In January 2016, Nick Marasigan and Dems Asacta agreed to produce and sell chocolate candies. Marasigan contributed P2,400,000 in cash to the business. Asacta contributed the building and equipment, valued at P2,200,000 and P1,400,000, respectively. The partnership had profits of P840,000 during 2016 but was less successful during 2017, when profit was only P400,000.
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- Question 3:Keppel Manufacturing had a bad year in 2012, operating at a loss for the first time in its history. The company’s income statement showed the following results from selling 200,000 units of product: net sales Br.2,000,000; total costs and expenses Br.2,120,000; and net loss Br.120,000. Costs and expenses consisted of the following. Total Variable FixedCost of goods sold Br.1,295,000 Br. 975,000 Br.320,000Selling expenses 575,000 325,000 250,000Administrative expenses 250,000 100,000 150,000 Br.2,120,000 Br.1,400,000 Br 720,000 Management is considering the following independent alternatives for 2013.1. Increase unit…Question 3: Keppel Manufacturing had a bad year in 2012, operating at a loss for the first time in its history. The company’s income statement showed the following results from selling 200,000 units of product: net sales Br.2,000,000; total costs and expenses Br.2,120,000; and net loss Br.120,000. Costs and expenses consisted of the following. Total Variable Fixed Cost of goods sold Br.1,295,000 Br. 975,000 Br.320,000 Selling expenses 575,000 325,000 250,000 Administrative expenses 250,000 Br.2,120,000 100,000 Br.1,400,000 150,000 Br.720,000 Management is considering the following independent alternatives for 2013. Increase unit selling price 30% with no change in costs and Change the compensation of salespersons from fixed annual salaries totaling 170,000 to total salaries of Br.50,000 plus a 6% commission on net sales. Purchase new high-tech factory machinery that will change the proportion between variable and fixed cost of goods sold…11.5 Brandywine Clinic, a not-for-profit business, had revenues of $12 million in 2016. Expenses other than depreciation totaled 75 percent of revenues, and depreciation expense was $1.5 million. All revenues were collected in cash during the year, and all expenses other than depreciation were paid in cash. Construct Brandywine’s 2016 income statement What were Brandywine’s net income, total profit margin, and cash flow? Now, suppose the company changed its depreciation calculation procedures (still within GAAP) such that its depreciation expense doubled. How would this change affect Brandywine’s net income, total profit margin, and cash flow? Suppose the change had halved, rather than doubled, the firm’s depreciation expense. Now, what would be the impact on net income, total profit margin, and cash flow? Explain the reason for the similarities or differences in your answers to parts b,c, and d.
- 17. Jollibee has just ended the calendar year making a sale in the amount of P200,000 of merchandise purchased during the year at a total cost of P150,500. Although the firm paid in full for the merchandise during the year, it has yet to collect at year end from the customer. One possible problem this firm may face isA. low profitability.B. insolvency.C. inability to receive credit.D. high leverage.QUESTION FOUR (a)Belta manufacturers in China produce car engines. They have been in the business for almost 20 years. They have been profitable enough to employ more staff and increase their production. But with a recent loan taken to facilitate automation, investors want to know how the company is doing. Their total assets are worth K3, 500,000 while they have current assets of K9, 200,000. Their current liabilities stand at K5, 000,000 while retained earnings amount to K800, 000. Earnings before Interest and Tax come to K6, 500,000. Sales total K8, 300,000 while the market value of equity is K7, 000,000.The company has 1,000,000 equity shares outstanding with par value of K5.These shares are now selling at K7 per share. Calculate the Altman z-score for the company and advise. (b)The risk incurred by a bank when the maturities of its assets and liabilities are mismatched is called interest rate risk. (i) Describe two types of interest rate risks (ii) Describe any three methods…Problem 19: Laiho Industries’s 2017 and 2018 balance sheets (in thousands of dollars are shown). Please show all work, and if using Excel please show the Excel sheet and all work!! a. Sales for 2018 were $455,150,000, and EBITDA was 15% of sales. Furthermore, depreciation and amortization were 11% of net fixed assets, interest was $8,575,000, the corporate tax rate was 40%, and Laiho pays 40% of its net income as dividends. Given this information, construct the firm’s 2018 income statement. b. Construct the statement of stockholders’ equity for the year ending December 31, 2018, and the 2018 statement of cash flows. c. Calculate 2017 and 2018 net operating working capital (NWOC) and 2018 free cash flow (FCF). Assume the firm has no excess cash. d. If Laiho increased its dividend payout ratio, what effect would this have on corporate taxes paid? What effect would this have on taxes paid by the company’s shareholders? (Answer part D in full, complete sentences) e. Assume the firm’s…
