Assignment2ismadeupofsevenquestions.Readtherequirementsforeachquestionthoroughly,andplanyourresponsescarefully.Ensurethatyouanswereachoftherequiredcomponentsasconciselyandcompletelyaspossible.Ifsupportingcalculationsarerequired,presentthemingoodform.Case 1 10 marksCase1.Twobusinesses,WebServicesandPCProviders,havesoughtbusinessloansfromyou.Todecidewhethertomaketheloans,youhaverequestedtheirbalancesheets.Evaluatingbusinessoperations;usingfinancialstatementsWeb ServicesBalance SheetOctober 31,2011AssetsCashAccounts receivableFurnitureSoftwareComputersTotal AssetsPCProviders, IncBalance SheetOctober 31,2011AssetsCash11,000Accounts receivable4,000Merchandise inventory36,000Furniture and fixtures79,000 Building300,000 Land430,000 Total AssetsLiablitiesAccounts payableNotes payableTotal liabilities9,00024,00085,0009,00082,00014,000223,000Liablities13,000 Accounts payable377,000 Notes payable390,000 Total liabilities12,00028,00040,000Shareholder’s equityShareholder’s equity183,000Shareholder’s equity40,000 Shareholder’s equityTotal liabiliites and shareholdre’s equity 430,000 Total liabiliites and shareholdre’s equity 223,000Required1.Usingonlythesebalancesheets,towhichentitywouldyoubemorecomfortablelendingmoney?Explainfully,citingspecificitemsandamountsfromtherespectivebalancesheets.2.Isthereotherfinancialinformationyouwouldconsiderbeforemakingyourdecision?Bespecific.C10-37 15 marksC1037UsecashflowdatatoevaluatepotentialinvestmentsYourcompanyhassomeexcesscashandwouldliketoinvestitinthestockofanothercompany.Youinvestigateseveraldifferentstocksandaretryingtodecidewhichstockwouldbethebestinvestmentforyourcompany.Onefactoryouinvestigateiseachcompanyscashflow.Thesummariesofthecashflowstatementsforyourthreetopstockchoicesfollow:(000s omitted)Net cash provided by (used for) operating activitiesCash provided by (used by) investing activities:Cash used to purchase plant or equipmentProceeds from the sale of equipmentCash used to purchase investments in stockNet cash provided by (used for) investing activitiesCash provided by (used for)financing activities:Proceeds from bond issuance.Repayment of long-term debt.Cash proceeds from issuance of stock.Cash payments for dividendsNet cash provided by (used for)financing activities:net increase in cashBaxter, Corp. Meredith Enterprises Rollyson, Inc.-20,00028,10016,000-12,100(-25,000)8,000-5,0008,000-17,10023,500-1,0004,000-2,000-2,500-25,0005,000-5,00012,00020,0008,000-3,0008,00017,0008,000Althoughyouwilllookatmanyothercriteriainyourstockpurchaserecommendation,whatcanyoutellabouteachofthethreecompanieslisted?Basedsolelyoncashflow,whichstockappearstobebetter?C11-44 15 marksC1144InvestmentrecommendationTaketheroleofaninvestmentanalystatPrudentialBache.Itisyourjobtorecommendinvestmentsforyourclients.Theonlyinformationyouhavearesomeratiovaluesfortwocompaniesinthepharmaceuticalsindustry.RatioReturn on equityReturn on assetsDays’ sales in receivablesinventory turnoverGross profit percentageNet income as a percentage of salesTimes interest earnedHealthtime Mocek21.5%32.3%16.4%17.1%42368651%53%8.3%7.2%916WriteareporttoPrudentialBachesinvestmentcommittee.Recommendonofthecompanysstockovertheother.Statethereasonsforyourrecommendation.C12-72 15 marksC1272.PreparecashbudgetsundertwoalternativesEachautumn,asahobby,SuzanneDeAngeloweavescottonplacematstosellatalocalcraftsshop.Thematssellfor$20persetoffour.Theshopchargesa10%commissionandremitsthenetproceedstoDeAngeloattheendofDecember.DeAngelohaswovenandsold25setseachofthelasttwoyears.Shehasenoughcottonininventorytomakeanother25sets.Shepaid$7persetforthecotton.DeAngelousesafourharnessloomthatshepurchasedforcashexactlytwoyearsago.Itisdepreciatedattherateof$10permonth.TheaccountspayablerelatetothecottoninventoryandarepayablebySeptember30.DeAngeloisconsideringbuyinganeightharnessloomsothatshecanweavemoreintricatepatternsinlinen.Thenewloomcosts$1,000;itwouldbedepreciatedat$20permonth.Herbankhasagreedtolendher$1,000at18%interest,with$200principalplusaccruedinterestpayableeachDecember31.DeAngelobelievesshecanweave15linenplacematsetsintimefortheChristmasrushifshedoesnotweaveanycottonmats.Shepredictsthateachlinensetwillsellfor$50.Linencosts$18perset.DeAngelossupplierwillsellherlinenoncredit,payableDecember31.DeAngeloplanstokeepheroldloomwhetherornotshebuysthenewloom.ThebalancesheetforherweavingbusinessatAugust31isasfollows:SUZANEDEANGE