Finance homework

FINANCIAL ANALYSIS AND MANAGEMENT (FIN 423) Assignment #1

Assignments are done individually. Although discussions with your classmates are highly

encouraged, you must present your work that is original and are not merely a copy of your

peers. The grade for each individual is determined through answers to problems. Make sure to

upload your assignment on Blackboard.

Do not provide an answer for the concept checking questions in more than 250 words.

Question 1 See the excel file: C1_problem

Question 2 1) The following are the Balance Sheet and Income Statement for XYZ Corp.

December 31st

Year 0 Year 1

Current Assets

Cash $100,000 $132,000

Accounts Receivable $85,000

Inventories $95,000 $75,000

Total current assets $195,000 $292,000

Noncurrent Assets

Land $30,000 $30,000

Buildings 200,000 310,000

Equipment 120,000 130,000

Patent 10,000 10,000

Accumulated depreciation (20,000) (25,000)

Total noncurrent assets 340,000 455,000

Total Assets $535,000 $747,000

Current Liabilities

Accounts payable to suppliers $100,000 $50,000

Income taxes payable 20,000

Total current liabilities 100,000 70,000

Noncurrent Liabilities

Long term debt 200,000 250,000

Total liabilities 300,000 320,000

Shareholders’ Equity

Common Stock 235,000 327,000

Retained Earnings 100,000

Total shareholders’ equity 235,000 427,000

Total Liabilities and Shareholders Equity $535,000 $747,000

Income statement for Year 1 Sales revenue $335,000 Cost of good Sales (95,000) Depreciation expenses (5,000) Net interest expenses (4,000) Other expenses (11,000) Income before taxes 220,000 Provision for income taxes (80,000)

Net income $140,000 Dividends paid 40,000 Additions to retained earnings $100,000

a) Looking at the changes in balance sheet accounts, prepare a sources and uses statement for

XYZ in year 1.

b) Prepare a cash flow statement for XYZ in year 1.

Question 3 Concept checking problem

Question 4 Concept checking problem

Question 5 See the excel file: C2_Problem

Question 6 1) What would be the immediate impact (increase, decrease, or no effect) of the following

transactions on (i) ROE, (ii) ROIC, and (iii) the Current Ratio for Anchor Corp? Ignore

depreciation, interest expense and taxes.

a) Anchor purchases machinery using trade credit for $20,000.

b) Anchor collects $30,000 from customers on accounts receivable.

c) Anchor pays off bank-notes payable for $10,000 by rolling short-term debt into long-term debt

of 5-year bonds at the same interest rate.

d) Anchor sells common stock for $30,000.

e) Anchor acquires a trademark for $20,000. It pays $10,000 in cash and signs a $10,000 note

payable due in 3 years.

Question 7 This table represents quarterly pro forma for Toys-4-Kids Co. which has highly seasonal sales.

For this problem, you just need to look at the table and see the assumptions in the problem. The

problem text below is related to Toys-4-kids Company. In order to facilitate, I have included

the table below in text (the earlier table is an image). You can copy paste it to excel.

Toys-4-Kids

2012 Quarterly Pro Forma Forecast

Assuming Level Production

($000 thousands)

Qtr 1 Qtr 2 Qtr 3 Qtr 4

Net sales $300 $375 $3,200 $5,000

Cost of sales 195 244 2,080 3,250

Gross profit 105 131 1,120 1,750

Operating expenses 560 560 560 560

Profit before tax (455) (429) 560 1,190

Income taxes (182) (172) 224 476

Profit after tax (273) (257) 336 714

Cash

Accounts receivable

Inventory

Current assets

Net plant & equipment

Total assets

Accounts payable

Accrued taxes

Current liabilities

Long-term debt

Shareholders' equity

Total liabilities & equity

External financing required

Question 8 Concept checking problem

Question 9 See the excel file: C3_Problem

Question 10 Calculating Cycles: Consider the following financial statement information for the

Schwertzec Corporation:

Calculate the operating and cash cycles. How do you interpret your answer?

Question 11 Factoring Receivables: Your firm has an average collection period of 29 days. Current

practice is to factor all receivables immediately at a 1.25 percent discount. What is the

effective cost of borrowing in this case? Assume that default is extremely unlikely.

Question 12 Calculating the Cash Budget: Wildcat, Inc., has estimated sales (in millions) for the next

four quarters as follows:

Sales for the first quarter of the year after this one are projected at $170 million. Accounts

receivable at the beginning of the year were $68 million. Wildcat has a 45-day collection

period.

Wildcat’s purchases from suppliers in a quarter are equal to 45 percent of the next quarter’s

forecast sales, and suppliers are normally paid in 36 days. Wages, taxes, and other expenses

run about 25 percent of sales. Interest and dividends are $12 million per quarter.

Wildcat plans a major capital outlay in the second quarter of $75 million. Finally, the company

started the year with a $64 million cash balance and wishes to maintain a $30 million

minimum balance.

a. Complete a cash budget for Wildcat by filling in the following:

Q1 Q2 Q3 Q4

Beginning cash balance 64

Net cash inflow

Ending cash balance

Minimum cash balance 30.00

Cumulative surplus (deficit)

b. Assume that Wildcat can borrow any needed funds on a short-term basis at a rate

of 3 percent per quarter and can invest any excess funds in short-term marketable

securities at a rate of 2 percent per quarter. Prepare a short-term financial plan by

filling in the following schedule. What is the net cash cost (total interest paid

minus total investment income earned) for the year?

b. Q1 Q2 Q3 Q4

Beginning cash balance $30.00

Net cash inflow

New short-term investments

Income on short-term

investments

Short-term investments sold

New short-term borrowing

Interest on short-term

borrowing

Short-term borrowing repaid

Ending cash balance $30.00

Minimum cash balance

Cumulative surplus (deficit)

Beginning short-term

investments

Ending short-term investments

Beginning short-term debt

Ending short-term debt

Question 13 Costs of Borrowing: In exchange for a $400 million fixed commitment line of credit, your

firm has agreed to do the following:

1. Pay 2.1 percent per quarter on any funds actually borrowed.

2. Maintain a 4 percent compensating balance on any funds actually borrowed.

3. Pay an up-front commitment fee of .150 percent of the amount of the line.

Based on this information, answer the following:

a. Ignoring the commitment fee, what is the effective annual interest rate on this line

of credit?

b. Suppose your firm immediately uses $130 million of the line and pays it off in

one year. What is the effective annual interest rate on this $130 million loan?