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Unformatted text preview: THIS SHEET IS MEANT ONLY AS A CONVENIENCE. THE ACTUAL FACTS PRESENTED UNDER THE &quot;COURSE HOME&quot; SHOULD BE REFERENCED/UTILIZED. 2009 PARENT ASSUMPTIONS 1 Sales will increase by 10% in 2009 2 All sales will be on account 3 Accounts receivable will be 5 percent lower on 12/31/09 than on 12/31/08 4 Cost of goods sold will increase by 9% in 2009 5 All purchases of merchandise will be on account 6 Accounts payable are expected to be 50,500 in 12/31/2009. 7 Inventory will be 3% higher in 2009 than in 2008 8 Straight line depreciation is used for all fixed assets 9 No fixed assets will be disposed of during 2009. Annual depreciation on existing assets is 40,000 per year 10 Equipment was purchased on 1/1/09 for $48,000 cash; 10 year life no salvage 11 Operating expenses, other than depreciation, will increase by 14% in 2009 12 All operating expenses other than depreciation will be paid in cash. 13 Parents income tax rate is 40%; taxes are paid in 4 pmts, 15th of April, June, Sept &amp; Dec 14 Parent will continue the $2.50 per share annual cash dividend on its common stock. ACQUISTION ASSUMPTIIONS 15 16 17 18 19 20 If tender offer is successful;, Parent will finance the acquisition by inssuing 170,000 of 6% non convertible bonds at par on jan 1 ,2009. bonds pay interest on July 1 2009 and semiannually thereafter each Jan 1 and July 1 until maturity on Jan 1, 2019. The acquistion will be accounted for as a purchase and Parent will account for the investment using the equity method. Direct costs for the tender offer of $2,000 paid in cash by parent in 2009 As of Jan 1 2009 all of subsidiary's assets and liablitiles are fairly valued except for machinery with a book value of $8,000, estimated fair value of $9,500, and a 5 year remaining useful life. Straight line deprec'n is used to amortize any revaluation increment. No transactions between these companies occurred prior to 2009. P arent plans to buy 50,000 of merchandise from subsidiary in 2009 and will have 3,600 in remaining inventory on Dec 31 2009. S ubsidiary is expected to buy 2,400 of merchandise from parent in 2009 and to have 495 in inv on dec 31, 2009. Parent and subsidiary price their products to yield a 65 percent and 80 percent markup on cost, respectively. Parent intends to use three financial yardsticks to determine the financial attractiveness of the combination. 1) parent wishes to acquire only if 2009 consolidated earnings per share will be at least as high as the EPS parent would report without combination. 2) parent will consider combination unattractive if it will cause the consolidated current ratio to fall below 2 to 1. 3) ROE must remain above 20 percent for the combined equity. If financial yardsticks above and the non finanicial aspects are appealing, then the tender offer will be made. If the objectives are not met, the acquistion will either be restructured or abandoned. Group Name: Elen Cuaca-Wijaya Sharon Yu Hany Faltas Assumptions Sales $800,000 $100,000 $880,000 $880,000 COGS $(485,000)...
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- Spring '11