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complete tutorial principle for finance.

complete tutorial principle for finance. - 1 The Lineberry...

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1. The Lineberry Golf Cart Co. sold 7,400 carts this year at an average unit price of $3,000. 50 days of sales remained uncollected in accounts receivable at the end of the year. The firm produced the carts at a 42% cost ratio (COGS/Revenue) and had three months of inventory on hand at year end (3/12 of the year’s COGS). The golf business is booming and management plans a 10% increase in unit sales despite a 5% price increase. The firm has programs in place to improve production efficiency, inventory management, and the effectiveness of collections efforts. It is assumed that these programs will decrease the cost ratio to 40%, lower year end inventory to 2 months, and lower year end receivables to 40 days of sales. Compute Lineberry’s revenue, COGS (cost of goods sold) and gross margin as well as ending receivables and inventory for this year and next year’s plan. Calculate using a 360 day year and assume sales are evenly distributed over the year. SOLUTION: This Year Next Year’s Plan Units 7,400 7,400 x 1.1 = 8,140 Price x $3,000 $3,000 x 1.05 = x $3,150 Units x Price = Revenue Revenue = $ 22,200,000 $25,641,000 Revenue x Cost Ratio = COGS Cost ratio x.42 x . 40 COGS $9,324,000 $10,256,400 Revenue – COGS = Gross Margin Gross Margin $12,876,000 $15,384,600 (Days sales in A/R ÷ 360) x Revenue = A/R A/R (50/360) x $22,200,000 = $3,083,333 (40/360) x $25,641,000 = $2,849,000 (Months Cost in INV / 12) x COGS = Inventory COGS (3/12) x $9,324,000 = $2,331,000 (2/12) x $10,256,400 = $1,709,400 The Debt/Interest Planning Problem – Example 4.2 (page 137) 2. The Cambridge Cartage Company has partially completed its forecast of next year's financial statements as follows. FINANCIAL PLAN CAMBRIDGE CARTAGE COMPANY ($000) INCOME STATEMENT BALANCE SHEET NEXT YEAR NEXT YEAR Beginning Ending Rev $17,220 ASSETS 79
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Chapter 4 Cost/Exp 14,120 Total Assets $12,540 $18,330 EBIT $ 3,100 LIABILITIES & EQUITY
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