Finance Ch. 5 Solutions

Finance Ch. 5 Solutions - Janine Nipal Ch 5 Problems...

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Janine Nipal Ch. 5 Problems 1) (a) (b) (c) (d) Sales $8,000,000 $8,800,000 $9,500,000 $10,000,000 CGS 4,800,000 5,280,000 5,700,000 6,000,000 Op. Exp. 2,510,000 2,686,000 2,840,000 2,950,000 EBIT 690,000 834,000 960,000 1,050,000 Interest 250,000 250,000 250,000 250,000 EBT 440,000 584,000 710,000 800,000 Taxes 154,000 204,400 248,500 280,000 EAT $ 286,000 $ 379,600 $ 461,500 $ 520,000 CGS: $4,800,000 = .6 $8,000,000 Operating expense: $1,760,000 = .22 $8,000,000 2) First convert the variable items to "percentage-of-sales" Cost of goods sold: $1,200,000 = 40% $3,000,000 Operating expense: $960,000 = 32% $3,000,000 (a) (b) (c) (d) Sales $3,400,000 $3,900,000 $4,200,000 $4,500,000 Cost of Goods 1,360,000 1,560,000 1,680,000 1,800,000 Operating Exp 1,088,000 1,448,000 1,544,000 1,640,000 EBIT 752,000 892,000 976,000 1,060,000 Interest 120,000 120,000 120,000 120,000 EBT 632,000 772,000 856,000 940,000 Taxes 221,200 270,200 299,600 329,000 EAT $ 410,800 $ 501,800 $ 556,400 $ 611,000 Notes:Cost of Goods = 40% of sales Operating Expense = 32% of sales + $200,000 Interest = .12(1,000,000) = $120,000 Taxes = .35 of EBT 3) Accounts receivable: 450,000 = 10% 4,500,000 Inventory: 200,000 = 4.44% 4,500,000 Accounts payable: 300,000 = 6.67% 4,500,000
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(a) Sales forecast = $4,000,000 Accounts receivable = 10%($4,000,000) = $400,000 Inventory = 4.44%($4,000,000) = $177,600 Accounts payable = 6.67%($4,000,000) = $266,800 (b) Sales forecast = $4,500,000 Accounts receivable = 10%($4,500,000) = $450,000 Inventory = 4.44%($4,500,000) = $199,800 Accounts payable = 6.67%($4,500,000) = $300,150 (c) Sales forecast = $5,000,000 Accounts receivable = 10%($5,000,000) = $500,000 Inventory = 4.44%($5,000,000) = $222,000 Accounts payable = 6.67%($5,000,000) = $333,500 (d) Sales forecast = $6,000,000 Accounts receivable = 10%($6,000,000) = $600,000 Inventory = 4.44%($6,000,000) = $266,400 Accounts payable = 6.67%($6,000,000) = $400,200 4) $75,000 = 5% $1,500,000 Accrued payables = 5% s (a) $65,000 = 5% of sales Sales = $65,000 = $1,300,000 .05 (b) $75,000 = 5% of sales Sales = $75,000 = $1,500,000 .05 (c) $90,000 = 5% of sales Sales = $90,000 = $1,800,000 .05 (d) $120,000 = 5% of sales Sales = $120,000 = $2,400,000 .05 5) (a) AR = 12.5% of sales = 12.5%(200,000) = $25,000 (b) AR = 12.5%(400,000) = $50,000 (c) AR = 12.5%(800,000) = $100,000 (d) AR = 12.5%(1,600,000) = $200,000 6) (a) AR = 8.33% of s 100,000 = 8.33% of s
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Sales = $100,000 = $1,200,000 .0833 (b) $250,000 = 8.33% of s Sales = 250,000 = $3,000,000 .0833
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(c) $500,000= 8.33% of s Sales = 500,000 = $6,000,000 .0833(d) $1,000,000 = 8.33% of sales Sales = $1,000,000 = $12,000,000 .0833 7) 140,000 = 4% 3,500,000 = $160,000 under all four alternatives Marketable securities (a) Treat all marketable securities as spontaneous: Percentage of sales: $100,000 = 2.86% $3,500,000 Forecast: 2.86%($4,000,000) = $114,400 (b) Treat 70%($100,000) = $70,000 as spontaneous 30%($100,000) = $30,000 as discretionary Percentage of sales: $70,000 = 2% $3,500,000 Forecast: 2%($4,000,000) + $30,000 = $80,000 + 30,000 = $110,000 (c) 30%($100,000) = $30,000 - spontaneous 70%($100,000) = $70,000 - discretionary Percentage of sales: $30,000 = 0.86% $3,500,000 Forecast:0.86%(4,000,000) + $70,000=34,400 + 70,000=$104,400 (d) If the entire marketable securities balance is discretionary, we predict that it won’t change (unless management makes a change). Forecast = $100,000 8) $250,000 = 2.50% $10,000,000 2.50%($12,000,000) = $300,000 under all four alternatives (a) Percentage of sales: 175,000 = 1.75% `0,000,000 Forecast: 1.75%(12,000,000) = $210,000 (b) Percentage of sales: 105,000 = 1.05% 10,000,000 Forecast: 1.05%(12,000,000) + $70,000 = $126,000 + 70,000 = $196,000
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(c) Percentage of sales: 43,750 = 0.44% 10,000,000 Forecast: 0.44%(12,000,000) + 131,250 = 52,800 + 131,250 = $184,050 (d) If the entire marketable securities balance is discretionary, we predict that it won’t change (unless management makes a change). Forecast = $175,000 9) (a) Percentage of sales = 5,000,000 = 31.25% 16,000,000 Forecast: 31.25%($20,000,000) = $6,250,000 (b) Forecast: $5,000,000 + 1,500,000 = $6,500,000 (c) Plant used = 90% x $5,000,000 = $4,500,000 true percentage: 4,500,000 = .28125 = 28.125% 16,000,000 Forecast: 28.125% x 20,000,000 = $5,625,000 (d) Forecast = $5,000,000 + 750,000 = $5,750,000 10) (a) Percentage of sales = 12,000,000 = 40% 30,000,000 Forecast: 40%(40,000,000) = $16,000,000 (b) Forecast: $12,000,000 + 5,000,000 = $17,000,000 (c) Plant used = 90% x 12,000,000 = $10,800,000 true percentage: 10,800,000 = 36% 30,000,000 Forecast: 36% x $40,000,000 = $14,400,000 (d)Plant used = 70% x $12,000,000 = $8,400,000 true percentage: $8,400,000 = .28 = 28% $30,000,000 sales: 28% x $40,000,000 = $11,200,000 Forecast: $12,000,000 11) (a) 500,000  500,000= $0 (b) 2,500,000  500,000= $2,000,000 (c)
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