Philip Morris expects the sales for his clothing company to be $630,000 next year. Philip notes that net assets (Assets − Liabilities) will remain unchanged. His clothing firm will enjoy a 10 percent return on total sales. He will start the year with $230,000 in the bank. What will Philip's ending cash balance be?

Philip Morris expects the sales for his clothing company to be $630,000 next year. Philip notes that net assets (Assets − Liabilities) will remain unchanged. His clothing firm will enjoy a 10 percent return on total sales. He will start the year with $230,000 in the bank. What will Philip's ending cash balance be?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter9: Corporate Valuation And Financial Planning

Section: Chapter Questions

Problem 1P: Broussard Skateboard’s sales are expected to increase by 15% from $8 million in 2018 to $9.2 million...

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Consider the following thoughts of a manager at the end of the companys third quarter: If I can increase my reported profit by 2 million, the actual earnings per share will exceed analysts expectations, and stock prices will increase. The stock options that I am holding will become more valuable. The extra income will also make me eligible to receive a significant bonus. With a son headed to college, it would be good if I could cash in some of these options to help pay his expenses. However, my vice president of finance indicates that such an increase is unlikely. The projected profit for the fourth quarter will just about meet the expected earnings per share. There may be ways, though, that I can achieve the desired outcome. First, I can instruct all divisional managers that their preventive maintenance budgets are reduced by 25 percent for the fourth quarter. That should reduce maintenance expenses by approximately 1 million. Second, I can increase the estimated life of the existing equipment, producing a reduction of depreciation by another 500,000. Third, I can reduce the salary increases for those being promoted by 50 percent. And that should easily put us over the needed increase of 2 million. Required: Comment on the ethical content of the earnings management being considered by the manager. Is there an ethical dilemma? What is the right choice for the manager to make? Is there any way to redesign the accounting reporting system to discourage the type of behavior the manager is contemplating?
Broussard Skateboard’s sales are expected to increase by 15% from $8 million in 2018 to $9.2 million in 2019. Its assets totaled $5 million at the end of 2018. Broussard is already at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2018, current liabilities were $1.4 million, consisting of $450,000 of accounts payable, $500,000 of notes payable, and $450,000 of accruals. The after-tax profit margin is forecasted to be 6%, and the forecasted payout ratio is 40%. Use the AFN equation to forecast Broussard’s additional funds needed for the coming year.
Now assume that it is several years later. The brothers are concerned about the firm’s current credit terms of net 30, which means that contractors buying building products from the firm are not offered a discount and are supposed to pay the full amount in 30 days. Gross sales are now running $1,000,000 a year, and 80% (by dollar volume) of the firm’s paying customers generally pay the full amount on Day 30; the other 20% pay, on average, on Day 40. Of the firm’s gross sales, 2% ends up as bad-debt losses. The brothers are now considering a change in the firm’s credit policy. The change would entail: (1) changing the credit terms to 2/10, net 20, (2) employing stricter credit standards before granting credit, and (3) enforcing collections with greater vigor than in the past. Thus, cash customers and those paying within 10 days would receive a 2% discount, but all others would have to pay the full amount after only 20 days. The brothers believe the discount would both attract additional customers and encourage some existing customers to purchase more from the firm—after all, the discount amounts to a price reduction. Of course, these customers would take the discount and hence would pay in only 10 days. The net expected result is for sales to increase to $1,100,000; for 60% of the paying customers to take the discount and pay on the 10th day; for 30% to pay the full amount on Day 20; for 10% to pay late on Day 30; and for bad-debt losses to fall from 2% to 1% of gross sales. The firm’s operating cost ratio will remain unchanged at 75%, and its cost of carrying receivables will remain unchanged at 12%. To begin the analysis, describe the four variables that make up a firm’s credit policy and explain how each of them affects sales and collections.
Your company is planning to purchase a new log splitter for is lawn and garden business. The new splitter has an initial investment of $180,000. It is expected to generate $25,000 of annual cash flows, provide incremental cash revenues of $150,000, and incur incremental cash expenses of $100,000 annually. What is the payback period and accounting rate of return (ARR)?
Philip Morris expects the sales for his clothing company to be $550,000 next year. Philip notes that net assets (Assets-Liabilities) will remain unchanged. His clothing firm will enjoy a 12% return on total sales. He will start the year with $150,000 in the bank. What will Philip's ending cash balance be?
Franck Eggelhoffer expects the sales for his clothing company to be $570,000 next year. Franck notes that net assets (Assets − Liabilities) will remain unchanged. His clothing firm will enjoy a 9 percent return on total sales. He will start the year with $170,000 in the bank. What will Franck’s ending cash balance be?
Phillip Morrisexpects the sales for his clothing companu to be $550,000 next year. Philip notes the net assets (Assets - Liabilities) will remain unchanged. His clothing firm will enjoy a 12% return on total sales. He will start the year with $150,000 in the bank. What will Philip's ending cash balance be?
Eli Lilly is very excited because sales for his nursery and plant company are expected to double from $510,000 to $1,020,000 next year. Eli notes that net assets (Assets − Liabilities) will remain at 55 percent of sales. His firm will enjoy an 8 percent return on total sales. He will start the year with $110,000 in the bank and is bragging about the Jaguar and luxury townhouse he will buy. a. Compute his likely cash balance or deficit for the end of the year. Start with beginning cash and subtract the asset buildup (equal to 55 percent of the sales increase) and add in profit. What is the ending cash balance?
The firm PAR inc. forecasts monthly disbursements of $ 75,000 over the next year. The firm invests its cash in treasury bills at an annual rate of 30%. A treasury bill transaction costs the firm $ 150.a) What would be the optimal amount of treasury bills that the business must sell to minimize the total cost of cash on hand during the year? b) What would that total cost of cash be during the year?
Eli Lilly is very excited because sales for his nursery and plant compny are expected to double from $600.000 to 41,200,000 next year. Eli notes that net assets (Assets-Liabilities) will remain at 50 percent of sales. His firm will enjoy an 8 percent return on total sales. He will start the year with $120,000 in the bank and is bragging about the Jaguar and luxury townhome he will buy. Does his optimistic outlook for his cashposition appear to be correct? Compute his likely cash balance or deficit for the end of the year. Start with the beginning cash and subtract the asset buildup ( equal to 50 percent of the sales increase) and add in the profit.
Konerko, Inc., manageent expects the company to earn cash flows of $13,227, $15,611, $18,970, and $19, 114 over the next four years. If the company uses an 8 percent discount rate, what is the future value of these cash flows at the end of year 4?
The financial manager of Sarap Corporation wants to determine the amount of cash outlays to be spent for the next period. He asked the help of the accountant and the latter provided a cash budget for the next year. According to the computations, the company would be incurring cash expenses of P6,612,500 per month. The financial manager has estimated a cost of P40 per transaction in case non-cash asset is converted to cash. The firm's opportunity cost ratio is 12%. a. The optimum cash balance is?