Questions and Answers of Foundations Financial Management

2GFU Corporation the following financial data for the years 2014 and 2015:a. Compute inventory turnover based on sales for each year.b. Compute inventory turnover based on cost of goods sold for each
AI Thomas has recently been approached by his brother-in-law, Robert Watson, with a proposal to buy a 20 percent interest in Watson Leisure Time Sporting Goods. The firm manufactures golf clubs,
a. Tables 1 through 5 contain the financial information describing the effects of level production on inventory, cash flow, loan balances, and interest expense. Reproduce these tables as if Tim's
Axle Supply Co. expects sales next year to be $300,000. Inventory and accounts receivable will increase by $60,000 to accommodate this sales level. The company has a steady profit margin of 8
Garza Electronics expects to sell 500 units in January, 250 units in February, and 1,000 units in March. January's beginning inventory is 700 units. Expected sales for the whole year are 7,200 units.
Madonna's Clothiers sells scarves that are very popular in the fall-winter season.Units sold are anticipated as
Bambino Sporting Goods makes exceptional gloves that sell well in the spring and early summer season. A projection of units sold is as
Front Page Video Games Corporation has forecasted the following monthly sales:The firm sells its Last Spike video game for $5 per unit, and the cost to produce the game is $2 per unit. A level
Seasonal Products Corporation expects the following monthly sales:Sales are 20 percent for cash in a given month, with the remainder going into accounts receivable. All 80 percent of the credit
Liz's Health Food Store has estimated monthly financing requirements for the next six months as follows:Short-term financing will be utilized for the next six months. Projected annual interest rates
What might an inverted yield curve suggest to the financial manager?
Discuss macroeconomic factors that would influence the yield curve.
Gabriel Health Services Ltd. requires $1.5 million in financing over the new two years. The firm can borrow at 5 percent per year, over the two years. However with some economic forecasting, it has
Suppose a bond trader believes that interest rates will begin to fall in the near future. Which strategy should the trader adopt? If the trader controls lots of money, what effect will the trader's
Boatler Used Cadillac Co. requires $850,000 in financing over the next three years. The firm can borrow the funds for two years at 8 percent interest per year. Mr. Boatler decides to do forecasting
Sherlock Homes, a manufacturer of low cost mobile housing, has $4,500,000 in assets.Temporary current assets ..... . .. .. .. . ... . ... .$1,000,000Permanent current assets
In the previous problem, assume the term structure of interest rates becomes inverted, with short-term rates going to 12 percent and long-term rates 4 percentage points lower than short-term rates.If
Currently, Atlas Tours has $5.4 million in assets. This is a peak six-month period. During the other six months temporary current assets drop to $400,000.Temporary current
Lear Inc. has $800,000 in current assets, $350,000 of which are considered permanent current assets. In addition, the firm has $600,000 invested in capital assets.a. Lear wishes to finance all
Date Wireless has the following assets:Its operating profit (EBIT) is expected to be $1.0 million. Its tax rate is 40 percent. Shares are valued $25. Capital structure is either short-term financing
Phu Lighters has the following assets:Current assets .....................................$1 ,750,000Capital Assets ......... . .. .. .. .......... . .. . .3,000,000Total
Using the expectations hypothesis theory for the term structure of interest rates, determine the expected return for securities with maturities of two, three, and four years based on the following
The government currently promises a return of 5 percent annually on a one-year bond and 6 percent annually on a two-year bond. What is your expectation for the interest rate you would receive on a
The following information was available as of the close of business June 1, 2004, on government of Canada bonds.Calculate the anticipated one-year interest rate for 2006 (up to June 2007). Coupon
The following information was available as of the close of business March 1, 2002, on government of Canada bonds.Calculate the anticipated one-year interest rate for 2004 (up to March 2005). Maturity
Assume Hogan Surgical Instruments Company has $2 ,000,000 in assets. If it goes with a low-liquidity plan for the assets, it can earn a return of 18 percent, but witha high-liquidity plan, the return
Assume that Atlas Sporting Goods Inc. has $800,000 in assets. If it goes with a low liquidity plan for the assets, it can earn a return of 15 percent, but with a high liquidity plan, the return will
Diet Health Foods Inc. has two divisions. Division A has a profit of $100,000 on sales of $2,000,000. Division B is only able to make $25,000 on sales of $300,000. On the basis of profit margin,
Bondage Supply Company expects sales next year to be $750,000. Inventory and accounts receivable will have to be increased by $120,000 to accommodate this sales level. The company has a steady
R. C. Dare is considering an investment in Deval Leasehold Improvements Ltd., a growing company that has been in business for five years. The good growth is the result of a reputation built on
Rockway Framers Ltd. has requested a bank loan for a one-year period to refinance most of its notes payable. It would be supported by Rockway's current assets. The following statements and industry
The Norman Automatic Mailer Machine Company is planning to expand production. The expansion will cost $2,000,000, which can either be financed by bonds at an interest rate of 12 percent or by selling
Sinclair Manufacturing and Boswell Brothers Inc. are both involved in the production of tile for the home-building industry. Their financial information is as follows:a. If you combine Sinclair's
Firms in Japan often employ both high operating and financial leverage because of the use of modern technology and close borrower-lender relationships. Assume the Mitaka Company has a sales volume of
Explore the failure of leveraged buyouts (LBO) in the '80s and '90s by Campeau Corporation and other firms in comparison to LBO between 2005 to 2008. What are the current factors that affect the use
Pulp Paper Company and Holt Paper Company are each able to generate EBIT of $150,000. The separate capital structures for Pulp and Holt are presented below.a. Compute EPS for both firms (assume a 40
Discuss the concept of operating leverage as it would apply to a major, independent television broadcaster.
