Ch03 Computron mini case JPM solution - 1 2 3 4 5 6 7 8 9 A...

HANDOUT 1/27/2014
(Revised)
Chapter 3 Mini Case
Input Data:
2012 2013 2014
Year-end common stock price $8.50 $6.00 $12.17
Year-end shares outstanding 100,000 100,000 250,000
Tax rate 40% 40% 40%
Lease payments $40,000 $40,000 $40,000
Balance Sheets
Assets 2012 2013 2014
Cash and equivalents $9,000 $7,282 $14,000
Short-term investments $48,600 $20,000 $71,632
Accounts receivable $351,200 $632,160 $878,000
Inventories $715,200 $1,287,360 $1,716,480
Total current assets $1,124,000 $1,946,802 $2,680,112
Gross Fixed Assets $491,000 $1,202,950 $1,220,000
Less Accumulated Dep. $146,200 $263,160 $383,160
Net Fixed Assets $344,800 $939,790 $836,840
Total Assets $1,468,800 $2,886,592 $3,516,952
Liabilities and equity
Accounts payable $145,600 $324,000 $359,800
Notes payable $200,000 $720,000 $300,000
Accruals $136,000 $284,960 $380,000
Total current liabilities $481,600 $1,328,960 $1,039,800
Long-term bonds $323,432 $1,000,000 $500,000
Total liabilities $805,032 $2,328,960 $1,539,800
Common stock (100,000 shares) $460,000 $460,000 $1,680,936
Retained earnings $203,768 $97,632 $296,216
Total common equity $663,768 $557,632 $1,977,152
Total liabilities and equity $1,468,800 $2,886,592 $3,516,952
Income Statements
2012 2013 2014
Net sales $3,432,000 $5,834,400 $7,035,600
Costs of Goods Sold Except Depr. $2,864,000 $4,980,000 $5,800,000
Depreciation and amortization $18,900 $116,960 $120,000
Other Expenses $340,000 $720,000 $612,960
Total Operating Cost $3,222,900 $5,816,960 $6,532,960
Earnings before interest and taxes (EBIT) $209,100 $17,440 $502,640
Less interest $62,500 $176,000 $80,000
Pre-tax earnings $146,600 ($158,560) $422,640
Taxes (40%) $58,640 ($63,424) $169,056
The first part of the case, presented in Chapter 3, discussed the situation of Computron Industries after an expansion
program. A large loss occurred in 2013, rather than the expected profit. As a result, its managers, directors, and investors
are concerned about the firm’s survival.
Jenny Cochran was brought in as assistant to Gary Meissner, Computron’s chairman, who had the task of getting the
company back into a sound financial position. Computron’s 2012 and 2013 balance sheets and income statements, together
with projections for 2014, are shown in the following tables. The tables also show the 2012 and 2013 financial ratios, along
with industry average data. The 2014 projected financial statement data represent Cochran’s and Meissner’s best guess for
2014 results, assuming that some new financing is arranged to get the company “over the hump.”
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