ENT 401 Homework Chapter 21, 22 and 23- Case Study-Analyzing Business Growth Strategies Complete the case study questions using the information given in each of the 3 growth scenarios for Ace Industrial Supply Ace Industrial Supply sells its products at an average price of $10/unit. The products cost $5.50 /unit . Ace Industrial pays its suppliers for inventory deliveries at the time of delivery. Ace's customers are given 30 days to pay (eg payments for sales from March are received in April, etc.). Ace expects to grow rapidly in the next four months. Sales in March and April were 5,000 units but with new contracts they anticipate 8,000 units to be sold in May, and 10,000 units to be sold in each of June and July. The following table presents select information for the months of March through July. Ace Industrial Supply April May July March 550,000 Revenue Cost of Goods Sold Operating Expenses Depreciation Inventory Purchases Taxes Ending Cash Balance 550,000 $27,500 $15,500 $1,627 $27,500 $1,128 $80,000 $44,000 $19,000 $1,627 $44,000 $3,228 June $100,000 $55,000 $24,000 $1,627 $55,000 $4,068 $100,000 555,000 $24,000 $1,627 $55,000 $4,068 $10,400 1. Prepare a projected profit and loss statement for ACE Industrial Supply for each month April through July to analyze the results of the anticipated growth on profits. This profit and loss will be used for all three growth scenarlos. Answer: Ace Industrial Supply Units Sold Profit and Loss Statement 5000 5000 0,000 10,000 April May June July Sales Activity Revenue Cost of Sales Gross Profit Operating Expenses Depreciation Profit Before Taxes-Operating Profit Taxes Net Profit 2. Growth Scenario 1: Answer questions 2-3 Prepare a projected growth cash flow statement for Ace Industrial Supply for each month April through July. Emalieb inited States Ecue CCT 28 tv 11 vA Styles ADA E Answer: Ace Industrial Supply Cash Flow Statement Units Sold 5000 April 5000 May 10,000 June 10,000 July Beginning Cash Balance Cash Generated from Operating Activities Collections from Accts Rec Total Cash in from Operating Activities + Cash used in Operating Activities Inventory Purchases Operating expenses Taxes Total Cash Used in Operating Activities Net Operating Cash Flow Ending Cash Balance 3. How much additional cash does Ace Industrial Supply need to fund its growth over this period? Answer: 4. Growth Scenario 2: Answer Questions 4-7 Prepare a projected cash flow for Ace Industrial Supply using the original information in question 2 above but assume you decided to leverage available supplier credit and take advantage of terms that would give you 30 days to pay for the inventory. Ace Industrial Supply Cash Flow Statement Units Sold 5000 April 5000 May 10,000 June 10.000 July Beginning Cash Balance Cash Generated from Operating Activities Collections from Accts Rec Total Cash in from Operating Activities Cash used in Operating Activities Inventory Purchases Operating expenses Taxes Total Cash Used in Operating Activities Enchan Statel OCT 28 0 tv 11 i Av. Av Net Operating Cash Flow Ending Cash Balance 5. By leveraging supplier credit, how would it change the amount needed to fund your growth? Answer: 6. Does it hurt or benefit your operational capacity to grow and why? Answer: 7. In your opinion, would you choose this financing option for this type of growth and give a brief explanation for your decision. Answer: 8. Growth Scenario 3: Answer questions 8-13 Prepare a projected cash flow for Ace Industrial Supply using the original information in question 2 above but this time assume your competition is offering 60 day terms to customers. To achieve your desired growth Ace Industrial Supply must match the competition and extend receivable terms to also allow customers 60 days to pay. Note: February sales were 5000 units. Ace industrial Supply Units Sold Cash Flow Statement 5000 5000 10,000 10,000 April May June July Beginning Cash Balance Cash Generated from Operating Activities Collections from Accts Rec Total Cash in from Operating Activities Gash used in Operating Activities Inventory Purchases Operating expenses Taxes Total Cash Used in Operating Activities Net Operating Cash Flow Ending Cash Balance 9. By extending customer terms from 30 to 60 days to remain competitive,how would this change the amount needed to fund this growth? Answer: 10. In your opinion, what type of funding would you use to cover the amount? Give your reasoning? Answers Endlich linia State E OCT 11 v | A ' ' Aav po vvs CN Av. Av E 11. Assuming this growth projection is completed in March and you have chosen to go with a bank loan of some type, what month should you meet with the loan officer and submit your request for the funding? Give your reasoning. Answer: I 12. Use the Profit and Loss Statement you created in Question 1, calculate a margin analysis on the Gross Profit Margin, Operating Profit Margin, and Net Profit Margin for April and July to evaluate the effect on margins as a result of the anticipated growth. Answer: Ace Industrial Supply Units Sold Margin Margin Profit and Loss Statement 5000 10,000 % % April April July July Sales Activity Revenue Cost of Sales Gross Profit Operating Expenses Depreciation Profit Before Taxes Operating Profit Taxes Net Profit 13. Based on the profit margin analysis above, what might you say to convince the loan officer the growth is beneficial to the business and there will be enough money generated to pay back the loan