| | Calculate your answers using excel or a financial calculator. |
| | Be sure to show your work by showing the formula in excel. |
| 1 | Compute the additional financing needed by Mahony Services Inc. (MSI) if sales are |
| | expected to increase from a current level of $22 million to a new level of |
| | $26 million over the coming year. MSI expects earnings after taxes to equal |
| | $1 million over the next year (2014). MSI intends to pay a $400,000 dividend next year. |
| | The current year balance sheet for MSI is as follows: |
| | Mahony Services, Inc. Balance Sheet as of December 31, 2013 |
| | Cash | $1,500,000 | | Accounts Payable | | $4,000,000 |
| | Accounts Receivable | $1,800,000 | | Notes Payable | | $3,000,000 |
| | Inventories | $6,300,000 | | Long-term Debt | | $2,100,000 |
| | Net Fixed Assets | $3,000,000 | | Stockholder's Equity | | $3,500,000 |
| | Total Assets | $12,600,000 | | Total liabilities and equity | | $12,600,000 |
| 2 | Mahony Machinery is attempting to develop and market a new quilting machine. Fixed costs to develop and |
| | produce the new quilting machine are estimated to be $8 million per year. The variable cost to make each |
| | machine has been estimated at $1,000. The marketing research department has recommended a price of |
| | $3,000 per machine. |
| | A) What is the breakeven level of output for the new quilting machine? |
| | B) If management expects to generate a target profit of $1.5 million from the machine each year, how many machines must be sold? |
| 3 | Mahony Company sells on terms of "net 30." Annual credit sales are |
| | $60 million, and its accounts receivable average 10 days overdue. |
| | A) Determine Mahony Company's investment in receivables. |
| | B) Suppose that annual credit sales decline by 10% and customers |
| | delay their payments to an average of 20 days past due. Determine |
| | the company's new level of receivables investment. |
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