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eiteman_178963_im09 - Problem 9.1 Carlton Germany Case 4...

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Problem 9.1 Carlton Germany - Case 4 Balance Sheet Information, End of Fiscal 2002 Assets Liabilities and net worth Cash € 1,600,000 Accounts payable € 800,000 Accounts receivable 3,200,000 Short-term bank loan 1,600,000 Inventory 2,400,000 Long-term debt 1,600,000 Net plant and equipment 4,800,000 Common stock 1,800,000 Retained earnings 6,200,000 Sum € 12,000,000 Sum € 12,000,000 Important Ratios to be Maintained and Other Data Accounts receivable, as percent of sales 25.00% Inventory, as percent of annual direct costs 25.00% Cost of capital (annual discount rate) 20.00% Income tax rate 34.00% Base Case Case 1 Case 2 Case 3 Case 4 Assumptions Exchange rate, $/€ 1.2000 1.0000 1.0000 1.0000 1.0000 Sales volume (units) 1,000,000 1,000,000 2,000,000 1,000,000 500,000 Export sales volume (case 4) 500,000 Sales price per unit € 12.80 € 12.80 € 12.80 € 15.36 € 12.80 Export sales price per unit (case 4) € 15.36 Direct cost per unit € 9.60 € 9.60 € 9.60 € 9.60 € 9.60 Annual Cash Flows before Adjustments Sales revenue € 12,800,000 € 12,800,000 € 25,600,000 € 15,360,000 € 14,080,000 Direct cost of goods sold 9,600,000 9,600,000 19,200,000 9,600,000 9,600,000 Cash operating expenses (fixed) 890,000 890,000 890,000 890,000 890,000 Depreciation 600,000 600,000 600,000 600,000 600,000 Pretax profit € 1,710,000 € 1,710,000 € 4,910,000 € 4,270,000 € 2,990,000 Income tax expense 581,400 581,400 1,669,400 1,451,800 1,016,600 Profit after tax € 1,128,600 € 1,128,600 € 3,240,600 € 2,818,200 € 1,973,400 Add back depreciation 600,000 600,000 600,000 600,000 600,000 Cash flow from operations, in euros € 1,728,600 € 1,728,600 € 3,840,600 € 3,418,200 € 2,573,400 Cash flow from operations, in dollars $2,074,320 $1,728,600 $3,840,600 $3,418,200 $2,573,400 Adjustments to Working Capital for 2003 and 2007 Caused by Changes in Conditions Accounts receivable € 3,200,000 € 3,200,000 € 6,400,000 € 3,840,000 € 3,520,000 Inventory 2,400,000 2,400,000 4,800,000 2,400,000 2,400,000 Sum € 5,600,000 € 5,600,000 € 11,200,000 € 6,240,000 € 5,920,000 Change from base conditions in 2003 € - € - € 5,600,000 € 640,000 € 320,000 Year Year-End Cash Flows 1 (2003) $2,074,320 $1,728,600 $(1,759,400) $2,778,200 $2,253,400 2 (2004) $2,074,320 $1,728,600 $3,840,600 $3,418,200 $2,573,400 3 (2005) $2,074,320 $1,728,600 $3,840,600 $3,418,200 $2,573,400 4 (2006) $2,074,320 $1,728,600 $3,840,600 $3,418,200 $2,573,400 5 (2007) $2,074,320 $1,728,600 $9,440,600 $4,058,200 $2,893,400 Year Change in Year-End Cash Flows from Base Conditions 1 (2003) na $(345,720) $(3,833,720) $703,880 $179,080 2 (2004) na $(345,720) $1,766,280 $1,343,880 $499,080 3 (2005) na $(345,720) $1,766,280 $1,343,880 $499,080 4 (2006) na $(345,720) $1,766,280 $1,343,880 $499,080 5 (2007) na $(345,720) $7,366,280 $1,983,880 $819,080 Present Value of Incremental Year-End Cash Flows na $(1,033,914) $2,866,106 $3,742,892 $1,354,489
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Problem 9.2 Carlton Germany - Case 5 Balance Sheet Information, End of Fiscal 2002 Assets Liabilities and net worth Cash € 1,600,000 Accounts payable € 800,000 Accounts receivable 3,200,000 Short-term bank loan 1,600,000 Inventory 2,400,000 Long-term debt 1,600,000 Net plant and equipment 4,800,000 Common stock 1,800,000 Retained earnings 6,200,000 Sum € 12,000,000 Sum € 12,000,000 Important Ratios to be Maintained and Other Data Accounts receivable, as percent of sales 25.00% Inventory, as percent of annual direct costs 25.00% Cost of capital (annual discount rate) 20.00% Income tax rate 34.00% Base Case Case 1 Case 2 Case 3 Case 5 Assumptions Exchange rate, $/€ 1.2000 1.0000 1.0000 1.0000 1.0000 Sales volume (units) 1,000,000 1,000,000 2,000,000 1,000,000 500,000 Export sales volume (case 4) 500,000 Sales price per unit € 12.80 € 12.80 € 12.80 € 15.36 € 15.36 Export sales price per unit (case 4) € 15.36 Direct cost per unit € 9.60 € 9.60 € 9.60 € 9.60 € 11.52 Annual Cash Flows before Adjustments Sales revenue € 12,800,000 € 12,800,000 € 25,600,000 € 15,360,000 € 15,360,000 Direct cost of goods sold 9,600,000 9,600,000 19,200,000 9,600,000 11,520,000 Cash operating expenses (fixed) 890,000 890,000 890,000 890,000 1,068,000 Depreciation 600,000 600,000 600,000 600,000 600,000 Pretax profit € 1,710,000 € 1,710,000 € 4,910,000 € 4,270,000 € 2,172,000 Income tax expense 581,400 581,400 1,669,400 1,451,800 738,480 Profit after tax € 1,128,600 € 1,128,600 € 3,240,600 € 2,818,200 € 1,433,520 Add back depreciation 600,000 600,000 600,000 600,000 600,000 Cash flow from operations, in euros € 1,728,600 € 1,728,600 € 3,840,600 € 3,418,200 € 2,033,520 Cash flow from operations, in dollars $2,074,320 $1,728,600 $3,840,600 $3,418,200 $2,033,520
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