Chapter 16, Problem 14SC

Problem 15-1 The ABC Corporation is considering opening an office in a new market area that would allow it to increase its annual sales by $2.6 million. The cost of goods sold is estimated to be 40 percent of sales, and corporate overhead would increase by $306,000, not including the cost of either acquiring or leasing office space. The corporation will have to invest $2.6 million in office furniture, office equipment, and other up-front costs associated with opening the new office before considering the costs of owning or leasing the office space.   A small office building could be purchased for sole use by the corporation at a total price of $5.7 million, of which $900,000 of the purchase price would represent land value, and $4.8 million would represent building value. The cost of the building would be depreciated over 39 years. The corporation is in a 21 percent tax bracket. An investor is willing to purchase the same building and lease it to the corporation for $630,000 per year…

Problem 15-2 The ABC Corporation is considering opening an office in a new market area that would allow it to increase its annual sales by $4.2 million. The cost of goods sold is estimated to be 40 percent of sales, and corporate overhead would increase by $334,000, not including the cost of either acquiring or leasing office space. The corporation will have to invest $4.2 million in office furniture, office equipment, and other up-front costs associated with opening the new office before considering the costs of owning or leasing the office space.   A small office building could be purchased for sole use by the corporation at a total price of $6.2 million, of which $900,000 of the purchase price would represent land value, and $5.3 million would represent building value. The cost of the building would be depreciated over 39 years. The corporation is in a 21 percent tax bracket. An investor is willing to purchase the same building and lease it to the corporation for $484,000 per year…

Keep or Drop a Division Jan Shumard, president and general manager of Danbury Company, was concerned about the future of one of the companys largest divisions. The divisions most recent quarterly income statement follows: Jan is giving serious consideration to shutting down the division because this is the ninth consecutive quarter that it has shown a loss. To help him in his decision, the following additional information has been gathered: The division produces one product at a selling price of 100 to outside parties. The division sells 50% of its output to another division within the company for 83 per unit (full manufacturing cost plus 25%). The internal price is set by company policy. If the division is shut down, the user division will buy the part externally for 100 per unit. The fixed overhead assigned per unit is 20. There is no alternative use for the facilities if shut down. The facilities and equipment will be sold and the proceeds invested to produce an annuity of 100,000 per year. Of the fixed selling and administrative expenses, 30% represent allocated expenses from corporate headquarters. Variable selling expenses are 5 per unit sold for units sold externally. These expenses are avoided for internal sales. No variable administrative expenses are incurred. Required: 1. Prepare an income statement that more accurately reflects the divisions profit performance. 2. Should the president shut down the division? What will be the effect on the companys profits if the division is closed?

Pnb is a major company in the market for long-life milks, yoghurts, and juices. The firm rose to become the seventh-largest provider of dairy goods in the world. The corporation had yearly revenues of 7.6 billion euros in 2002. The failure of Parmalat is likely to have a positive impact on corporate governance reform. Parmalat Finanziaria S.P.A. omitted billions of dollars from its financial accounts.                                                                                 The company's founder and former CEO, Tanzi, now stands accused of market rigging, false auditing, and misleading investors. Tanzi established a series of overseas companies to transfer money among and to conceal liabilities. Parmalat defaulted on a 150 million euros (U.S. $184 million) payment to bondholders. Calisto Tanzi admitted to having falsified Parmalat's accounts for over a decade and to having stolen at least $600 million from the publicly traded company. The fraud was perpetrated by, among others,…

QUESTION TWO Computer Limited was formed three years ago to produce a single product, the ‘Mini’.  The directors are receiving  the financial results of the first three years presented by the company accountant, and are concerned with the decline in profits in the year 20x2 Summarised results are shown below:                                                                                                                          20x0               20x1                20x2 Production: Budget (units)                                                                         1,000              1,000             1,000 Actual (units                                                                                                     900               1,100                800                    Sales (units)                                                                                                      800                  800              1,000 Selling price…

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…

48. Clearer Paint Company has plants in 3 major cities. Sales for last year were P100 million, and the balance sheet at year-end is similar in percentage of sales to that of previous years (and this will continue in the future).  All assets (including fixed assets) and current liabilities will vary directly with sales.  Clearer Paint is already using assets at full capacity. Balance Sheet (in million pesos)     Assets Liabilities & Stockholders’ Equity Current assets P50 Accounts payable & accruals P25     Notes payable – long-term 30 Fixed assets 40 Common Stock 15     Retained Earnings 20 Total 90 Total 90 Clearer Paint has an after- tax profit margin of 5%, and a dividend payout ratio of 30%.  If sales grow by 10% next year, the required new financing to finance the expansion is