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BUS303 ? Business Finance - Comprehensive Problem ? Module Three




Question;BUS303 ? Business Finance - Comprehensive;Problem ? Module Three;This problem builds upon each of the;different modules to a logical analysis and conclusion, emphasizing the most;important aspects of business finance through the completion of each of the;four modules. Following is a brief;description of each of the modules and the course objectives that are covered;with the module.;Module One ?;this module will emphasize the student?s grasp of the formation of financial;statements and the development of analytical measures to assess the financial;condition of the business firm. (CO 1.2, 2.1);Module Two ?;this module will focus upon the development of pro forma financial statements;given various planning assumptions. (CO 1.4);Module Three;? this module will require the student to apply working capital analysis;techniques and assess the cost of debt to a business firm. (CO 2.2, 3.2, 3.3;3.4);Module Four;? this final module will encompass the application of time-value of money;concepts to the business firm?s decisions related to the firm?s overall cost of;capital. (CO 4.1, 4.4);General;Guidelines;The proper, and professional, presentation;of solutions associated with this comprehensive problem are part of the overall;grading of each module. Because all analytic;work is to be completed in Excel, but the solution submission is to be in Word;you must become familiar with importing schedules from Excel into Word in a;professional manner. Please see the;instructions contained in the Getting Started folder in Blackboard.;Each module is due as indicated in the;Learning Activities folder for the particular week and is to be uploaded into;the Assignment as shown in the Grade Center.;Module Three ? 40 points;Part A;Based on the pro forma projections for the;first quarter, as provided in Module Two, Mr. Smith would like to know the breakeven point;for the firm in terms of units;to sell and the sales dollars for each month, on average, and for the;quarter. He is considering making some;changes to the pricing and fixed cost structure and would like to know how much;flexibility he has.;Required;Based on the fixed costs from the pro forma income statement and the;selling price and variable costs per unit, calculate the current breakeven;point for the firm using the data from the 1st quarter pro forma;schedules. The fixed costs are;classified as selling and administrative costs and the interest expense of;$9,000 for a quarter.;Part B;Smith-John Widgets, Inc. has been running;smoothly and, based on the pro forma projections that had been developed, the;bank has provided the needed short-term borrowings that have helped smooth the;company?s cash requirements. The company;is now looking at better ways to manage the balances of inventory and, in;particular, with managing the material ordering process.;Currently, the average inventory for the;company has been based on 1.5 month?s supply, which resulted in a high level of;inventory and few orders per year.;However, based on information received in a seminar for small businesses;Mr. John would like to see the policy changed to be based on the EOQ model. The current cost structure of the company has;yielded the following inventory and order cost data;Using the information from the first three;months of the year, January through March, the company has determined the;following details regarding inventory costs and average balances;Required;Prepare an analysis of the company?s current inventory costs and develop;a recommended ordering cycle based on the application of an EOQ model. Make sure to include in your report the;updated information as follows: cost;breakdown of inventory costs, including carrying and ordering costs, the;average inventory level, the number of orders to place each quarter, and the;number of units to order with each order placed, per your recommendation.;Part C;Currently, Smith-John does not offer early;payment discounts to its customers. Mr.;Smith is considering offering a cash discount to customers as a means to;improve collections. He is considering;the following alternatives;Required;Prepare a report giving Mr. Smith the cost, as a percentage, to the;company of each of the proposed cash discount alternatives as presented, based;on the cost of not taking a discount formula.;Part D;In addition to the outstanding a long-term;loan of $400,000 the company also has a short-term line of credit provided by;the bank. Mr. Smith is negotiating with;several new lending sources for additional loans and possibly an increase in;borrowings. In meeting with several of;these sources, Mr. Smith has received the following offers for financing;Required;Calculate the effective interest rate for each of these financing;offers. For Case 4 it is assumed that at;the end of the ? year the loan would have to be renegotiated at the then;prevailing interest rates. Based on your;analysis, identify for Mr. Smith which would be the better alternative based;solely on the effective interest rate of the financing offer. Make sure to display your calculations in;case Mr. Smith has any specific questions.


Paper#53264 | Written in 18-Jul-2015

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