Answered step by step
Verified Expert Solution
Question
1 Approved Answer
1 1 / 2 0 / 2 0 1 8 Chapter 2 Mini Case Situation Jenny Cochran, a graduate of The University of Tennessee with
Chapter Mini Case
Situation
"Jenny Cochran, a graduate of The University of Tennessee with years of experience as an equities analyst, was recently brought in as assistant to the chairman of the board of Computron Industries, a manufacturer of computer components.
During the previous year, Computron had doubled its plant capacity, opened new sales offices outside its home territory, and launched an expensive advertising campaign. Cochran was assigned to evaluate the impact of the changes. She began by gathering financial statements and other data."
Computron's Balance Sheets Millions of Dollars
Assets
Cash and equivalents $ $
Shortterm investments
Accounts receivable
Inventories
Total current assets $ $
Gross fixed assets $ $
Less: Accumulated depreciation
Net fixed assets $ $
Total assets $ $
Liabilities and equity
Accounts payable $ $
Notes payable
Accruals
Total current liabilities $ $
Longterm bonds
Total liabilities $ $
Common stock
Retained earnings
Total equity $ $
Total liabilities and equity $ $
Computron's Income Statement Millions of Dollars
Net sales $ $
Cost of goods sold Excluding depr. & amort.
Depreciation and amortizationa
Other operating expenses
Total operating costs $ $
Earnings before interest and taxes EBIT $ $
Less interest
Pretax earnings $ $
Taxes
Net Income $ $
Notes:
a Computron has no amortization charges.
Other Data
Stock price $ $
Shares outstanding millions
Common dividends millions $ $
Tax rate
Weighted average cost of capital WACC
Computron's Statement of Cash Flows Millions of Dollars
Operating Activities
Net Income before preferred dividends $
Noncash adjustments
Depreciation and amortization
Due to changes in working capital
Change in accounts receivable
Change in inventories
Change in accounts payable
Change in accruals
Net cash provided by operating activities $
Investing activities
Cash used to acquire fixed assets $
Change in shortterm investments
Net cash provided by investing activities $
Financing Activities
Change in notes payable $
Change in longterm debt
Payment of cash dividends
Net cash provided by financing activities $
Net change in cash and equivalents $
Cash and securities at beginning of the year
Cash and securities at end of the year $
a What effect did the expansion have on sales and net income? pts
Sales increased from $ to $ in the year after the expansion, but net income decreased from $ to $ because of increased cost of goods sold, depreciation and ammoritization, and other operating costs increasing due to the expansion which outweighed the increase in revenue.
a What effect did the expansion have on the asset side of the balance sheet? pts
The expansion had several effects on the asset side of the balance sheet. Current assets rose from $ to $ indicating more resources available for shortterm obligations. Accounts receivable increased from $ to $ suggesting higher sales on credit. Inventories increased from $ to $ indicating more stock to meet anticipated demand. Cash and equivalents decreased from $ to $ reflecting potential cash outflows for expansion activities. Shortterm investments decreased from $ to $ suggesting liquidation of investments to support expansion. There was an increase in gross fixed assets from $ to $ reflecting the investment in doubling plant capacity. The net fixed assets increased from $ to $ after accounting for accumulated depreciation.
b What do you conclude from the statement of cash flows? pts
The statement of cashflo
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started