Assignment Print View10/25/14, 7:45 PMDegree ofFinancial LeverageBags24,00035,000e. What is the degree of combined leverage at both 24,000 and 35,000 bags? (Round your answers to 2decimal places.)Degree ofCombined LeverageBags24,00035,000rev: 02_24_2014_QC_45739, 07_14_2014_QC_51398, 07_17_2014_QC_51398View Hint #1WorksheetDifficulty: Intermediate11.Learning Objective: 05-02 Break-even analysis allows the firmto determine the magnitude of operations necessary to avoidloss.Learning Objective: 05-05 Combined leverage takes intoaccount both the use of fixed assets and debt.award:2.00 pointsInternational Data Systems information on revenue and costs is only relevant up to a sales volume of114,000 units. After 114,000 units, the market becomes saturated and the price per unit falls from $14.00 to$8.80. Also, there are cost overruns at a production volume of over 114,000 units, and variable cost per unitgoes up from $7.00 to $7.25. Fixed costs remain the same at $64,000.a. Compute operating income at 114,000 units.Operating income$b. Compute operating income at 214,000 units.Operating income$View Hint #1Worksheet12.Learning Objective: 05-02 Break-even analysis allows the firmto determine the magnitude of operations necessary to avoidloss.Difficulty: Intermediateaward:2.00 pointsLenow?s Drug Stores and Hall?s Pharmaceuticals are competitors in the discount drug chain store business.The separate capital structures for Lenow and Hall are presented next.LenowDebt @ 9%Common stock, $10 par$ 160,000320,000HallDebt @ 9%Common stock, $10 par$ 320,000160,000TotalCommon shares$ 480,00032,000TotalCommon shares$ 480,00016,000a. Complete the following table given earnings before interest and taxes of $20,000, $43,200, and$61,000. Assume the tax rate is 20 percent. (Leave no cells blank - be certain to enter "0"wherever required. Negative amounts should be indicated by a minus sign. Round youranswers to 2 decimal places.)EBITTotal assetsEBIT/TALenow EPSHall EPSWhat is the relationship between the EPSof the two firms?$ 20,000$480,000%$$(Click to select)$ 43,200$480,000%$$(Click to select)$61,000$480,000%$$(Click to select)b-1. What is the EBIT/TA rate when the firm's have equal EPS?EBIT/TA rate%b-2. What is the cost of debt?Cost of debt%b-3. State the relationship between earnings per share and the level of EBIT.http://ezto.mheducation.com/hm.tpxPage 6 of 10Assignment Print View10/25/14, 7:45 PMEPS is unaffected by financial leverage when the pre-tax return on assets (EBIT/TA)(Click to select)the cost of debt.c. If the cost of debt went up to 11 percent and all other factors remained equal, what would be thebreak-even level for EBIT?$Break-even levelView Hint #1Worksheet13.Difficulty: IntermediateLearning Objective: 05-04 Financial leverage shows how muchdebt the firm employs in its capital structure.award:2.00 pointsSterling Optical and Royal Optical both make glass frames and each is able to generate earnings beforeinterest and taxes of $111,600. The separate capital structures for Sterling and Royal are shown next:SterlingDebt @ 9%Common stock, $5 par$ 744,000496,000RoyalDebt @ 9%Common stock, $5 par$ 248,000992,000TotalCommon shares$1,240,00099,200TotalCommon shares$ 1,240,000198,400a. Compute earnings per share for both firms. Assume a 30 percent tax rate. (Round your answers to 2decimal places.)SterlingRoyalEarnings Per Share$$b. In part a, you should have gotten the same answer for both companies? earnings per share. Assuming aP/E ratio of 22 for each company, what would its stock price be? (Do not round intermediatecalculations. Round your answer to 2 decimal places.)Stock price$c. Now as part of your analysis, assume the P/E ratio would be 16 for the riskier company in terms ofheavy debt utilization in the capital structure and 25 for the less risky company. What would the stockprices for the two firms be under these assumptions? (Note: Although interest rates also would likely bedifferent based on risk, we will hold them constant for ease of analysis.) (Do not round intermediatecalculations. Round your answer to 2 decimal places.)SterlingRoyalStock price$$View Hint #1Worksheet14.Learning Objective: 05-04 Financial leverage shows