- Problem 19: Laiho Industries’s 2017 and 2018 balance sheets (in thousands of dollars are shown). Please show all work, and if using Excel please show the Excel sheet and all work!! All work includes showing formulas and how you got each part of the formula. a. Sales for 2018 were $455,150,000, and EBITDA was 15% of sales. Furthermore, depreciation and amortization were 11% of net fixed assets, interest was $8,575,000, the corporate tax rate was 40%, and Laiho pays 40% of its net income as dividends. Given this information, construct the firm’s 2018 income statement. b. Construct the statement of stockholders’ equity for the year ending December 31, 2018, and the 2018 statement of cash flows. c. Calculate 2017 and 2018 net operating working capital (NWOC) and 2018 free cash flow (FCF). Assume the firm has no excess cash. d. If Laiho increased its dividend payout ratio, what effect would this have on corporate taxes paid? What effect would this have on taxes paid by the company’s…V4. The Ahram Company net income was 100,000 L.E. for the year ended on 31/12/2016. The examination of the income statement of this year revealed that the income statement included a deduction of the following a) The cost of computers that were purchased on 1/6/2016 for 15,000 b) Depreciation expense of 9,000 for furniture’s at a rate of 10% Required: Calculate Taxable net income and indicate the reasoning for your calculations for 2016. (Be careful, needs a bit of thought )MANAGING CURRENT ASSETS Dan Barnes, financial manager of Ski Equipment Inc. (SKI), is excited, but apprehensive. The companys founder recently sold his 51% controlling block of stock to Kent Koren, who is a big fan of EVA (Economic Value Added). EVA is found by taking the after-tax operating profit and subtracting the dollar cost of all the capital the firm uses: EVA = EBIT(1 T) Annual dollar cost of capital = EBIT(1 T) (WACC Capital employed If EVA is positive, the firm is creating value. On the other hand, if EVA is negative, the firm is not covering its cost of capital and stockholders value is being eroded. Koren rewards managers handsomely if they create value, but those whose operations produce negative EVAs are soon looking for work. Koren frequently points out that if a company can generate its current level of sales with fewer assets, it will need less capital. That would, other things held constant, lower capital costs and increase EVA. Shortly after he took control, Koren met with SKIs senior executives to tell them his plans for the company. First, he presented some EVA data that convinced everyone that SKI had not been creating value in recent years. He then stated, in no uncertain terms, that this situation must change. He noted that SKIs designs of skis, boots, and clothing are acclaimed throughout the industry but that other aspects of the company must be seriously amiss. Either costs are too high, prices are too low, or the company employs too much capital; and he expects SKIs managers to identify and correct the problem. Barnes has long believed that SKIs working capital situation should be studiedthe company may have the optimal amounts of cash, securities, receivables, and inventories, but it may also have too much or too little of these items. In the past, the production manager resisted Barness efforts to question his holdings of raw materials inventories; the marketing manager resisted questions about finished goods; the sales staff resisted questions about credit policy (which affects accounts receivable); and the treasurer did not want to talk about her cash and securities balances. Korens speech made it clear that such resistance would no longer be tolerated. Barnes also knows that decisions about working capital cannot be made in a vacuum. For example, if inventories could be lowered without adversely affecting operations, less capital would be required, the dollar cost of capital would decline, and EVA would increase. However, lower raw materials inventories might lead to production slowdowns and higher costs, while lower finished goods inventories might lead to the loss of profitable sales. So before inventories are changed, it will be necessary to study operating as well as financial effects. The situation is the same with regard to cash and receivables. a. Barnes plans to use the ratios in Table IC 16.1 as the starting point for discussions with SKIs operating executives. He wants everyone to think about the pros and cons of changing each type of current asset and the way changes would interact to affect profits and EVA. Based on the data in Table IC 16.1, does SKI seem to be following a relaxed, moderate, or restricted current assets investment policy? b. How can we distinguish between a relaxed but rational current assets investment policy and a situation where a firm has a large amount of current assets due to inefficiency? Does SKIs current assets investment policy seem appropriate? Explain. c. SKI tries to match the maturity of its assets and liabilities. Describe how SKI could adopt a more aggressive or a more conservative financing policy. d. Assume that SKIs payables deferral period is 30 days. Now calculate the firms cash conversion cycle estimating the inventory conversion period as 365/Inventory turnover. e. What might SKI do to reduce its cash and securities without harming operations? In an attempt to better understand SKIs cash position, Barnes developed a cash budget. Data for the first 2 months of the year are shown in Table IC 16.2. (Note that Barness preliminary cash budget does not account for interest income or interest expense.) He has the figures for the other months, but they are not shown in Table IC 16.2. f. In his preliminary cash budget, Barnes has assumed that all sales are collected and thus that SKI has no bad debts. Is this realistic? If not, how would bad debts be dealt with in a cash budgeting sense? (Hint: Bad debts affect collections but not