Clyde's Well Servicing has the following financial statements. The balance sheet items, profit margin, and dividend payout have maintained the same relationships the past couple of years; these relationships are anticipated to hold in the future. Clyde's has excess capacity, so there is no expected increase in capital assets.

FIS403NJJ/NKK Assignment FALL 2016 Due Date: October 22 @ 9AM. READ THE INSTRUCTIONS VERY CAREFULLY Answer all questions below. Label your answers as per the question numbering below. You must do the assignment with your chosen team (groups of 2 or 3). Individual assignments will NOT be accepted. You must inform me of your group members in class or via email by September 28 @ 11:59pm. Groups cannot be formed after this date, nor can new members join an existing group. Late assignments will be penalized 10% per day (after 11:59pm). Assignments that are more than 3 days late will not be accepted (after Oct. 25 @ 11:59pm). All assignments must be submitted electronically via SafeAssign. You are responsible for ensuring that your partner has submitted the assignment. The assignment file name MUST include the last names of each partner. I am available to answer questions via email or by appointment. I am also happy to respond to questions in class. I would encourage you to avail yourselves of my assistance. Prior to seeing me, please ensure that you have thoroughly consulted your textbook and class notes; these questions can be answered with information from course resources. If you are having issues with your group members, please bring it to my attention for resolution as soon as possible. Otherwise, all students in a group will receive the same grade. Up to 5 marks will be deducted for presentation that is not professional or does not comply with the assignment instructions above (including proper naming of your file, as indicated above). Cheating and Plagiarism Each student should be aware of the College's policy regarding Cheating and Plagiarism. Seneca's Academic Policy will be strictly enforced. To support academic honesty at Seneca College, all work submitted by students may be reviewed for authenticity and originality, utilizing software tools and third party services. Please visit the Academic Honesty site on http://library.senecacollege.ca for further information regarding cheating and plagiarism policies and procedures. Note that you are responsible for any acts of plagiarism or academic dishonesty by group members on submitted assignments. Each group member should therefore carefully edit and review submissions made by other group members. Total Marks: 72 Weight: 20% Case #1 (40 marks) Clyde's Well Servicing has the following financial statements. The balance sheet items, profit margin, and dividend payout have maintained the same relationships the past couple of years; these relationships are anticipated to hold in the future. Clyde's has excess capacity, so there is no expected increase in capital assets. Hint: Current assets will be maintained at a constant percentage of sales, which is 25%. Required: a. Using a percent-of-sales method, determine whether Clyde's can handle a 30 percent sales increase without using external financing. If external funds are required, what is the amount? If the firm has excess funds, how much does it have available? (11 marks) b. What will happen to external fund requirements if Clyde's: i. ii. iii. Reduces the dividend payout ratio Increases its sales at a lower rate Suffers a decline in its profit margin? Discuss all three of these separately and provide a full explanation. (9 marks) c. Suppose the following results with the increased sales of $600,000. Required: i. Prepare a pro forma income statement based on the information above.(20 marks) Case #2 The financial statements for Jones Corporation and Smith Corporation are shown below. a. To which company would you, as credit manager for a supplier, approve the extension of (shortterm) trade credit? Why? From your Formula Sheet, select and compute only the 5 ratios that are most relevant to a supplier who needs to be paid in the short-term and at regular intervals. (20 marks) b. In which corporation would you buy shares? Why? From your Formula Sheet, select and compute only the 3 ratios that are most relevant to shareholders.(12 marks)