how muchdebt the firm employs in its capital structure.Difficulty: Challengeaward:3.00 pointsDickinson Company has $11,820,000 million in assets. Currently half of these assets are financed withlong-term debt at 9.1 percent and half with common stock having a par value of $8. Ms. Smith, VicePresident of Finance, wishes to analyze two refinancing plans, one with more debt (D) and one with moreequity (E). The company earns a return on assets before interest and taxes of 9.1 percent. The tax rate is40 percent. Tax loss carryover provisions apply, so negative tax amounts are permissable.Under Plan D, a $2,955,000 million long-term bond would be sold at an interest rate of 11.1 percent and369,375 shares of stock would be purchased in the market at $8 per share and retired.Under Plan E, 369,375 shares of stock would be sold at $8 per share and the $2,955,000 in proceedswould be used to reduce long-term debt.a. How would each of these plans affect earnings per share? Consider the current plan and the two newplans. (Round your answers to 2 decimal places.)Earnings per shareCurrent Plan$Plan D$Plan E$b-1. Compute the earnings per share if return on assets fell to 4.55 percent. (Leave no cells blank - becertain to enter "0" wherever required. Negative amounts should be indicated by a minus sign.Round your answers to 2 decimal places.)Current PlanEarnings per sharehttp://ezto.mheducation.com/hm.tpx$Plan D$Plan E$Page 7 of 10Assignment Print View10/25/14, 7:45 PMb-2. Which plan would be most favorable if return on assets fell to 4.55 percent? Consider the current planand the two new plans.Plan DPlan ECurrent Planb-3. Compute the earnings per share if return on assets increased to 14.1 percent. (Round your answersto 2 decimal places.)Current Plan$Earnings per sharePlan D$Plan E$b-4. Which plan would be most favorable if return on assets increased to 14.1 percent? Consider thecurrent plan and the two new plans.Plan ECurrent PlanPlan Dc-1. If the market price for common stock rose to $12 before the restructuring, compute the earnings pershare. Continue to assume that $2,955,000 million in debt will be used to retire stock in Plan D and$2,955,000 million of new equity will be sold to retire debt in Plan E. Also assume that return on assetsis 9.1 percent. (Round your answers to 2 decimal places.)Current Plan$Earnings per sharePlan D$Plan E$c-2. If the market price for common stock rose to $12 before the restructuring, which plan would then bemost attractive?Plan DCurrent PlanPlan Erev: 02_26_2014_QC_45248View Hint #1Worksheet15.Difficulty: ChallengeLearning Objective: 05-06 By increasing leverage, the firmincreases its profit potential, but also its risk of failure.award:3.00 pointsThe Lopez-Portillo Company has $11.9 million in assets, 70 percent financed by debt, and 30 percentfinanced by common stock. The interest rate on the debt is 13 percent and the par value of the stock is $10per share. President Lopez-Portillo is considering two financing plans for an expansion to $24.5 million inassets.Under Plan A, the debt-to-total-assets ratio will be maintained, but new debt will cost a whopping 16percent! Under Plan B, only new common stock at $10 per share will be issued. The tax rate is 30 percent.a. If EBIT is 14 percent on total assets, compute earnings per share (EPS) before the expansion and underthe two alternatives. (Round your answers to 2 decimal places.)CurrentPlan APlan BEarnings Per Share$$$b. What is the degree of financial leverage under each of the three plans? (Round your answers to 2decimal places.)Degree OfFinancial LeverageCurrentPlan APlan Bc. If stock could be sold at $20 per share due to increased expectations for the firm?s sales and earnings,what impact would this have on earnings per share for the two expansion alternatives? Computeearnings per share for each. (Round your answers to 2 decimal places.)Plan APlan BEarnings Per Share$$View Hint #1http://ezto.mheducation.com/hm.tpxPage 8 of 10Assignment Print View10/25/14, 7:45 PMWorksheet16.Difficulty: ChallengeLearning Objective: 05-06 By increasing leverage, the firmincreases its profit potential, but also its risk of failure.award:4.00 pointsDelsing Canning