Bob Haskins is a loans officer at CIBC and is analyzing the financial performance of Big Red One Ltd., which is the bank’s biggest commercial client. The following information was collected from the 2018 financial statements:

Long-term liabilities CAD 8,420,000

Line of credit CAD 10,000,000

Plant and equipment, net CAD 29,800,000

Depreciation expense CAD 4,000,000

A note to the 2020 financial statements provided the following repayment schedule for the long-term liabilities: Due In Amount Due (CAD) 

Year 1 2,910,000 Year 2 3,410,000 Year 3 1,070,000 Year 4 790,000 Year 5 240,000   Total 8,420,000

REQUIRED: 

1. Calculate the average maturity of Big Red One’s plant and equipment and long-term liabilities.

2. Analyze current maturity matching practices at Big Red One.

Solve Process:

1. Calculate the average duration of the long-term assets by comparing the net FA to the annual depreciation. \

2. Calculate the weighted average of the amounts due to derive an (unadjusted) average duration.