Please answer 1-5

CHAPTER 3 Financial Statements Analysis and Financial Models 83 EAST COAST YACHTS 2019 Income Statement Sales $231,900,000 Cost of goods sold 170,157,000 Other expenses 27,711,200 Depreciation Earnings before interest and taxes (EBIT) 7,566,900 $ 26,464,900 Interest 4,170,100 Taxable income $ 22,294,800 Taxes (21%) 4,681,908 Net income $17,612,892 Dividends $7,925,000 $9,687,892 Additions to retained earnings EAST COAST YACHTS Balance Sheet as f December 31, 2019 Equity Liabilities Assets Current liabilities Current assets $ 6,977,700 Accounts payable Notes payable 3,614,200 Cash 15,776,900 6,501,900 Accounts receivable $ 22,754,600 Total 7,290,100 Inventory 17.406,200 Total 40,100,000 Long-term debt Fixed assets $111,629,300 Net plant and equipment Shareholders' equity 6,140,000 Common stock Retained earnings 60,040,900 $ 66,180,900 Total equity Total liabilities and equity $129.035.500 $129,035,500 Total sssets Yacht industry Ratios nuacoer Upper Quartile Median Lower Quartile 1.89 1.43 50 Current ratio 38 21 Quick ratio Total asset turnover 1.38 85 68 16.13 9.15 6.85 6.27 Inventory turnover Receivables turnover 21.45 11 61 52 44 Debt ratio 1.56 2.56 9.83 9.87% 15.83% 1.08 2.08 8.06 6.98% 10.53% 16.54% Debt-equity ratio Equity multiplier Interest coverage Profit margin 5.18 4.05% 6.05% 9.93% Return on assets 28.14% Return on equity 84 PART I Overview ensures that attention to detail is a necessity. For example, East Coast Yachts will spend 80 to 100 hours on hand-buffing the stainless steel stem-iron, which is the metal cap on the yachi's bow that conceivably could collide with a dock or another boat. To get Dan started with his analyses, Larissa has provided the financial statements. Dan has gathered the industry ratios for the yacht manufacturing industry. 1. Calculate all of the ratios listed in the industry table for East Coast Yachts. 2. Compare the performance of East Coast Yachts to the industry as a whole. For each ratin comment on why it might be viewed as positive or negative relative to the industry. Sun pose you create an inventory ratio calculated as inventory divided by current liabilities How do you interpret this ratio? How does East Coast Yachts compare to the industry average? 3. Calculate the sustainable growth rate of East Coast Yachts. Calculate EFN and prepare pro forma income statements and balance sheets assuming growth at precisely this rate Recalculate the ratios in the previous question. What do you observe? 4. East Coast Yachts is unlikely to be willing to raise external equity capital, in part because the owners don't want to dilute their existing ownership and control positions. However East Coast Yachts is planning for a growth rate of 20 percent next year. What are your conclusions and recommendations about the feasibility of East Coast's expansion plans? 5. Most assets can be increased as a percentage of sales. For example, cash can be increased by any amount. However, fixed assets often must be increased in specific amounts because it is impossible to buy part of a new plant or machine. In this case, a company has a "staircase" or "lumpy" fixed cost structure. Assume that East Coast Yachts is currently at 100 percent of capacity. As a result, to expand production, the company producing must set up an entirely new line at a cost of $30 million. Calculate the new EFN with this assumption. What does this imply about capacity utilization for East Coast Yachts next year? CHAPTER 3 Financial Statements Analysis and Financial Models 83 EAST COAST YACHTS 2019 Income Statement Sales $231,900,000 Cost of goods sold 170,157,000 Other expenses 27,711,200 Depreciation Earnings before interest and taxes (EBIT) 7,566,900 $ 26,464,900 Interest 4,170,100 Taxable income $ 22,294,800 Taxes (21%) 4,681,908 Net income $17,612,892 Dividends $7,925,000 $9,687,892 Additions to retained earnings EAST COAST YACHTS Balance Sheet as f December 31, 2019 Equity Liabilities Assets Current liabilities Current assets $ 6,977,700 Accounts payable Notes payable 3,614,200 Cash 15,776,900 6,501,900 Accounts receivable $ 22,754,600 Total 7,290,100 Inventory 17.406,200 Total 40,100,000 Long-term debt Fixed assets $111,629,300 Net plant and equipment Shareholders' equity 6,140,000 Common stock Retained earnings 60,040,900 $ 66,180,900 Total equity Total liabilities and equity $129.035.500 $129,035,500 Total sssets Yacht industry Ratios nuacoer Upper Quartile Median Lower Quartile 1.89 1.43 50 Current ratio 38 21 Quick ratio Total asset turnover 1.38 85 68 16.13 9.15 6.85 6.27 Inventory turnover Receivables turnover 21.45 11 61 52 44 Debt ratio 1.56 2.56 9.83 9.87% 15.83% 1.08 2.08 8.06 6.98% 10.53% 16.54% Debt-equity ratio Equity multiplier Interest coverage Profit margin 5.18 4.05% 6.05% 9.93% Return on assets 28.14% Return on equity 84 PART I Overview ensures that attention to detail is a necessity. For example, East Coast Yachts will spend 80 to 100 hours on hand-buffing the stainless steel stem-iron, which is the metal cap on the yachi's bow that conceivably could collide with a dock or another boat. To get Dan started with his analyses, Larissa has provided the financial statements. Dan has gathered the industry ratios for the yacht manufacturing industry. 1. Calculate all of the ratios listed in the industry table for East Coast Yachts. 2. Compare the performance of East Coast Yachts to the industry as a whole. For each ratin comment on why it might be viewed as positive or negative relative to the industry. Sun pose you create an inventory ratio calculated as inventory divided by current liabilities How do you interpret this ratio? How does East Coast Yachts compare to the industry average? 3. Calculate the sustainable growth rate of East Coast Yachts. Calculate EFN and prepare pro forma income statements and balance sheets assuming growth at precisely this rate Recalculate the ratios in the previous question. What do you observe? 4. East Coast Yachts is unlikely to be willing to raise external equity capital, in part because the owners don't want to dilute their existing ownership and control positions. However East Coast Yachts is planning for a growth rate of 20 percent next year. What are your conclusions and recommendations about the feasibility of East Coast's expansion plans? 5. Most assets can be increased as a percentage of sales. For example, cash can be increased by any amount. However, fixed assets often must be increased in specific amounts because it is impossible to buy part of a new plant or machine. In this case, a company has a "staircase" or "lumpy" fixed cost structure. Assume that East Coast Yachts is currently at 100 percent of capacity. As a result, to expand production, the company producing must set up an entirely new line at a cost of $30 million. Calculate the new EFN with this assumption. What does this imply about capacity utilization for East Coast Yachts next year