Finance 550

To understand how the total assets changed within a year, we shall look at each aspects of the assets. In the cash and cash equivalent, we have seen that the cash in hand decreased in 2013 from $3,931 to $3,421 in 2014. This shall shows that the company may have spent cash on inventories and other goods for the benefit of the company. In the receivables aspect, the amount of receivables has begun to increase from 2013 to 2014 with an increase rate of 11.6%. In other terms, it increased from $6,967 in 2013 to $7,822 in 2014. This was an infinitesimal increase and it shows that the company had a lot of companies owing them for the purchase of the Walt Disney Products and land usage. Another way of saying is that other companies may be purchasing land from Disney to sell their products and expand their companies to wider

13. Use the following data to determine the total dollar amount of assets to be classified as property, plant, and equipment. Eddy Auto Supplies Balance Sheet December 31, 2014 Cash $84,000 Accounts payable $110,000 Accounts receivable $80,000 Salaries and wages payable $20,000 Inventory $140,000 Mortgage payable $180,000 Prepaid insurance $60,000 Total liabilities $310,000 Stock investments $170,000 Land $190,000 Buildings $226,000 Common stock $240,000 Less: Accumulated Retained earnings $500,000 depreciation ($40,000) $186,000 Total

Use the following information for questions 13-16. You are looking at purchasing a widget producing machine that will cost $11 million which will be salvageable in 9 years for $3 million. The machine will increase revenues by $7.5 million per year and will fall into the 30% CCA bracket. You can lease the machine for $2.75 million per year. Your pre-tax cost of debt is 8.5%. Your corporate tax rate is 35%.

9. You want to purchase a business with the following cash flows. How much would you pay for this business today assuming you needed a 14% return to make this deal?

d) Calculate the new value per share after the capital structure change. (Hint: use your answers to parts b and c.)

B. Vonage does not seem to be improving in the telecommunications business. The net cash flow from investing activities was positive for the last two years. This means that the company liquidating investments instead of growing. The money that was spent on investing activities was mostly related to marketable securities, not property, plant, or equipment.

7. Debt to capitalization = Long-term Debt in Balance Sheet / Long term debt + Net Assets in

This case is about a company called Sell Soon Inc. this is a manufacturing company that operates two widget manufacturing facilities in the United States. One is located in New Orleans Louisiana and the other facility is located in Houston Texas. The company is going through restructuring and one part of the restructuring plan is the disposition of the Houston division through consolidation. When the restructuring is complete all of the Sell Soon Ink’s manufacturing will be done from the New Orleans facility. The Houston facility currently has a book value of $ 20 million and it has a fair market value of $ 25 million. Sell Soon Inc expects to incur two million dollars to dispose the

As additional part of the covenants the bank placed importance on the net working capital. This could have positive impact to the firm’s future. As the firm is affected by liquidity problems, the covenants on net working capital will make Butler to

The firm’s accounts receivable ratio increased from 68.71 in 2006 to 74.56 in 2010. This means that it is taking Abbott almost six days longer to collect from its customers today than it did five years ago. Furthermore, the firm’s accounts payable days has decreased from 43.72 in 2006 to 38.22 in 2010. This means that Abbott is paying its suppliers 5½ days earlier today than it did in 2006. A change in the inventory ratio from 8.01 in 2006 to 11.03 in 2010 indicates that it is taking the firm longer to sell finished goods than it used to. The increase in the accounts receivable and inventory ratios, combined with a decrease in the accounts payable ratio, indicates poor working capital management and helps to explain why the firm has increased its holdings of cash and short-term investments. To correct this, Abbott’s managers should focus on collecting cash from its customers faster and delaying payments to its suppliers. To maximize its cash position, the firm would be best served by paying its suppliers in the same amount of time as it collects payment from its customers.

1.) Selected option should lead to a reduction in working capital requirement and reduce short term debt in the process.

[Total liabilities, $8,500,000, ÷ (Current assets, $320,000 + Property, Plant & Equipment, $12,000,000) = 0.6899].

Furthermore, if an organisation does not have enough cash resources in order to settle its current liabilities, this will highlight great inefficiency with stock turnover not being sold. A good company such as Sainsbury’s we see is healthy because revenue is recognised from inventories sold – this revenue allows cash to flow in order to pay for short term and long-term liabilities. It is evident that there are insufficient cash flowing into the company from investing activities and financing activities, which are shown by the brackets.

b. How can one distinguish between a relaxed but rational working capital policy and a situation where a firm simply has excessive

From 2009-2010 their liquidity decreased while from 2010-2011 it increased. The negative amount of liability shows that they have paid more than they were required to pay. The company's accounts payable staff can use to offset future payments to suppliers. So they could have done this to ensure that they get the resources required by them from the supplier in the future and there will be no need to pay for it and they won’t have any liability at that time. Positive working capital means that the company is able to pay off its short-term liabilities.