O, WEAVE Balance Sheet August 31LRCurrent assets:Current liabilities:Cash25 Accounts payableInventory of cotton175200Fixed assetsLoomAccumulated depreciationTotal assets500 Owner’s equity-24026046074386460Requirements1.PrepareacombinedcashbudgetforthefourmonthsendingDecember31,fortwoalternatives:weavingtheplacematsincottonusingtheexistingloomandweavingtheplacematsinlinenusingthenewloom.Foreachalternative,prepareabudgetedincomestatementforthefourmonthsendingDecember31,andabudgetedbalancesheetatDecember31.2.Onthebasisoffinancialconsiderationsonly,whatshouldDeAngelodo?Giveyourreason.3.WhatnonfinancialfactorsmightDeAngeloconsiderinherdecision?C13-77 15 marksC1377.CalculateefficiencyvariancesAssumethatyoumanageyourlocalMarbleSlabCreameryicecreamparlour.Inadditiontosellingicecreamcones,youmakelargebatchesofafewflavoursofmilkshakestosellthroughouttheday.YourparlourischosentotestthecompanysMadeforYousystem.Thesystemallowspatronstocustomizetheirmilkshakesbychoosingdifferentflavours.Customerslikethenewsystemandyourstaffappearstobeadapting,butyouwonderwhetherthisnewmadetoordersystemisasefficientastheoldsystemwhereyoumadejustafewlargebatches.Efficiencyisaspecialconcernbecauseyourperformanceisevaluatedinpartontherestaurantsefficientuseofmaterialsandlabour.Assumethatyoursuperiorsconsiderthatefficiencyvariancesgreaterthan5%areunacceptable.Youdecidetolookatyoursalesforatypicalday.Youfindthattheparlourused390kilogramsoficecreamand72hoursofdirectlabourtoproduceandsell2,000shakes.Assumethatthestandardquantityallowedforashakeis0.2kgoficecreamand0.03hours(1.8minutes)ofdirectlabour.Further,assumethatstandardcostsare$1.50perkilogramforicecreamand$8.00anhourforlabour.Requirements1.Computetheefficiencyvariancesfordirectlabouranddirectmaterials.2.Providelikelyexplanationsforthevariances.Doyouhavereasontobeconcernedaboutyourperformanceevaluation?Explain.3.WriteamemotoMarbleSlabCreamerysnationalofficeexplainingyourconcernandsuggestingaremedy.C14-64 15 marksC1464.ApplytimevalueofmoneytoapersonaldecisionSamerAlmasri,asecondyearbusinessstudentattheUniversityofOttawa,willgraduateintwoyearswithanaccountingmajorandaSpanishminor.Almasriistryingtodecidewheretoworkthissummer.Hehastwochoices:workfulltimeforabottlingplantorworkparttimeintheaccountingdepartmentofameatpackingplant.Heprobablywillworkatthesameplacenextsummeraswell.Heisabletowork12weeksduringthesummer.ThebottlingplantwouldpayAlmasri$600perweekthisyearand7%morenextsummer.Atthemeatpackingplant,hewouldwork20hoursperweekat$10.00perhour.Byworkingonlyparttime,hewouldtaketwoaccountingcoursesthissummer.Tuitionis$225perhourforeachofthefourhourcourses.Almasribelievesthattheexperiencehegainsthissummerwillqualifyhimforafulltimeaccountingpositionwiththemeatpackingplantnextsummer.Thatpositionwillpay$750perweek.Almasriseestwoadditionalbenefitsofworkingparttimethissummer.First,hecouldreducehisstudyingworkloadduringthefallandspringsemestersbyonecourseeachterm.Second,hewouldhavethetimetoworkasagraderintheuniversitysaccountingdepartmentduringthe15weekfallterm.Gradingpays$50perweek.Requirements1.SupposethatAlmasriignoresthetimevalueofmoneyindecisionsthatcoverthistimeperiodbecauseitissoshort.Supposealsothathissolegoalistomakeasmuchmoneyaspossiblebetweennowandtheendofnextsummer.Whatshouldhedo?WhatnonquantitativefactorsmightSamerconsider?Whatwouldyoudoifyouwerefacedwiththesealternatives?2.Now,supposethatAlmasriconsidersthetimevalueofmoneyforallcashflowsthatheexpectstoreceiveoneyearmoreinthefuture.Whichalternativedoesthisconsiderationfavour?Why?C15-45 15 marksC1545CollectandanalyzedivisiondataColgatePalmoliveoperatestwoproductsegments.Usingthecompanyswebsite,locatesegmentinformationfor2008inthecompanys2008annualreport.(Hint:Lookunderinvestorrelations.)Then,lookinthefinancialstatementfootnotes.Requirements1.Whatarethetwosegments(ignoregeographicalsubsetsoftheoneproductsegment)?Gatherdataabouteachsegmentsnetsales,operatingincome,andidentifiableassets.2.CalculateROIforeachsegment.3.WhichsegmenthasthehighestROI?Explainwhy.4.Ifyouwereonthetopmanagementteamandcouldallocateextrafundstoonlyonedivision,whichdivisionwouldyouchoose?Why?
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