Directions

Use the case method to apply concepts, share ideas, and improve communication skills toward solving a complex business problem.

You must read the case (Ratios and Financial Planning at Tuxedo Air Inc. on p.107) carefully. Various assigned readings in this course lean toward value investing. Concepts related to financial statements and long-term financial planning (chapter 3) and valuation and future cash flows (chapter 7) will help you analyze the cases.

Preparing the Case Analysis

Step 1. Define the problem

• Be sure to identify the problem and not the symptom of a problem. For example, a decline in sales is a symptom of a problem; you must identify the actual cause of the decline in sales.

Step 2. Formulate alternative solutions to the problem

• It may be helpful to brainstorm as many solutions as you can and then narrow your list down to three or four solutions you feel are the strongest.

Step 3. Evaluate and compare the alternative solutions

• To evaluate alternative solutions, you should consider their strengths (e.g., increased productivity) and their weaknesses (e.g., increased cost).

Step 4. Recommend and justify an effective solution

• Be sure to record the reasons why the chosen solution is most effective. In your analysis you must provide a recommendation that is supported by your analysis.

Note: Your analysis may require that you identify more than one problem and develop a set of recommendations.

Ed Cowan was recently hired by Tuxedo Air Inc. to assist the organization with its financial planning and to evaluate the organization's performance. Ed graduated from university six years ago with a finance degree. He has been employed in the finance department of a TSX100 company since then. Tuxedo Air was founded 12 years ago by friends Mark Taular and Jack Rodwell. The organization manufactured and sold light airplanes over this period, and its products have received high reviews for safety and reliability, The organization has a niche market in that it sells primarily to individuals who own and fly their own airplanes. The company has two models; the Sparrow, which sells for $53,000, and the Vulture, which sells for $78,000. Although the company manufactures aircraft, its operations are different from commercial aircraft companies. Tuxedo Air builds aircraft to order. Bu using prefabricated parts, the organization can complete the manufacture of an airplane in only five weeks. The organization also receives a deposit on each order, as well as another partial payment before the order is complete. In contrast, a commercial airplane may take one and one-half to two years to manufacture once the order is placed. Mark and Jack have provided the following financial statements. Ed has gathered the industry ratios for the light airplane facturing Industry. Tuxedo Air Inc. 2015 Statement of Comprehensive Income Sales $36,599,300 Cost of goods sold 26,669496 Other expenses 4,641,000 Depreciation 1.640,200 EBIT $ 3.648,604 Sterest 573,200 Taxable income $ 3,075,404 Taxes (40%) 1.230.162 Net income $ 1,845,242 Dividends $ 560,000 Add to retained earnings 1,285,242 Assets Current assets Cash Accounts receivable $ Tuxedo Air Inc. 2015 Statement of Financial Position Liabilities and Equity Current liabilities $ 396,900 Accounts payable 637,560 Notes payable Total current liabilities 933,400 $ 1,967,860 Long-term debt Owners' equity $15,411,620 Common stock Retained earnings Total equity $17,379,480 Total liabilities and owners' equity 844,550 1,928,500 2,773,050 Inventory Total current assets Fixed assets Net plant and equipment $ 5,050,000 Total assets $ 322,500 9233.930 $9556.430 $17,379 480 Ed Cowan was recently hired by Tuxedo Air Inc. to assist the organization with its financial planning and to evaluate the organization's performance. Ed graduated from university six years ago with a finance degree. He has been employed in the finance department of a TSX100 company since then. Tuxedo Air was founded 12 years ago by friends Mark Taular and Jack Rodwell. The organization manufactured and sold light airplanes over this period, and its products have received high reviews for safety and reliability, The organization has a niche market in that it sells primarily to individuals who own and fly their own airplanes. The company has two models; the Sparrow, which sells for $53,000, and the Vulture, which sells for $78,000. Although the company manufactures aircraft, its operations are different from commercial aircraft companies. Tuxedo Air builds aircraft to order. Bu using prefabricated parts, the organization can complete the manufacture of an airplane in only five weeks. The organization also receives a deposit on each order, as well as another partial payment before the order is complete. In contrast, a commercial airplane may take one and one-half to two years to manufacture once the order is placed. Mark and Jack have provided the following financial statements. Ed has gathered the industry ratios for the light airplane facturing Industry. Tuxedo Air Inc. 2015 Statement of Comprehensive Income Sales $36,599,300 Cost of goods sold 26,669496 Other expenses 4,641,000 Depreciation 1.640,200 EBIT $ 3.648,604 Sterest 573,200 Taxable income $ 3,075,404 Taxes (40%) 1.230.162 Net income $ 1,845,242 Dividends $ 560,000 Add to retained earnings 1,285,242 Assets Current assets Cash Accounts receivable $ Tuxedo Air Inc. 2015 Statement of Financial Position Liabilities and Equity Current liabilities $ 396,900 Accounts payable 637,560 Notes payable Total current liabilities 933,400 $ 1,967,860 Long-term debt Owners' equity $15,411,620 Common stock Retained earnings Total equity $17,379,480 Total liabilities and owners' equity 844,550 1,928,500 2,773,050 Inventory Total current assets Fixed assets Net plant and equipment $ 5,050,000 Total assets $ 322,500 9233.930 $9556.430 $17,379 480