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intermediate financial management

Questions and Answers of Intermediate Financial Management

b. To reduce this delay, the company is considering daily pickups from the stations. In all, two cars would be needed and two additional people hired. The cost would be $93,000 annually. This
a. How much money is tied up in this interval of time?
1. Speedway Owl Company franchises Gas and Go stations in North Carolina and Virginia. All payments by franchisees for gasoline and oil products are by check, which average in total $420,000 a day.
3. Over the next year, El Pedro Steel Company, a California corporation, expects the following returns on continual investment in marketable securities:Treasury bills 8.00%Commercial paper 8.50
c. If the annual cost of the lockbox system were $75,000, should such a system be initiated?
b. Determine the opportunity cost of the present system, assuming a 5 percent return on short-term instruments.
a. Determine the reduction in cash balances that can be achieved through the use of a lockbox system.
2. The Zindler Company currently has a centralized billing system. Payments are made by all customers to the central billing location. It requires, on the average, 4 days for customers' mailed
1. The Zakuta Fish Company is in a cyclical, risky business. By maintaining liquidity, it lowers the possibility of going into bankruptcy. It is estimated that if bankruptcy were to occur, there
a higher debt ratio, and the sale of common stock. All of these things permit a high rate of growth in sales next year. Unless further changes in these directions occur, the SGR will decline in
3.a. SGR = .75 (.04) (1.6667) = 8.11%.6667 - [.75(.04) (1.6667)]L JL >The company has moved from steady state with higher target operating efficiency,
Accounts payable = Purchases in March Retained earnings = $1,439 + Sales - Payment for purchases - Labor costs and - Other expenses, all for January through March
Accounts receivable = Sales in March X .8 + Sales in February X .I Inventories = $545 + Total purchases January through March - Total sales January through March X .6
c. Pro forma balance sheet, March 31 (in thousands):Cash $ 50 Accountspayable $ 450 Accounts receivable 620 Bank loan 400 Inventories 635 Accruals 212 -Current assets $1,305 Current liabilities
2.a. Cash budget (in thousands):hv. Dec. Ian. Feb. Mar. Ap,:Sales $500 $600 Collections, current month's sales Collections, previous month's sales Collections, previous 2 months' sales Total cash
c. The company has had substantial capital expenditures and increases in accounts receivable and inventories. To finance this growth, which is greatly in excess of the growth in equity base, the
c. Holding the other two ratios constant, what debt-to-equity ratio would be necessary?g r-: Solutions to S e l f - correction Problems Source and Use of Funds Statement for Serap-Jones, Inc.(in
. Holding the other two ratios constant, what net profit margin would be necessary?
a. Holding the other two target ratios constant, what assets-to-sales ratio would be necessary to attain the 35 percent sales increase?Chapter 13 Financial Planning 417
9. Hildebrand Hydronics Corporation wishes to achieve a 35 percent increase in sales next year. Sales last year were $30 million, and the company has equity capital of $12 million. It intends to
b. If instead of these ratios, what would be the sustainable growth rate next year if the company moved from steady state and had the following targets? Assets-to-sales ratio, .42; net profit margin,
a. Its target ratios are: assets-to-sales ratio, .40; net profit margin, .07;debt-to-equity ratio, .50; and earnings retention, .60. If these ratios correspond to steady state, what is its
8. Liz Clairson Industries has $40 million in shareholders' equity and sales of$150 million last year.
c. The tax rate is 40 percent.
b. Depreciation is taken on a straight-line basis on $250,000 of assets with an average remaining life of 10 years and no salvage value. It is recorded as an operating expense apart from cost of
a. Inventory at December 31,20x1, was $200,000.
7. Use the cash budget worked out in problem 6 and with the following gdditional information prepare a pro forma income statement for the first half of 20x2 for the Central City Department Store.
k. The company has a cash balance of $100,000 at December 31,20x1, which is the minimum desired level for cash. Funds can be borrowed in multiples of $5,000 on a monthly basis. (Ignore interest on
j. A capital investment of $30,000 is planned in June.
i. A tax prepayment on 20x2 income of $50,000 is due in April.
h. Interest of $7,500 is due at the end of each calendar quarter.
g. Rent is $2,000 a month.
f. Wages and salaries are January $30,000 March $50,000 May $40,000 February 40,000 April 50,000 June 35,000
e. Payments for purchases of merchandise are 80 percent of the following month's anticipated sales.
d. Sales, actual and estimated, are 416 Part IV Tools of Financial Analysis and Control October 20x1 $300,000 March 20x2 $200,000 November 20x1 350,000 April 20x2 300,000 December 20x1 400,000 May
c. In terms of credit sales, 60 percent are collected in the month after the sale, 30 percent in the second month, and 10 percent in the third. Baddebt losses are insignificant.
b. Sales are 75 percent for credit and 25 percent for cash.
a. All prices and costs remain constant.
6. Given the information that follows, prepare a cash budget for the Central City Department Store for the first 6 months of 20x2 under the following assump-tions:
5. Downeast Nautical Company expects sales of $2.4 million next year and expects sales of the same amount the following year. Sales are spread evenly throughout the year. On the basis of the
Sales and administrative expenses: $10,000 per month plus 10 percent of sales.All of these expenses are paid during the month of incurrence.Interest payments: Semiannual interest of $18,000 is paid
4. Prepare a cash budget for the Ace Manufacturing Company indicating receipts and disbursements for May, June, and July. The firm wishes to maintain a minimum cash balance of $20,000 at all times.
