Question

Use the computerized model in File C07 to solve this problem.
a. Refer to Problem. Suppose Cary Corporation is considering installing a new computer system that would provide tighter control of inventories, accounts receivable, and accounts payable. If the new system is installed, the following data are projected (rather than the data given in Problem) for the indicated balance sheet and income statement accounts:
Accounts receivable .......... $ 395,000
Inventories ............... $ 700,000
Other fixed assets .......... $ 150,000
Accounts and notes payable ...... $ 275,000
Accruals .................. $ 120,000
Cost of goods sold .......... $3,450,000
Administrative and selling expenses .... $ 248,775
P/E ratio ................. 6.0
How do these changes affect the projected ratios and the comparison with the industry averages?
b. If the new computer system were even more efficient than Cary’s management had estimated and thus caused the cost of goods sold to decrease by $125,000 from the projections in part (a), what effect would it have on the company’s financial position?
c. If the new computer system were less efficient than Cary’s management had estimated and caused the cost of goods sold to increase by $125,000 from the projections in part (a), what effect would it have on the company’s financial position?
d. Change, one by one, the other items in part (a) to see how each change affects the ratio analysis. Then think about and write a paragraph describing how computer models such as this one can be used to help make better decisions about the purchase of such items as a new computer system.



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  • CreatedNovember 24, 2014
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