Company is considering an expansion of its facilities. Its current income statement is asfollows:SalesVariable costs (50% of sales)Fixed costs$ 6,700,0003,350,0001,970,000Earnings before interest and taxes (EBIT)Interest (10% cost)$ 1,380,000540,000Earnings before taxes (EBT)Tax (40%)$840,000336,000Earnings after taxes (EAT)$504,000Shares of common stockEarnings per share$370,0001.36The company is currently financed with 50 percent debt and 50 percent equity (common stock, par valueof $10). In order to expand the facilities, Mr. Delsing estimates a need for $3.7 million in additionalfinancing. His investment banker has laid out three plans for him to consider:1.Sell $3.7 million of debt at 13 percent.2.Sell $3.7 million of common stock at $20 per share.3.Sell $1.85 million of debt at 12 percent and $1.85 million of common stock at $25 per share.Variable costs are expected to stay at 50 percent of sales, while fixed expenses will increase to$2,470,000 per year. Delsing is not sure how much this expansion will add to sales, but he estimates thatsales will rise by $1.85 million per year for the next five years.Delsing is interested in a thorough analysis of his expansion plans and methods of financing.He wouldlike you to analyze the following:a.The break-even point for operating expenses before and after expansion (in sales dollars). (Enteryour answers in dollars not in millions, i.e, $1,234,567.)Before expansionAfter expansionb.Break-Even Point$$The degree of operating leverage before and after expansion. Assume sales of $6.7 million beforeexpansion and $7.7 million after expansion. Use the formula: DOL = (S? TVC) / (S? TVC? FC).(Round your answers to 2 decimal places.)Degree ofOperating LeverageBefore expansionAfter expansionc-1. The degree of financial leverage before expansion. (Round your answers to 2 decimal places.)Degree of financial leveragec-2. The degree of financial leverage for all three methods after expansion. Assume sales of $7.7 millionfor this question. (Round your answers to 2 decimal places.)Degree ofFinancial Leverage100% Debt100% Equity50% Debt & 50% Equityd.Compute EPS under all three methods of financing the expansion at $7.7 million in sales (first year)and $10.6 million in sales (last year).(Round your answers to 2 decimal places.)http://ezto.mheducation.com/hm.tpxPage 9 of 10Assignment Print View100% Debt100% Equity50% Debt & 50% Equity10/25/14, 7:45 PMEarnings per shareFirst yearLast year$$View Hint #1WorksheetDifficulty: Challenge17.Learning Objective: 05-02 Break-even analysis allows the firmto determine the magnitude of operations necessary to avoidloss.Learning Objective: 05-03 Operating leverage indicates theextent fixed assets (plants and equipment) are utilized by thefirmLearning Objective: 05-04 Financial leverage shows how muchdebt the firm employs in its capital structure.award:2.00 pointsSinclair Manufacturing and Boswell Brothers Inc. are both involved in the production of brick for thehomebuilding industry. Their financial information is as follows:SinclairCapital StructureDebt @ 11%Common stock, $10 per share$Boswell720,000480,0000$ 1,200,000$ 1,200,000$ 1,200,00048,000120,000Operating Plan:Sales (52,000 units at $20 each)Variable costsFixed costs$ 1,040,000832,0000$ 1,040,000520,000302,000Earnings before interest and taxes (EBIT)$$TotalCommon shares208,000218,000The variable costs for Sinclair are $16 per unit compared to $10 per unit for Boswell.a. If you combine Sinclair?s capital structure with Boswell?s operating plan, what is the degree of combinedleverage? (Round your answer to 2 decimal places.)Degree of combined leverageb. If you combine Boswell?s capital structure with Sinclair?s operating plan, what is the degree of combinedleverage? (Round your answer to the nearest whole number.)Degree of combined leveragec. In part b, if sales double, by what percentage will EPS increase? (Round your answer to the nearestwhole percent.)EPS will increase by%View Hint #1Worksheethttp://ezto.mheducation.com/hm.tpxDifficulty: ChallengeLearning Objective: 05-05 Combined leverage takes intoaccount both the use of fixed assets and debt.

 

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