A.)

Refer to Problem 7-16. Suppose Cary CorporaTon is considering installing a new computer system that would provide Tghter control of inventories, accounts receivable, and accounts payable. If the new system is installed, the following data are projected (rather than the data given in Problem 7-16) for the indicated balance sheet and income statement accounts:

Accounts receivable $ 395,000

Inventories $ 700,000

Other Fxed assets $ 150,000

Accounts and notes payable $ 275,000

Accruals $ 120,000

Cost of goods sold $ 3,450,000

AdministraTve and selling expenses $ 248,775

P/E ratio 6.0X

How do these changes aect the projected raTos and the comparison with the industry averages? (Note that any changes to the income statement will change the amount of retained earnings; therefore, the model is set up to calculate 2016 retained earnings as 2015 retained earnings plus net income minus dividends paid. he model also adjusts the cash balance so that the balance sheet balances.)

B)

If the new computer system were even more effcient than Carys management had estimated and thus caused the cost of goods sold to decrease by $125,000 from the projections in part (a), what effect would it have on the companies financial position?

C)

If the new computer system were less effcient than Carys management had estimated and caused the cost of goods sold to increase by $125,000 from the projections in part (a), what effect would it have on the company's financial position?

D)

Change, one by one, the other items in part (a) to see how each change affects the ratio analysis. Then think about and write a paragraph describing how computer models such as this one can be used to help make better decisions about the purchase of such items as a new computer system.

INPUT DATA:
		2013
Cash		$72,000
A/R		439,000
Inventories		894,000
Land and bldg		238,000
Machinery		132,000
Other F.A.		61,000
Accts & Notes Pay.		$432,000
Accruals		170,000
Long-term debt		404,290
Common stock		575,000
Retained earnings		254,710
Total assets		$1,836,000
Total claims		$1,836,000
2011 Ret. earnings		168,152
Income statement
Sales		$4,290,000
Cost of G.S.		3,580,000
Adm. & sales exp.		236,320
Depreciation		159,000
Misc.		134,000
Net income		$108,408
P/E ratio		5.0
No. of shares		23,000
Cash dividend		$0.95

KEY OUTPUT:
		Cary	Industry
Quick		0.8	1.0
Current		2.3	2.7
Inv. turn.		4.0	5.8
DSO		37	32
FA turnover		10.0	13.0
TA turnover		2.3	2.6
ROA		5.9%	9.1%
ROE		13.1%	18.2%
TD/TA		54.8%	50.0%
PM		2.5%	3.5%
EPS		$4.71	n.a.
Stock Price		$23.57	n.a.
P/E ratio		5.0	6.0
M/B		0.65	n.a.