Paragraph Styles 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 o BI 99+ DELL F4 F5 >Il F7 F8 F9 F6 PI F10 F11 F12 Paragraph Styles . 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 S160,000, 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 Final answer here Revenues Cost of goods sold Gross margin OBI DELL Stal Aa AEE21 ct 1 Normal T No Spac... Heading 1 Heading 2 Title Subtitle Paragraph 5 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 Final answer here Revenues Cost of goods sold Gross margin Marketing expenses General and administrative expenses Depreciation EBIT Interest expenses EBT ) Tax expenses Net income Dividends Additions to Retained Earnings 99+ DELL - = S 1 Normal 1 No Spac... Heading 1 Heading 2 Title Paragraph Styles b- Please use the US corporate tax rates to calculate Golden Cup tax liability. Solution: - What is the marginal tax rate of Golden Cup? Solution: d- What is the average tax rate of Golden Cup? Solution: Question 2 O BI 99+ DOLL A E211 et 1 Normal 1 No Spac... Heading 1 Heading 2 Title Subt Paragraph 19 WUUU Styles Ms. Janet McInish works as an elementary school teacher and has a taxable income from her job of $35,000. She inherited 10% of Golden Cup shares outstanding, and recently received her annual dividends. a- What is the amount of annual dividends received by Ms. Melnish? Solution: b- What is Ms. McInish total tax liability if her tax status is (married filing together? (hint, you can find the personal income tax rates on the following web page: https://taxfoundation.org/2019- tax-brackets/) Solution: ORI 99+ DOLL Mini Case 1 (1) - Saved to this PC ferences Mailings Review View Help Search Aa AOE E 211 -- Aabbccbd AaBbceDd AaBbc AaBbcc AaB AaBbce 1 No Spac... Heading 1 Heading 2 A T Normal Title Subtitle S Paragraph Styles 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 3- 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: O . 99+ DOLL PO - c 1 No Spac. Heading 1 Heading 2 1 Normal Title Stein Paragraph Question 4 4- Mr. David decision to increase inventory holdings resulted from the consistent pressure of Golden Cup's Board of Directors to increase amount of inventories. Mr. David's own opinion was that Golden cup is holding enough inventory to keep the business running without costing the company lots of money on inventory carrying costs. On the other hand, BOD believes that in such a dynamic industry, holding more inventory is necessary to keep smooth business operations. 2- How long does it currently take the company to turnover its inventory? Solution: b-Do you agree with Mr. David's opinion? Or, With the BOD? And why? Knowing that industry average inventory tumover is 8. Solution: Foru O 99. DELL Prise F10 F11 F12 F9 F8 F7 te F6 FS 2 mi F4 de 3 0 & * C $ % 8 9 7 O inte Subtitle Subtle Paragraph Styles Question 5 5- Assuming that the entire debt taken will be invested in assets (half on inventory and half on land). The BOD believes this step will increase sales by $20,000 next year which they think certainly justifies the decision to increase inventory. Mr. David argues that this sales increase is not enough to balance the drop in firm's total asset utilization a- what is the current total asset utilization? Solution: b- What is the new total assets utilization? Solution: O DELL F12 F9 F10 F11 F6 F7 FB F5 F4 8 *** F3 & $ % 5 C 9 6 7 8 Mini Case 1 (1) - Sarved to this RC ayout References Mailings Review View Help Search - A A A A E B 214 * A2- AZEEOB Aalbccbd Abbccbd Aabba Abbcc AaB AalbCD Alced 1 Normal 1 No Space Heading 1 Heading 2 Title Subtitle Paragraph c- Do you agree with Mr. David? Or with the BOD? Solution: Question 6 6- If you are given the following information about the year ended 2017 (previous year). Total assets - $120,000, Total Equity = $70,000, Sales - 150,000, Net income - $35,000 a- Calculate Golden Cup's profitability for year ended 2017 Solution: b- Calculate Golden Cup's profitability for year ended 2018 Solution: Droo O 99 DOLL F10 F42 F11 F9 FB F3 F4 F7 F5 PH F6 PI Mini Case 1 (1) - Saved to this PC soldur out References Mailings Review View Help Search A A A A E L 211 ADA EZE. O Paragraph 1 Normal 1 No Spac. Heading Heading 2 Title Suite Suttle im c-Based on your knowledge of determinants of corporate profitability (DuPont identity), did any significant change happen to Golden Cup's profitability? Did it increase or decrease? What is the underlying reason behind the change, if any? Solution: Question 2 7. Ms. Janet McInish is currently considering selling her stock ownership. She strongly believes that the share is overpriced and is going to experience a price drop soon. In order to better understand the current situation of Golden Cup stock, she was advised to use the price earnings ratio. Giving that the total market value of Ms. Janet Golden Cup's shares is $120.000 a- If Ms. Janet believes that any stock that has a PE ratio that is more than 20% of the industry average to be overpriced, do you recommend Ms. Janet to sell her shares knowing that industry average P/E ratio is 10? Show your calculations as well as your recommendation Solution: Droo O 9. DELL F10 FO F11 F12 FB F7 F5 F4 F3 F6 PO a Paragraph Styles 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 o BI 99+ DELL F4 F5 >Il F7 F8 F9 F6 PP F10 F11 F12 O . Paragraph Styles . 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 S160,000, 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 Final answer here Revenues Cost of goods sold Gross margin DELL