FIN 370 Week 3 MyFinanceLab

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FIN 370 Week 3 My Finance Lab (Two Solutions)

Problem 1 (Campbell Industries)

Problem 2 (Deere)

All of Deere’s net working capital values for this period are negative. While the magnitude of 2008’s is smaller than 2007’s, it is still higher than 2006’s initial value. Looking at Deere’s accounts for 2007 and 2008, we see that Deere’s cash fell very slightly, but its short-term investments completely disappeared (Deere didn’t have any of these in 2006, either). Net receivables rose; inventory rose significantly. These last two accounts were extremely influential on the company’s liquidity position. Deere might want to tighten up its credit policy (to reduce accounts receivable) and investigate its inventory position. There are some issues on the current liability side, too. Deere’s accounts payable doubled in 2008, its short-term debt fell slightly, and its other current liabilities disappeared. Deere’s A/P increase undoubtedly helped fund its increases in inventory and A/R. However, ominously, the dollar increase in A/P is much larger than the increases in these two CA accounts. Overall, Deere’s liquidity position is fairly consistent: Net working capital is negative throughout the period, with the current ratio improving slightly in 2007.

Problem 3 (Marvel Manufacturing)

The Marvel Mfg. Company is considering whether or not to construct a new robotic production facility. The cost of it is $582,000 and it’s expected to have a six year life with annual depreciation expense of $97,000 and no salvage value. Annual Sales from the new facility is expected 2,010 units with a price of $930 per unit. Variable production costs are $570 per unit while fixed cash expenses are $75,000 per year

a. find the accounting and the cash break-even units of production. (round to nearest interger)

b. will the plant make a profit based on its current expected level of operations?

c. will the plant contribute cash flow to the firm at the expected level of operations?

Problem 4 (Breakeven)

Given the info below.

a. calculate the missing info for each project, 

b. note that projects c and d share the same accounting break even. If the sales are above the breakeven point, which project would you prefer? Why?

c. calculate the cash break even for each of the projects. What do the differences in accounting and cash break even tell you about the four projects?

project accounting breakeven point units price per unit variable cost per unit fixed costs (fill in the blanks on the chart listed).

Breakeven point in units -Price per unit- Variable cost per unit -fixed costs depreciation

Project A 6210-(find price per unit)$56- $99,000-$26,000

Project B 770- $960- (findvariable cost per unit)-$499,000-$103,000

Project C 2000- $21- $15 $4,900-(find depreciation)

Project D 2000- $21- $6-(find fixed cost)-$12,000

Problem 5 (Sharp Corporation)

(Cash budget) The Sharpe Corporation’s projected sales for the first eight months of 2011are as follows:

January $ 90,600 May $299,000

February 120,700 June 269,300

March 134,900 July 224,400

April 240,000 August149,500

Of Sharpe’s sales, 10 percent is for cash, another 60 percent is collected in the month following sale, and 30 percent is collected in the second month following sale. November and December sales for 2010 were $220,800 and $174,200, respectively.

Sharpe purchases its raw materials two months in advance of its sales equal to 60 percent of their final sales price. The supplier is paid one month after it makes delivery. For example, purchases for April sales are made in February and payment is made in March.

In addition, Sharpe pays $9,000 per month for rent and $20,100 each month for other expenditures. 

Tax prepayments of $21,800 are made each quarter, beginning in March.

The company’s cash balance at December 31, 2010, was $21,100; a minimum balance of $15,000 must be maintained at all times. Assume that any short-term financing needed to maintain the cash balance is paid off in the month following the month of financing if sufficient funds are available.

Interest on short-term loans (11 percent) is paid monthly. Borrowing to meet estimated monthly cash needs takes place at the beginning of the month. Thus, if in the month of April the firm expects to have a need for an additional $56,110, these funds would be borrowed at the beginning of April with interest of $514 (11% × 1/12 × $56,110) owed for April and paid at the beginning of May.

a. Prepare a cash budget for Sharpe covering the first seven months of 2011.(nov sales = $220,800; dec sales = $174,200; jan sales = $90,600;

b. Sharpe has $200,900 in notes payable due in July that must be repaid or renegotiated for an extension. Will the firm have sufficient cash to repay the notes?

Problem 6

You just received a $4,000 bonus.

a. Calculate the future value of $4,000, given that it will be held in the bank for9 years

and earn an annual interest rate of 8%.

b. Recalculate part (A) using a compounding period that (1) semiannual and (2) bimonthly

c. Recalculate parts (A) and (B) using an annual interest rate of 16%?

d. Recalculate part (A) using a time horizon of 18 years at an annual interest rate of 8%?

e. What conclusions can you draw when you compare the answers in parts (c) and (d) with the answers in parts (a) and (b)?

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