Question

1. Calculate the company’s return on total assets for 2012.
2. How much cash will be provided by internal operations in 2013, in particular by the following?
• Retained earnings
• Inventories
• Trade receivables
3. How much will management have to raise from external activities (shareholders and lenders) to proceed with an $800,000 investment in non-current assets?

In 2013, the management committee of Packard Industries Inc. is considering investing $800,000 to purchase machinery and equipment to increase the productivity of its plant. In 2012, the company’s revenue was $2,800,000, goods purchased from suppliers totalled $600,000, and the profit for the year was $280,000. The company’s 2012 statement of financial position is as follows:
Packard Industries Inc.
Statement of Financial Position
As at December 31, 2012
(in $)
Assets
Non-current assets ................ 1,000,000
Current assets
Inventories ................... 300,000
Trade receivables ............... 400,000
Cash and cash equivalents ............. 20,000
Total current assets ............... 720,000
Total assets .................. 1,720,000
Equity and liabilities
Equity
Share capital ................. 200,000
Retained earnings ............... 700,000
Total equity .................. 900,000
Long-term borrowings ............. 500,000
Current liabilities
Trade and other payables ........... 170,000
Short-term borrowings ............ 150,000
Total current liabilities ............ 320,000
Total liabilities ............... 820,000
Total equity and liabilities ........... 1,720,000
In 2013, management expects revenue to increase by 10%. With cutbacks in different segments of their business activities, ROR is expected to improve to 12%. Cost of sales as a percentage of revenue is expected to improve and decline to 20%.
Management also expects improvements in the working capital accounts. The company’s objective is to lower trade receivables to $370,000, with inventory levels expected to reach $280,000.



$1.99
Sales0
Views244
Comments0
  • CreatedDecember 03, 2014
  • Files Included
Post your question
5000