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BUS303 ? Business Finance - Comprehensive Problem ? Module 2




Question;BUS303 ? Business Finance - Comprehensive;Problem ? Module 2;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.;The final upload to Blackboard will include;the Excel file and the Word document. Make;sure to include your name in cell A1 in the Excel file, along with the section;of your class, and the Word document should be professionally prepared and use;the guidelines in the School of Business Writing Manual.;Module Two ? 56 points (part 1=40 points;part 2=16 points);Smith-John makes standard sized widgets for;the frazzle industry. These widgets are;sold for $215 per thousand. Mr. Smith;and Mr. John are asking you to assist with preparations for a meeting with;their banker to arrange for financing the company for possible expansion. Based on a sales forecast (below) and other;data, Mr. Smith and Mr. John would like you to prepare a monthly cash budget;monthly and quarterly pro forma income statements, a pro forma quarterly;balance sheet, and all necessary supporting schedules for the first quarter of;2012.;Sales forecast (in units);Prior history shows that the company;collects 75% of the sales in the first month after the sale, 20% in the second;month after the sale, and the remainder in the third month after the sale. The company pays for materials purchased for;production the month after receipt. In;general, Mr. Smith and Mr. John like to keep one-half months supply of;inventory on-hand at month-end in anticipation of sales for the next month. Inventory at the beginning of December was 1,650,000;units. (This was not equal to the;desired inventory level of 60% of the next month?s sales.) Additionally, the unit sales for October;November and December were 2,151,000, 2,195,000 and 2,426,000, respectively.;The major cost of production is the;purchase of raw materials in the form of steel rods, which are cut, threaded;and finished. Last year raw material;costs were $92 per 1,000 widgets, but Mr. John was notified by the purchasing;department that the cost was going to rise to $102 per 1,000 widgets. The company uses FIFO inventory accounting;and the purchases for materials are paid for in the month following the;purchase. Labor costs are relatively;constant at $21 per thousand widgets, since workers are paid on a piecework;basis. Overhead is allocated at $10 per;thousand widgets and selling and administrative costs are constant at 20% of;sales revenue. Labor expense and;overhead are direct cash outflows paid in the month incurred, while interest;and taxes are paid quarterly. In;addition, the company maintains a dividend payout ratio of 40% which is paid;quarterly.;The company usually maintains a minimum;cash balance of $45,000, borrows notes payable if needed, and puts any excess;cash into marketable securities. The;average tax rate is 30%. Marketable;securities are sold before funds are borrowed when a cash shortage is;faced. Ignore the interest on short-term;borrowings. Interest on the long-term;bonds of $9,000 is paid in March, but is allocated over each month for;accounting purposes. Taxes are paid in;March, but are allocated over each month for accounting purposes. The Dividend payment is made at the end of;March. In addition, the company is;projecting the purchase of a new piece of manufacturing equipment in March for;$75,000 that will be cash on delivery.;Required ? part 1: Prepare a monthly pro forma income statement;and cash budget, and a quarter-ended income statement, make sure to include a;sales forecast, production schedule, schedule of cost of goods sold, schedule;of cash receipts, schedule of cash payments, net cash flow schedule, and the;cash budget. All supporting schedules;should include all three months of the quarter.;Required ? part 2: Based on the date prepared in part 1, prepare;a balance sheet as of the quarter-ended date.;Make sure to include a schedule that identifies the calculation of;accounts receivable, inventory, and accounts payable balances for each month and;for the quarter-ended period.;As of the year ended December 31, 2011, the;Smith-John balance sheet was as follows;Note: Although this module does;not specifically call for a narrative discussion, you are to provide a summary;of each step in the process in a Word document and then include the appropriate;schedule of information to support that summary in the Word document for final;submission. You will also upload your Excel file into;Blackboard for each of the parts of this module.


Paper#53306 | Written in 18-Jul-2015

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