BUSI-320 Corporate Finance-2013 Fall-B Assignment 2

1.Problem 4-1 Growth and financing [LO4]

Philip Morris is excited because
sales for his clothing company are expected to double from $650,000 to
$1,300,000 next year. Philip notes that net assets (Assets – Liabilities)
will remain at 50 percent of Sales. His clothing firm will enjoy a 12 percent
return on total sales. He will start the year with $250,000 in the bank and
is already bragging about the two Mercedes he will buy and the European
vacation he will take.

(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 50 percent of the sales increase) and add in
profit.(Negative amount should be indicated
by a minus sign. Omit the “$” sign in your response.)

Ending cash balance

$

(b)

Does his optimistic outlook for
his cash position appear to be correct?

2.Problem 4-3 Growth and financing [LO4]

Galehouse Gas Stations, Inc.,
expects sales to increase from $1,710,000 to $1,910,000 next year. Mr.
Galehouse believes that net assets (Assets – Liabilities) will represent 45
percent of sales. His firm has a 8 percent return on sales and pays 20
percent of profits out as dividends.

(a)

What effect will this growth have
on funds?(Negative amount should be
indicated by a minus sign. Omit the “$” sign in your response.)

The cash
balance will change by $ .

(b)

If the dividend payout is only 15
percent, what effect will this growth have on funds?(Omit the “$” sign in your response.)

The cash
balance will change by $ .

3.Problem 4-4 Sales projections [LO2]

The Alliance Corp. expects to sell
the following number of units of copper cables at the prices indicated, under
three different scenarios in the economy. The probability of each outcome is
indicated.

Outcome

Probability

Units

Price

A

.30

260

$

27

B

.50

440

42

C

.20

650

52

What is the expected value of the
total sales projection? (Omit the
“$” sign in your response.)

Total expected value

$

4.Problem 4-6 Sales projections [LO2]

Cyber Security Systems had sales
of 3,200 units at $60 per unit last year. The marketing manager projects a 15
percent increase in unit volume sales this year with a 40 percent price
increase. Returned merchandise will represent 5 percent of total sales.

What is your net dollar sales
projection for this year? (Omit the
“$” sign in your response.)

Net sales

5.Problem 4-8 Production requirements [LO2]

Sales for Western Boot Stores are
expected to be 49,000 units for October. The company likes to maintain 25
percent of unit sales for each month in ending inventory (i.e., the end of
October). Beginning inventory for October is 13,000 units.

How many units should Western
Boot produce for the coming month?

Units to be produced

6.Problem 4-11 Cost of goods sold-FIFO [LO2]

On December 31 of last year,
Wolfson Corporation had in inventory 560 units of its product, which cost $18
per unit to produce. During January, the company produced 960 units at a cost
of $21 per unit.

Assuming that Wolfson Corporation
sold 1,020 units in January, what was the cost of goods sold (assume FIFO
inventory accounting)? (Omit the
“$” sign in your response.)

Cost of goods sold

$

7.Problem 4-13 Cost of goods sold-LIFO and FIFO
[LO2]

At the end of January, Mineral
Labs had an inventory of 925 units, which cost $9 per unit to produce. During
February the company produced 1,650 units at a cost of $13 per unit.

(a)

If the firm sold 2,350 units in
February, what was the cost of goods sold? (Assume LIFO inventory
accounting.)(Omit the “$” sign in
your response.)

Cost of goods sold

(b)

If the firm sold 2,350 units in
February, what was the cost of goods sold? (Assume FIFO inventory
accounting.)(Omit the “$” sign in
your response.)

Cost of goods sold

8.Problem 4-14 Gross profit and ending inventory
[LO2]

The Bradley Corporation produces a
product with the following costs as of July 1, 2011:

Material

$
4 per unit

Labor

2
per unit

Overhead

2
per unit

Beginning
inventory at these costs on July 1 was 3,650 units. From July 1 to December
1, 2011, Bradley produced 13,300 units. These units had a material cost of
$2, labor of $4, and overhead of $2 per unit. Bradley uses FIFO inventory
accounting.

(a)

Assuming that Bradley sold 14,300
units during the last six months of the year at $13 each, what would gross
profit be?(Omit the “$” sign in
your response.)

Gross profit

$

(b)

What is the value of ending
inventory?(Omit the “$” sign in
your response.)

Ending inventory

$

9.Problem 4-15 Gross profit and ending inventory
[LO2]

The Bradley Corporation produces a
product with the following costs as of July 1, 2011:

Material

$ 4
per unit

Labor

4
per unit

Overhead

2
per unit

Beginning
inventory at these costs on July 1 was 3,750 units. From July 1 to December
1, 2011, Bradley produced 13,500 units. These units had a material cost of
$4, labor of $6, and overhead of $3 per unit. Bradley uses LIFO inventory
accounting.

(a)

Assuming that Bradley sold 16,000
units during the last six months of the year at $18 each, what would gross
profit be?(Omit the “$” sign in
your response.)

Gross profit

$

(b)

What is the value of ending
inventory?(Omit the “$” sign in
your response.)

Ending inventory

$

10.Problem 4-19 Schedule of cash receipts [LO2]

Watt’s Lighting Stores made the
following sales projections for the next six months. All sales are credit
sales.

March

$

48,000

June

$
52,000

April

54,000

July

60,000

May

43,000

August

62,000

Sales in January and February were
$51,000 and $50,000, respectively.
Experience has shown that of total sales,
10 percent are uncollectible, 35 percent are collected in the month of sale,
45 percent are collected in the following month, and 10 percent are collected
two months after sale.

(a)

Prepare a monthly cash receipts
schedule for the firm for March through August.(Omit the “$” sign in your response.)

(b)

Of the sales expected to be made
during the six months from March through August, how much will still be uncollected
at the end of August? How much of this is expected to be collected
later?(Omit the “$” sign in your
response.)

Amount

Uncollected

$

Expected to be
collected

$