Does being at the EPS indifference point mean that you are always indifferent between two financing plans? Explain.
One could say that financial leverage has its most important impact on EPS rather than net income after taxes. How would you support this statement?
Mo's Delicious Burgers Inc. sells food to university cafeterias for $15 a box. The fixed costs of this operation are $80,000, while the variable cost per box is $10.a. What is the break-even point in
Why does the starting level of sales determine the degree of operating leverage (DOL) rather than the ending level of sales?
The Sterling Tire Company's income statement for 2015 is as follows:STERLING TIRE COMPANYIncome StatementYear ended December 31, 2015Sales (20,000 tires at $60 each)
Calloway Cab Company computes its break-even point strictly on the basis of cash expenditures related to fixed costs. Its total fixed costs are $400,000, but 20 percent of this value is represented
Air Filter Ltd. sells its products for $6 per unit. It has the following costs.Separate the expenses between fixed and variable costs per unit. Using this information and the sales price per unit of
What role does amortization play in break-even analysis based on accounting flows?Based on cash flows? Which perspective is longer-term in nature?
a. What was Chem-Med's rate of sales growth in 2014? What is it forecasted to be in 2015, 2016, and 2017?b. What is the company's rate of net income growth in 2015, 2016, and 2017? Is projected net
The Harmon Corporation manufactures bats with Larry Walker's autograph stamped on them. Each bat sells for $25 and has a variable cost of $14. There is$40,000 in fixed costs involved in the
a. Project EPS for 2016 assuming that sales increase by $500,000. Use Table 3 as the model for the calculation. Further assume that the capital structure is not changed.b. By what percent did EPS
SUS Appliance toasters sell for $20 per unit, and the variable cost to produce them is $15. SUS estimates that the fixed costs are $80,000.a. Compute the break-even point in units.b. Fill in the
Discuss the various uses for both linear and nonlinear break -even analysis.
Toys for You, a manufacturing company, has been growing quickly but has found that its financial situation is continually under pressure. Production has fluctuated to meet demand in an attempt to
The Adams Corporation makes standard-size 2-inch fasteners , which it sells for $155 per thousand. Mr. Adams is the majority owner and manages the inventory and finances of the company. He estimates
The Mansfield Corporation had 2015 sales of $100 million. The balance sheet items that vary directly with sales and the profit margin are as
Harvard Prep Shops, a national clothing chain, had sales of $300 million last year. The business has a steady net profit margin of 15 percent and a dividend payout ratio of 30 percent. The balance
Clyde's Well Servicing has the following financial statements. The balance sheet items, profit margin, and dividend payout have maintained the same relationships the past couple of years; these
The Long branch Western Wear Company has the following financial statements, which are representative of the company's historical average.Income StatementSales ...........
Cholesterol Dairy Products has plants in five provinces and operates a very large home delivery service. Sales last year were $100 million, and the balance sheet at year-end is similar in percentage
Ellis Electronics Company's actual sales and purchases for April and May are shown here, along with forecasted sales and purchases for June through September.The company makes 10 percent of its sales
Jim Daniels Health Products has eight stores. The firm wants to expand by two more stores and needs a bank loan to do this. Mr. Hewitt, the banker, will finance construction if the firm can present
Prince Charles Island Company has expected sales of $6,000 in September, $10,000 in October, $16,000 in November, and $12,000 in December. Cash sales are 20 percent and credit sales are 80 percent of
The Ace Battery Company has forecast its sales in units as follows:Ace always keeps an ending inventory equal to 120 percent of the next month's expected sales. The ending inventory for December
The Prince Albert Corporation has forecast the following sales for the first seven months of the year.Monthly material purchases are set equal to 30 percent of forecasted sales for the next month. Of
InnerVision Limited anticipates total sales of $192,000 from July through October.Materials will represent 60 percent of sales and because oflevel production, material purchases will be equal for
Ed's Waterbeds has made the following sales projections for the next six months. All sales are credit sales.Sales in January and February were $13,500 and $13,000 respectively.Experience has shown
Donna's Fashions Corporation has the following sales forecast in units: January 1,000; February 800; March 900;April 1,400; May 1,550; June 1,800; July 1,400 Donna always keeps ending inventory equal
Power Ridge Corporation has forecast credit sales for the fourth quarter of the year as follows:September (actual).............$50,000Fourth
Cox Corporation produces a product with the following costs as of July 1, 2014:Material.................$2 per unitLabour....................4 per unitOverhead...............2 per unitAssuming Cox
At the end of January, Higgins Data Systems had an inventory of 600 units, which cost $16 per unit to produce. During February the company produced 850 units at a cost of $19 per unit. If Higgins
On December 31 of last year, Wolfson Corporation had 400 units in inventory of its product, which cost $21 per unit to produce. During January, the company produced 800 units at a cost of $24 per
Biomedical Products anticipates sales of 80,000 units for the first six months of the year. Beginning inventory is maintained at 16 percent of anticipated sales. Ending inventory will be equal to 20
Hoover Electronics has beginning inventory of 22 ,000 units, will sell 60,000 units for the month, and desires to reduce ending inventory to 30 percent of beginning inventory. How many units should
Research the current forecasts for GDP growth, inflation, and unemployment in Canada, Europe, and your particular region of the country.
