Mini-Case 1 Notes: - This short project is strictly an individual work. - This mini-case is available at 8:00am on August 26th, 2020 and is due on 11:59pm on September 7th, 2020. - You are required to show your working for All questions. Providing the final answer accounts only for 30% of each question grade. - Please type (Do not hand write) both your workings and the final answers in the designated solution areas. - Please feel free to extend the size of the solution boxes provided as you feel the necessity to do so. - Once you are done, please save the document as a PDF and upload it back to the same position on blackboard that you used to download the case in the first place. Golden cup case study You were provided with the following balance sheet for Golden Cup firm for the year ended Dec 31", 2018 Assets Current Assets Cash Accounts Receivables Inventory Total Current Assets Consolidated Balance sheet Golden Cup. As of Dec 31", 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 Long term debt 40,000 56,000 Fixed Assets Property, Plant, and Equipment Goodwill Total Fixed Assets 24,000 80,000 Owners' equity Common Shares Retained Earnings Total Owners equity Liabilities + O.E 40,000 39,000 79,000 138.000 Total Assets 138.000 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 Question 1 a- Please set up income statement for Golden Cup: Consolidated Income Statement Golden Cup As of Dec 31, 2018 Show your workings here Revenues Cost of goods sold Gross margin Marketing expenses General and administrative expenses Depreciation EBIT Domestic + International= 160.000 + 80,000 = CGS = 50% of 2,400,000 = GM = Revenues - CGS = Accrual Concept - $100,000/5 years Given Value Final answer here $240,000 ($120,000) $120,000 ($20,000) ($30,000) (S4,000) $66,000 Interest expenses EBT Tax expenses Net income Dividends Additions to Retained Earnings = $40.000 / 10 years = GM-Marketing Expenses - General and Admin Expenses - Depreciation = = $40,000 * 10% = = EBIT - Interest Expenses = Tax Rate - 21%; = EBT *(0.21) = = EBT - Tax Expenses = Given Value = Net Income - Dividends (S4,000) $62,000 ($13,020) S48,980 $30,000 $18.980 Mini Case 1 Layout References Mailings Review View Help Acrobat Tell me what you want to do Question 3 3- Mr. David Lawson, the CFO of Golden Cup plans to increase the company's long-term debt from $40,000 to $80,000 by getting a 5-year loan from bank of America. a- What type of financial decisions did MR. David take? Solution: b. Will this decision result in Golden Cup to be excessively levered if everything else remains unchanged? Show your calculations, knowing that industry average debt/equity ratio is 1. Solution: C-Mr. David is planning to use half of the long-term loan proceeds to increase Golden Cup inventory holdings, what type of financial decision is this? If nothing else changes, how would this decision affect Golden Cup liquidity? Solution