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.