EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN: 9781337514835
Author: MOYER
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Question
Chapter 3, Problem 6P
Summary Introduction
To determine: Various ratios and construct
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Tarheel Furniture Company is planning to establish a wholly-owned subsidiary to manufacture upholstery fabrics. Tarheel expects to earn $1 million after taxes on the venture during the first year. The president of Tarheel wants to know what the subsidiary's balance sheet would look like. The president believes that it would be advisable to begin the new venture with ratios that are similar to the industry average.
Tarheel plans to make all sales on credit. All calculations assume a 365-day year. In your computations, you should round all numbers to the nearest $1,000.
Based upon the industry average financial ratios presented here, complete the projected balance sheet for Tarheel's upholstery subsidiary.
Industry Averages
Current ration 2:1
Quick ratio 1:1
Net profit margin ratio…
Tarheel Furniture Company is planning to establish a wholly owned subsidiary to manufacture upholstery fabrics. Tarheel expects to earn $1.1 millions after taxes on the venture during the first year. The president of Tarheel wants to know what the subsidiary’s balance sheet would look like. The president believes that it would be advisable to begin the new venture with ratios that are similar to the industry average.Tarheel plans to make all sales on credit. All calculations assume a 365-day year.
Industry Averages
Current ratio
3:1
Quick ratio
1.2:1
Net profit margin ratio
5%
Average collection period
30 days
Debt ratio
44%
Total asset turnover ratio
2 times
Current liabilities/stockholders’ equity
25%
Based upon the industry average financial ratios presented above, complete the projected balance sheet for Tarheel’s upholstery subsidiary. In your computations, you should round all numbers to the nearest $1,000.
Hanley Limited manufactures products that capture solar energy. The company plans to list its shares on the Venture Exchange. To do so, it must meet all of the following initial listing requirements (among others):
Net tangible assets must be at least $500,000.
Pre-tax earnings must be $50,000.
The company must have adequate working capital.
Hanley has experienced significant growth in sales and is having difficulty estimating its bad debt expense. During the year, the sales team has been extending credit more aggressively in order to increase their commission compensation. Under the percentage-of-receivables approach using past percentages, the estimate is $50,000. Hanley has performed an aging and estimates the bad debts at $57,000. Finally, using a percentage of sales, the expense is estimated at $67,000. Before booking the allowance, net tangible assets are approximately $550,000. The controller decides to accrue $50,000, which results in pre-tax earnings of $60,000.…
Chapter 3 Solutions
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Ch. 3 - Prob. 1QTDCh. 3 - Prob. 2QTDCh. 3 - Prob. 3QTDCh. 3 - Prob. 4QTDCh. 3 - Prob. 5QTDCh. 3 - Prob. 6QTDCh. 3 - Prob. 7QTDCh. 3 - Prob. 8QTDCh. 3 - Prob. 9QTDCh. 3 - Prob. 10QTD
Ch. 3 - Prob. 11QTDCh. 3 - Prob. 12QTDCh. 3 - Prob. 13QTDCh. 3 - Prob. 14QTDCh. 3 - Prob. 1PCh. 3 - Prob. 2PCh. 3 - Prob. 3PCh. 3 - Prob. 4PCh. 3 - Prob. 5PCh. 3 - Prob. 6PCh. 3 - Prob. 7PCh. 3 - Prob. 8PCh. 3 - Prob. 9PCh. 3 - Prob. 10PCh. 3 - Prob. 11PCh. 3 - Prob. 12PCh. 3 - Prob. 13PCh. 3 - Prob. 14PCh. 3 - Prob. 15PCh. 3 - Prob. 16PCh. 3 - Prob. 17PCh. 3 - Prob. 18PCh. 3 - Prob. 19PCh. 3 - Prob. 20PCh. 3 - Prob. 21P
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