b. Prepare a source and use of working capital statement.
a. Prepare a source and use of funds statement for Sennet.
3. Financial statements for the Sennet Corporation follow:Sennet Corporation Balance Sheet, December 31 (in millions)20x1 20x2 20x1 20x2 Cash $ 4 $ 5 Accounts payable $ 8 $10 Accounts receivable 7 10
c. Prepare a source and use of working capital statement for 20x2.414 Part lV Tools of Financial Analysis and Control
b. Prepare an accounting statement of cash flows.
a. Prepare a source and use of funds statement on a cash basis for 20x2 for the Kohn Corporation.
2. Kohn Corporation comparative balance sheets at December 31 (in millions):Assets 20x1 20x2 Liabilifies and Equity Cash $ 5 $ 3 Accounts receivable 15 22 Inventories 12 15 Fixed assets, net 50 55
1. Galow Fish Canning Company reports the following changes from the preceding year end. Categorize each change as either a source of funds or a use of funds.Item Change Cash Accounts receivable
b. Suppose, now, the company has established for next year a target assets-to-sales ratio of .62, a target net profit margin of .05, and a target debt-to-equity ratio of 30. It wishes to pay an
a. It has a target assets-to-sales ratio of .6667, a target net profit margin of.04, a target debt-to-equity ratio of .6667, and a target earnings retention rate of .75. In steady state, what is its
3. Zippo Industries has equity capital of $12 million, total debt of $8 million, and sales last year of $30 million.
c. Prepare a pro forma balance sheet for March 31.
b. Determine the amount of additional bank borrowings necessary to maintain a cash balance of $50,000 at all times.
a. Prepare a cash budget for the months of January, February, and March.
Purchases of raw materials to produce malt are made in the month prior to the sale and amount to 60 percent of sales in the subsequent month. Payments for these purchases occur in the month after the
2. Consider the balance sheet of Rodriguez Malting Company at December 31 (in thousands). The company has received a large order and anticipates the need to go to its bank to increase its borrowings.
c. Evaluate your findings.Assets Cash and cash equivalents $ 140,000 $ 31,000 Accounts receivable 346,000 528,000 Inventories 432,000 683,000 Current assets $ 918,000 $1,242,000 Net fixed assets
b. Prepare an accounting statement of cash flows.
a. Prepare a source and use of funds statement on a cash basis.
1. Serap-Jones, Inc., had the following financial statements for 20x1 and 20x2.
15. Wholesaling of electronic and computer products
14. Tools and process/environmental controls manufacturing
13. Pharmaceutical manufacturing
12. News and information publishing
11. Laundry detergents and other consumer products
10. Integrated oil production
4. The common size analysis shows that receivables are growing faster than total assets and current assets, while cash declined dramatically as a percentage of both. Net fixed assets surged in 20x2,
3.a. Total assets = Sales/turnover = $6 million/6 = $1 million Earning power = Net profits/total assets= $120,000/$1 million = 12%b. Total assets = $1 million X 1.2 = $1.2 million Earning power =
The buildup in inventories and receivables has resulted in a decline in the asset turnover ratio, and this, coupled with the decline in profitability, has resulted in a sharp decrease in the return
The current and acid-test ratios have fluctuated, but the current ratio is not particularly inspiring. The lack of deterioration in these ratios is clouded by the relative buildup in both receivables
The company's profitability has declined steadily over the period. As only$50,000 is added to retained earnings, the company must be paying substantial dividends. Receivables are growing slower,
Using Altman's model for predicting bankruptcy presented in this chapter, determine the Z-score index for each company. On the basis of these indexes, is either company likely to go into bankruptcy?
10. Two companies have the following financial characteristics (in thousands):Working capital Total assets Total liabilities Equity value (market)Retained earnings Sales Earnings before interest and
9. Tic Tac Homes has had the following balance sheet statements during the past 4 years (in thousands):Cash $ 214 $ 93 $ 42 5 38 Receivables 1,213 1,569 1,846 2,562 Inventories 2,102 2,893 3,678
d. From this information, what can you say about the expected growth of the company?Chapter 12 Financial Ratio Analysis 379
c. What is the ratio of market-to-book value per share?
b. What is the dividend yield?
a. What is the price/eamings ratio?
8. Susan Doherty Designs has 1.64 million shares outstanding, shareholders' equity of $36.4 million, earnings of $4.7 million during the last 12 months during which it paid dividends of $1.1 million,
7. The following information is available on the Vanier Corporation. Assuming sales and production are steady throughout the year and a 360-day year, complete the balance sheet and income statement
(3) There are 100,000 shares outstanding, and the stock is selling for$80 a share. The company offers you an opportunity to buy 50,000 additional shares at this price.
(2) U.S. Republic wants you, a large insurance company, to pay off its note at the bank and assume it on a 10-year maturity basis at the current coupon of 14 percent.
(1) U.S. Republic wants to buy $500,000 worth of raw materials from you, with payment to be due in 90 days.
c. Indicate which ratios would be of most interest to you and what your decision would be in each of the following situations:
b. Evaluate the position of the company from the table. Cite specific ratio levels and trends as evidence.
12. Cash flow to long-term debt
11. Overall interest coverage
10. Tangible asset turnover
9. Return on tangible assets
8. Rate of return on equity
7. Net profit margin
6. Gross profit margin
5. Long-term debt to capitalization
4. Inventory turnover
3. Receivables turnover
2. Acid-test ratio
1. Current ratio
6.U.S. Republic Corporation Balance Sheet, December 31,20x3 Assets Liabilities and Stockholders' Equity Cash Accounts receivable Inventory*Fixed assets, net Excess over book value of assets

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