purchases.) g. Barness cash budget for the entire year, although not given here, is based heavily on his forecast for monthly sales. Sales are expected to be extremely low between May and September but then increase dramatically in the fall and winter. November is typically the firms best month, when SKI ships equipment to retailers for the holiday season. Interestingly, Barness forecasted cash budget indicates that the companys cash holdings will exceed the targeted cash balance every month except October and November, when shipments will be high but collections will not be coming in until later. Based on the ratios in Table IC 16.1, does it appear that SKIs target cash balance is appropriate? In addition to possibly lowering the target cash balance, what actions might SKI take to better improve its cash management policies and how might that affect its EVA? h. Is there any reason to think that SKI may be holding too much inventory? If so, how would that affect EVA and ROE? i. If the company reduces its inventory without adversely affecting sales, what effect should this have on the companys cash position (1) in the short run and (2) in the long run? Explain in terms of the cash budget and the balance sheet. j. Barnes knows that SKI sells on the same credit terms as other firms in the industry. Use the ratios presented in Table IC 16.1 to explain whether SKIs customers pay more or less promptly than those of its competitors. If there are differences, does that suggest that SKI should restrict or relax its credit policy? What four variables make up a firms credit policy, and in what direction should each be changed by SKI? k. Does SKI face any risks if it restricts its credit policy? Explain. l. If the company reduces its DSO without seriously affecting sales, what effect will this have on its cash position (1) in the short run and (2) in the long run? Answer in terms of the cash budget and the balance sheet. What effect should this have on EVA in the long run? m. Assume that SKI buys on terms of 1 10, net 30, but that it can get away with paying on the 40th day if it chooses not to take discounts. Also, assume that it purchases 3 million of components per year, net of discounts. How much free trade credit can the company get, how much costly trade credit can it get, and what is the percentage cost of the costly credit? Should SKI take discounts? Why or why not? n. Suppose SKI decided to raise an additional 100,000 as a 1-year loan from its bank, for which it was quoted a rate of 8%. What is the effective annual cost rate assuming simple interest and add-on interest on a 12-month installment loan? Table IC 16.1 Selected Ratios: SKI and Industry Average SKI Industry Current 1.75 2.25 Debt/Assets 58.76% 50.00% Turnover of cash and securities 16.67 22.22 Days sales outstanding (365-day basis) 45.63 32.00 Inventory turnover 4.82 7.00 Fixed assets turnover 11.35 12.00 Total assets turnover 2.08 3.00 Profit margin 2.07% 3.50% Return on equity (ROE) 10.45% 21.00% TABLE IC 16.2 Skis Cash Budget for January and February
- Practice Exercise 6-3: (Profit or Loss Distribution – No agreement, Equally, Arbitrary Ratio) Ann and Dox contributed P150,000 and P300,000 cash, respectively, to put up the capital for a cell phone loading business. The business had normal first year problems, but during the second year the operation was very successful. The company reported the following key operating performance figures for 2019 and 2020 of operations: Year 2019 Year 2020 Operating Revenues P980,000 P320,000 Operating Expenses 820,000 380,000 Instruction: Determine how the partners would share the income or loss for each year under each of the following assumptions: a. Ann and Dox failed to include stated ratios in the partnership agreement. Year 2019 Ann Dox Year 2020 Ann Dox b. The partners agreed to share income or losses equally. Year…Practice Exercise 6-3: (Profit or Loss Distribution – No agreement, Equally, Arbitrary Ratio) Ann and Dox contributed P150,000 and P300,000 cash, respectively, to put up the capital for a cell phone loading business. The business had normal first year problems, but during the second year the operation was very successful. The company reported the following key operating performance figures for 2019 and 2020 of operations: Year 2019 Year 2020 Operating Revenues P980,000 P320,000 Operating Expenses 820,000 380,000 Instruction: Determine how the partners would share the income or loss for each year under each of the following assumptions: The partners agreed to share in the ratio of 1/3 and 1/6 for Ann and Dox, respectively. Year 2019 Ann Dox Year 2020 Ann Dox…Problem 19: Laiho Industries’s 2017 and 2018 balance sheets (in thousands of dollars are shown). Please show all work, INCLUDING FORMULAS AND HOW YOU GOT EACH PIECE OF THE FORMULA. A, B, C ARE COMPLETE. PLEASE ANSWER D, E, F. a. Sales for 2018 were $455,150,000, and EBITDA was 15% of sales. Furthermore, depreciation and amortization were 11% of net fixed assets, interest was $8,575,000, the corporate tax rate was 40%, and Laiho pays 40% of its net income as dividends. Given this information, construct the firm’s 2018 income statement. b. Construct the statement of stockholders’ equity for the year ending December 31, 2018, and the 2018 statement of cash flows. c. Calculate 2017 and 2018 net operating working capital (NWOC) and 2018 free cash flow (FCF). Assume the firm has no excess cash. d. If Laiho increased its dividend payout ratio, what effect would this have on corporate taxes paid? What effect would this have on taxes paid by the company’s shareholders? (Answer part D in full,…