Reference no: EM131217551

FINANCIAL ANALYSIS AND MANAGEMENT

Assignment

Assignments are done individually. Although discussions with your classmates are highly encouraged, you must present your work that is original and are not merely a copy of your peers. The grade for each individual is determined through answers to problems. Make sure to upload your assignment on Blackboard.

Do not provide an answer for the concept checking questions in more than 250 words.

Question 1

See the excel file: Cl_problem

Question 2

1) The following are the Balance Sheet and Income Statement for XYZ Corp.

Additions to retained earnings $100,000

a) Looking at the changes in balance sheet accounts, prepare a sources and uses statement for XYZ in year 1.

b) Prepare a cash flow statement for XYZ in year 1.

Question 3

Concept checking problem

Your firm is considering the acquisition of a very promising technol-ogy company. One executive argues against the move, pointing out that because the technology company is presently losing money, the acquisition will cause your firm's return on equity to fall.

a. Is the executive correct in predicting that ROE will fall?

b. How important should changes in ROE be in this decision?

Question 4

Concept checking problem

Top management measures your division's performance by calculating the division's return on investt-nent (ROT), defined as division-operating income divided by division assets, Your division has done quite well recently; its ROI is 30 percent. You believe the division should invest in a new production process, but a colleague disagrees, pointing out that because the new investment's first-year ROI is only 25 percent, it will hurt performance. How would you respond?

Question 5

See the excel file: C2 Problem

Question 6

1) What would be the immediate impact (increase, decrease, or no effect) of the following transactions on (i) ROE, (ii) ROIC, and (iii) the Current Ratio for Anchor Corp? Ignore depreciation, interest expense and taxes.

a) Anchor purchases machinery using trade credit for $20,000.

b) Anchor collects $30,000 from customers on accounts receivable.

c) Anchor pays off bank-notes payable for $10,000 by rolling short-term debt into long-term debt of 5-year bonds at the same interest rate.

d) Anchor sells common stock for $30,000.

e) Anchor acquires a trademark for $20,000. It pays $10,000 in cash and signs a $10,000 note payable due in 3 years.

Question 7

This table represents quarterly pro forma for Toys-4-Kids Co. which has highly seasonal sales.

For this problem, you just need to look at the table and see the assumptions in the problem. The problem text below is related to Toys-4-kids Company. In order to facilitate, I have included the table below in text (the earlier table is an image). You can copy paste it to excel.

the company's production manager has argued for years that it is inef-ficient to produce on a seasonal basis. She believes the company should switch to level production throughout the year, building up finished goods inventory in the first two quarters to meet the peak selling needs in the last two. She believes the company can reduce its cost of goods sold from 70 to 65 percent with level production. (Recall that production managers typically want to restrict produc¬tion to left shoes only so as to reduce costs.)

a. Prepare a revised pro forma forecast assuming level production. In your forecast, assume that quarterly accounts payable under level production equal 10 percent of the average quarterly sales for the year. To estimate quarterly inventory, use the following two formulas.

Inventory = Inventorybel + Quarterly production - Quarterly
cost of sales
Quarterly production = Annual cost of sales/4

where coq and boq refer to end of quarter and beginning of quarter, respectively. Please ignore the effect of increased external financing required on interest expense.

b. What is the effect of the switch from seasonal to level production on annual profits?

c. What effect does the switch have on the company's quarterly end-ing inventory? On the company's quarterly need for external financing?

d. Do you think the company will be able to borrow the amount of money required by level production? What obsolescence risks does the company incur by building up inventory in anticipation of fu-ture sales? Might this be a concern to lenders?

Cash
Accounts receivable
Inventory
Current assets
Net plant & equipment
Total assets
Accounts payable
Accrued taxes
Current liabilities
Long-term debt
Shareholders' equity
Total liabilities & equity
External financing required

Question 8

Concept checking problem

Pro forma financial statements, by definition, are predictions of a company's financial statements at a future point in time. So why is it important to analyze the historical performance of the company be¬fore constructing pro forma financial statements?

Question 9

See the excel file: C3 Problem

Question 10

Calculating Cycles: Consider the following financial statement information for the Schwertzec Corporation:

Calculate the operating and cash cycles. How do you interpret your answer?

Question 11

Factoring Receivables: Your firm has an average collection period of 29 days. Current practice is to factor all receivables immediately at a 1.25 percent discount. What is the effective cost of borrowing in this case? Assume that default is extremely unlikely.

Question 12

Calculating the Cash Budget: Wildcat, Inc., has estimated sales (in millions) for the next four quarters as follows:

Sales for the first quarter of the year after this one are projected at $170 million. Accounts receivable at the beginning of the year were $68 million. Wildcat has a 45-day collection period.

Wildcat's purchases from suppliers in a quarter are equal to 45 percent of the next quarter's forecast sales, and suppliers are normally paid in 36 days. Wages, taxes, and other expenses run about 25 percent of sales. Interest and dividends are $12 million per quarter.

Wildcat plans a major capital outlay in the second quarter of $75 million. Finally, the company started the year with a $64 million cash balance and wishes to maintain a $30 million minimum balance.

a. Complete a cash budget for Wildcat by filling in the following: Q1 Q2 Q3 Q4

Beginning cash balance Net cash inflow
Ending cash balance
Minimum cash balance Cumulative surplus (deficit) 64
30.00

b. Assume that Wildcat can borrow any needed funds on a short-term basis at a rate of 3 percent per quarter and can invest any excess funds in short-term marketable securities at a rate of 2 percent per quarter. Prepare a short-term financial plan by filling in the following schedule. What is the net cash cost (total interest paid minus total investment income earned) for the year?

b. Q1 Q2 Q3 Q4

Beginning cash balance Net cash inflow
New short-term investments
Income on short-term investments
Short-term investments sold New short-term borrowing
Interest on short-term borrowing $30.00

Short-term borrowing repaid Ending cash balance
Minimum cash balance Cumulative surplus (deficit)
$30.00

Beginning short-term investments
Ending short-term investments Beginning short-term debt Ending short-term debt

Question 13

Costs of Borrowing: In exchange for a $400 million fixed commitment line of credit, your firm has agreed to do the following:

1. Pay 2.1 percent per quarter on any funds actually borrowed.
2. Maintain a 4 percent compensating balance on any funds actually borrowed.
3. Pay an up-front commitment fee of .150 percent of the amount of the line. Based on this information, answer the following:

a. Ignoring the commitment fee, what is the effective annual interest rate on this line of credit?

b. Suppose your firm immediately uses $130 million of the line and pays it off in one year. What is the effective annual interest rate on this $130 million loan?

Attachment:- Attachments.rar