Finance Discussion 2

Upstate NY Real Estate

Poughkeepsie Partners (“PP”) owns a number of commercial properties in suburban towns north and west of New York City. The firm previously rented one property to a department store renowned for jewelry and fine

china. The department store vacated the property two years ago. This occurred despite the fact that the tenant broke a ten-year lease after only three years of occupancy and subsequently filed for bankruptcy. PP viewed

any effort to recover early lease termination penalties a waste of time and money.

Interest expense, high real estate taxes, insurance, and security costs make it extremely expensive to hold vacant property in this area. Although PP is eager to find a new tenant, it does not want another unexpected vacancy to

have a serious negative effect on its investment returns. PP wants to be as sure as possible that the new tenant will be financially stable and will be likely stay for at least the full term of the lease.

Mission Furniture, a well-known furniture chain that targets affluent customers with traditional tastes, has expressed interest in your open store

location. Using data provided by Mission Furniture, and financial ratios from chapters 13 and 14 of the Brooks textbook, make a decision on behalf of PP.

Mission Furniture

Statement of Income (millions of USD)

Account 20x5 20x6 20x7

Sales 947.3 995.1 989

Cost of Goods Sold 436.6 472.8 466.6

Gross Profit 510.7 522.3 522.4

Selling & Administrative 315.6 320.8 332.3

Depreciation 21.3 21.3 21.3

Other income (expenses) -11.9 -9.2 1.4

Earnings Before Interest and Taxes 161.9 171 170.2

Interest Expense 0.6 0.6 0.8

Earnings Before Taxes 161.3 170.4 169.4

Taxes 45.9 60.5 55

Net Income 115.4 109.9 114.4

Common Dividends 16.9 23.1 27.1

Mission Furniture

Balance Sheet (millions of USD)

Account 20x5 20x6 20x7

Current Assets

Cash 81.9 61.6 57.4

Accounts Receivable 26.4 27 28

Inventory 198.2 186.9 187.1

Other Current Assets 63.8 64.2 66.5

Total Current Assets 370.3 339.7 339

Net Fixed Assets 289.4 277 275.2

Other Assets 81.8 81.7 88.8

Total Assets 741.5 698.4 703

Current Liabilities

Accounts Payable 26 22.2 20.4

Short Term Debt 101.1 4.7 4.2

Other Current Liabilities 8 7.4 6.4

Total Current Liabilities 135.1 34.3 31

Long Term Debt 9.2 4.5 3.2

Other Long Term Liabilities 50.2 52.4 5.5

Total Liabilities 194.5 91.2 39.7

Shareholder Equity

Common Stock 240 240 240

Retained Earnings 307 367.2 423.3

Total Shareholder Equity 547 607.2 663.3

Total Liabilities & Shareholder Equity 741.5 698.4 703