Assuming that the entire debt taken will be invested in assets (half on inventory and half on land). The BOD believes this step will increase sales by $20,000 next year which they think certainly justifies the decision to increase inventory. Mr. David argues that this sales increase is not enough to balance the drop in firms total asset utilization.

1. What is the current total asset utilization?

2. What is the new total assets utilization?

3. Do you agree with Mr. David? Or with the BOD?

Golden cup case study You were provided with the following balance sheet for Golden Cup firm for the year ended Dec 31st, 2018. Assets Current Assets Cash Accounts Receivables Inventory Total Current Assets Consolidated Balance sheet Golden Cup. As of Dec 31st, 2018 Liabilities + Owners Equity Current Liabilities 40,000 Accounts Payable 12,000 4,000 Notes Payable 6,000 14,000 Accrue Wages 1000 58,000 Total Current Liabilities 19,000 40,000 Fixed Assets Property, Plant, and Equipment Goodwill Total Fixed Assets Long term debt 56,000 Owners' equity 24,000 Common Shares 80,000 Retained Earnings Total Owners equity 138,000 Liabilities + O.E 40,000 39,000 79,000 138,000 Total Assets In addition to that, you know the following facts about firm's operations throughout the year: Golden Cup revenues for the year includes the following: Domestic revenues $160,000. International revenues $80,000. Out of Golden Cup's sales, cost of sales and direct labor is 50% of annual revenues. Because of the strong competition that it faces, Golden Cup has a generous marketing plan. Golden Cup signed a contract with the marketing planet Inc. by which the marketing agency will be responsible for Golden Cup marketing for five years period started this year. The contract costs Golden Cup $100,000 that were paid up front, however the company thinks this plan will affect its sales evenly over the five years period. Golden Cup also spends $30,000 in the form of general and administrative expenses per year. Golden Cup depreciable assets historical value is $40,000 and is depreciated on a straight-line basis over 10 years. Golden Cup pays interest rate of 10% on its Long-term debt outstanding. Out of the year's net income, Golden Cup is planning to repay $30,000 to its shareholders in the form of cash dividends. The company currently has 60,000 shares outstanding Golden cup case study You were provided with the following balance sheet for Golden Cup firm for the year ended Dec 31st, 2018. Assets Current Assets Cash Accounts Receivables Inventory Total Current Assets Consolidated Balance sheet Golden Cup. As of Dec 31st, 2018 Liabilities + Owners Equity Current Liabilities 40,000 Accounts Payable 12,000 4,000 Notes Payable 6,000 14,000 Accrue Wages 1000 58,000 Total Current Liabilities 19,000 40,000 Fixed Assets Property, Plant, and Equipment Goodwill Total Fixed Assets Long term debt 56,000 Owners' equity 24,000 Common Shares 80,000 Retained Earnings Total Owners equity 138,000 Liabilities + O.E 40,000 39,000 79,000 138,000 Total Assets In addition to that, you know the following facts about firm's operations throughout the year: Golden Cup revenues for the year includes the following: Domestic revenues $160,000. International revenues $80,000. Out of Golden Cup's sales, cost of sales and direct labor is 50% of annual revenues. Because of the strong competition that it faces, Golden Cup has a generous marketing plan. Golden Cup signed a contract with the marketing planet Inc. by which the marketing agency will be responsible for Golden Cup marketing for five years period started this year. The contract costs Golden Cup $100,000 that were paid up front, however the company thinks this plan will affect its sales evenly over the five years period. Golden Cup also spends $30,000 in the form of general and administrative expenses per year. Golden Cup depreciable assets historical value is $40,000 and is depreciated on a straight-line basis over 10 years. Golden Cup pays interest rate of 10% on its Long-term debt outstanding. Out of the year's net income, Golden Cup is planning to repay $30,000 to its shareholders in the form of cash dividends. The company currently has 60,000 shares outstanding