Digitex Inc. had sales of 6,000 units in March. A 50 percent increase is expected in April. The company will maintain 5 percent of expected unit sales for April in ending inventory. Beginning
Describe the effects, both the format and values, of implementing IFRS on forecasting for public companies. How will private companies' statements using ASPE be affected?
How will the calculations of required new funds (RNF) and SGR help management to make better decisions for the company?
All Metal Bearings had sales of 10,000 units at $20 per unit last year. The marketing manager projects a 30 percent increase in unit-volume sales this year with a 5 percent price decrease (due to a
Central Networks had sales of 3,000 units at $50 per unit last year. The marketing manager projects a 20 percent increase in unit-volume sales this year with a 10 percent increase in price. Returned
Brampton Truck Parts expects to sell the following number of units at the prices indicated under three different scenarios in the economy. The probability of each outcome is indicated below. What is
Gibson Manufacturing Corporation expects to sell the following number of units of steel cables at the prices indicated, under three different scenarios in the economy. The probability of each outcome
In the previous problem, if there is no increase in sales and all other facts remain the same, what would be Eli's ending cash balance? What observation can be reached from these two problems? Show
Eli Lilly is very excited because sales for his nursery and plant company are expected to increase from $560,000 to $1 ,200,000 next year. Eli's net assets (assets -liabilities) will remain at 50
The Alonso Corporation has forecasted to sell the following units of copper cables, at prices indicated, under three different economic conditions. The probability of each outcome is shown below.
The following ratio calculations are based on three years of financial statements and are compared to the industry standards. The retail company has had some growth during this period but has found
Using the financial statements of Jet Boat Ltd., calculate the 13 basic ratios found in this chapter. Comment briefly on the ratios that might be worth further investigation. Explain why.Current
Using the financial statements for the Snider Corporation, calculate the 13 basic ratios found in the chapter.Liabilities and Shareholders' EquityCurrent liabilities:Accounts
The following data are from U Guessed It Company's financial statements. U Guessed It manufactures board games for young adults, and it competes with Marker Brothers and Bilton Radley. Sales (all
We are given the following information for Pettit Corporation.Sales (cred
The Quinn Corporation shows the following income statement. The firm uses FIFO inventory accounting.a. Assume that the same 10,000 unit volume is maintained in 2016, but the sales price increases by
The Global Products Corporation has three subsidiaries.a. Which division has the lowest return on sales?b. Which division has the highest ROA?c. Compute the ROA for the entire corporation.d. If the
Quantum Moving Company has the following data. Industry information is also shown.As an industry analyst comparing the firm to the industry, are you likely to praise or criticize the firm in terms
JAS Clocks Corp. shows the following data:a. Compute the ratio of net income to total assets for each year and comment on the trend.b. Compute the ratio of net income to shareholders' equity and
In January 2006 the Status Quo Company was formed. Total assets were $500,000, of which $300,000 consisted of capital assets. Status Quo uses straight-line amortization, and in 2006 it estimated its
Century Plaza Enterprises has three subsidiaries:a. Which subsidiary has the lowest return on sales?b. Which subsidiary has the highest ROA?c. Calculate the ROA for the whole company.d. If Century
Using the income statement for the Sports Car Tire Company, compute the following ratios:a. The interest coverageb. The fixed charge coverageThe total assets for this company equal $40,000. Set up
The Simmons Corporation's income statement is given below.a. What is the times interest earned ratio?b. What would be the fixed charge coverage ratio?SIMMONS
The balance sheet for Bryan Corporation is given below. Sales for the year were $3 ,040,000, with 75 percent of sales sold on credit.Compute the following ratios:a. Current ratiob. Quick ratioc.
A firm has sales of $1.2 million, and 10 percent of the sales are for cash. The year end accounts receivable balance is $360,000. What is the average collection period?
Assume the following data for Interactive Technology and Silicon Software.a. Compute return on shareholders' equity for both firms. Which firm has the higher return?b. Compute the following ratios
Donovan Bailey's Shoe Stores has $3,000,000 in sales and turns over its assets 3.75 times per year. The firm earns 6.2 percent on each sales dollar. It has $90,000 in current liabilities and $200,000
Pony Express Company has $750,000 in assets and $300,000 of debt. The income for the year is $55,000.a. Calculate the ROA.b. Determine the return on shareholders' equity.c. If the asset turnover

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