Newfound Lake Plastics (NLP) was founded in 1966 by Montgomery Corliss as a privately-held corporation in the town of Alexandria, New Hampshire. For over four decades the company used injection-molding machines to manufacture heavy-plastic watch bands used by watch manufacturers in the United States. Originally they supplied five different manufacturers but one-by-one, these firms shipped production overseas, or went out of business due to declining demand for low-priced watches. In October of 2013 the last manufacturer they supplied watch bands to announced that they would cease production in 2014. NLP's final shipment of all remaining inventories shipped on March 31, 2014, which was also the end of NLP's fiscal year. NLP's current president, Montgomery Corliss III, is determined to stay in business. Looking for an alternative product line, he selected the very item that had replaced the watches, the cell phone/smart phone. NLP made prototypes of several heavy-plastic phone caves which Corliss aggressively marketed. They now have a tentative offer to make 200,000 plastic phone cases a month for Samsung, with NLP being $5.00 for each phone case, so projected sales for this current year are estimated to oe $10 million. Labor and material costs for each phone case represent a Cost of Goods Sold of $3.00 per phone case (60%). The raw materials component (inventory) of these costs is $1 per phone and will be paid for at the time of purchase, The first shipment to Samsung will be sent on June 1, 2014 and continue on the first of the month thereafter. Payment from Samsung will be received 60 days after each shipment. Ratio Analysis Using the Newfound Lake Plastics Balance Sheet dated 3/31/14 (back page) evaluate: (1A) The company's current financial leverage (IB) The company's current liquidity - Cash Flow and Working Capital Based upon the information above, estimate for the months of January, February and March 2015 what the working capital account totals will be. Assume that one month of completed inventory is kept on hand and that raw materials needed for the following month's production arrive on the last day of the month. - Cash Conversion Cycle Using the working capital account totals in above, calculate Newfound Lake Plastics Accounts Receivable Period, Inventory Period, Accounts Payable Period and Cash Conversion Cycle on the estimated fiscal year ending date of 3/31/15. (Assume that the current 3/31/14 accounts receivable and accounts payable balances will have been settled, so those on 3/31/15 will only relate to the phone cases made for Samsung). Newfound Lake Plastics (NLP) was founded in 1966 by Montgomery Corliss as a privately-held corporation in the town of Alexandria, New Hampshire. For over four decades the company used injection-molding machines to manufacture heavy-plastic watch bands used by watch manufacturers in the United States. Originally they supplied five different manufacturers but one-by-one, these firms shipped production overseas, or went out of business due to declining demand for low-priced watches. In October of 2013 the last manufacturer they supplied watch bands to announced that they would cease production in 2014. NLP's final shipment of all remaining inventories shipped on March 31, 2014, which was also the end of NLP's fiscal year. NLP's current president, Montgomery Corliss III, is determined to stay in business. Looking for an alternative product line, he selected the very item that had replaced the watches, the cell phone/smart phone. NLP made prototypes of several heavy-plastic phone caves which Corliss aggressively marketed. They now have a tentative offer to make 200,000 plastic phone cases a month for Samsung, with NLP being $5.00 for each phone case, so projected sales for this current year are estimated to oe $10 million. Labor and material costs for each phone case represent a Cost of Goods Sold of $3.00 per phone case (60%). The raw materials component (inventory) of these costs is $1 per phone and will be paid for at the time of purchase, The first shipment to Samsung will be sent on June 1, 2014 and continue on the first of the month thereafter. Payment from Samsung will be received 60 days after each shipment. Ratio Analysis Using the Newfound Lake Plastics Balance Sheet dated 3/31/14 (back page) evaluate: (1A) The company's current financial leverage (IB) The company's current liquidity - Cash Flow and Working Capital Based upon the information above, estimate for the months of January, February and March 2015 what the working capital account totals will be. Assume that one month of completed inventory is kept on hand and that raw materials needed for the following month's production arrive on the last day of the month. - Cash Conversion Cycle Using the working capital account totals in above, calculate Newfound Lake Plastics Accounts Receivable Period, Inventory Period, Accounts Payable Period and Cash Conversion Cycle on the estimated fiscal year ending date of 3/31/15. (Assume that the current 3/31/14 accounts receivable and accounts payable balances will have been settled, so those on 3/31/15 will only relate to the phone cases made for Samsung)
