Garza Company expects to have a cash balance of $46,000 on January 1, 2008

ACC 560 Week 6 Assignment

E9-12 Garza Company expects to have a cash balance of $46,000 on January 1, 2008. Relevant monthly budget data for the first 2 months of 2008 are as follows.

Collections from customers: January $85,000, February $150,000.
Payments for direct materials: January $50,000, February $70,000.
Direct labor: January $30,000, February $45,000. Wages are paid in the month they are incurred.
Manufacturing overhead: January $21,000, February $25,000. These costs include depreciation of $1,000 per month. All other overhead costs are paid as incurred.
Selling and administrative expenses: January $15,000, February $20,000. These costs are exclusive of depreciation. They are paid as incurred.

Sales of marketable securities in January are expected to realize $10,000 in cash. Garza Company has a line of credit at a local bank that enables it to borrow up to $25,000. The company wants to maintain a minimum monthly cash balance of $20,000.

Instructions
Prepare a cash budget for January and February.

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(Evaluating McGraw Industries Capital Structure) McGraw Industries, an established producer of printing equipment, expects its sales to remain flat

McGraw Industries, an established producer of printing equipment, expects its sales to remain flat for the next 3 to 5 years because of both a weak economic outlook and an expectation of little new printing technology development over that period. On the basis of this scenario, the firm’s management has been instructed by its board to institute programs that will allow it to operate more efficiently, earn higher profits, and, most important, maximize share value.

In this regard, the firm’s chief financial officer (CFO), Ron Lewis, has been charged with evaluating the firm’s capital structure. Lewis believes that the current capital structure, which contains 10% debt and 90% equity, may lack adequate financial leverage. To evaluate the firm’s capital structure, Lewis has gathered the data summarized in the following table on the current capital structure (10% debt ratio) and two alternative capital structures—A (30% debt ratio) and B (50% debt ratio)—that he would like to consider.
Capital structure*

Source of capital Current (10% debt) A (30% debt) B (50% debt)
Long-term debt $1,000,000 $3,000,000 $5,000,000
Coupon interest rate** 9% 10% 12%
Common stock 100,000 shares 70,000 shares 40,000 shares
Required return on equity*** 12% 13% 18%

*These structures are based on maintaining the firm’s current level of $10,000,000 of total financing.
**Interest rate applicable to all debt.
***Market-based return for the given level of risk.

Lewis expects the firm’s earnings before interest and taxes (EBIT) to remain at its current level of $1,200,000. The firm has a 40% tax rate.

Use the current level of EBIT to calculate the times interest earned ratio for each capital structure. Evaluate the current and two alternative capital structures using the times interest earned and debt ratios.


Click here for the solution: (Evaluating McGraw Industries Capital Structure) McGraw Industries, an established producer of printing equipment, expects its sales to remain flat

Livetree Ltd. Is developing a detailed financial plan for next year and expects to have the following fixed asset accounts by the end of this year ($000)

Livetree Ltd. Is developing a detailed financial plan for next year and expects to have the following fixed asset accounts by the end of this year ($000).

Gross $45,789
Accumulated Depreciation (26,328)
Net Fixed Assets $19,461

The capital plan already completed calls for expenditures of $7,042,000 on new equipment next year, which will be depreciated straight line over a 10-year period without a half-year convention. Assets currently on the books will depreciate by $4,258,000 next year. Develop Livetree’s ending fixed asset balances for the planned year.


Click here for the solution: Livetree Ltd. Is developing a detailed financial plan for next year and expects to have the following fixed asset accounts by the end of this year ($000)

Hannon Company expects to produce 1,200,000 units of Product XX in 2010

Hannon Company expects to produce 1,200,000 units of Product XX in 2010. Monthly production is expected to range from 80,000 to 120,000 units. Budgeted variable manufacturing costs per unit are: direct materials $4, direct labor $6, and overhead $8. Budgeted fixed manufacturing costs per unit for depreciation are $2 and for supervision are $1. Prepare a flexible manufacturing budget for the relevant range value using 20,000 unit increments.


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The Tiberius Company expects an EBIT of $100,000 every year forever

The Tiberius Company expects an EBIT of $100,000 every year forever. Tiberius can borrow at 10%. Tiberius currently has no debt, and its cost of equity is 14%. If the corporate tax rate is 34%, what is the value of the firm? What will the value be if Tiberius borrows $200,000 and uses the proceeds to buy up stock? Explain your answers and state concisely any assumption you make.

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The One Product economy, which produces and sells only personal computers (PCs), expects that it can sell 500 more, or 12,500 PCs, next year

11. The One Product economy, which produces and sells only personal computers (PCs), expects that it can sell 500 more, or 12,500 PCs, next year. Nominal GDP was $20 million this year, and the money supply was $7 million. The central bank for the One Product economy plans to increase the money supply by 10 percent next year.

a. What was the average selling price for the personal computers this year?
b. What is the expected average selling price next year for personal computers if the velocity of money remains at this year’s turnover rate? What percentage change in price level is expected to occur?
c. If the objective is to keep the price level the same next year (i.e., no inflation), what percentage increase in the money supply should the central bank plan for?
d. How would your answer in (c) change if the velocity of money is expected to be three times next year? What is it now?

Click here for the solution: The One Product economy, which produces and sells only personal computers (PCs), expects that it can sell 500 more, or 12,500 PCs, next year

Blythe Industries Inc. expects to maintain the same inventories at the end of 2012 as at the beginning of the year

Blythe Industries Inc. expects to maintain the same inventories at the end of 2012 as at the beginning of the year. The total of all production costs for the year is therefore as, summed to be equal to the cost of goods sold. With this in mind, the various department heads were asked to submit estimates is as follows:

Estimated Estimated Variable Cost
Fixed Cost (per unit sold)
Production costs
Direct materials…………………………………… − $30
Direct Labor………………………………………. − 20
Factory overhead…………………………………. $340,000 11
Selling expenses:
Sales salaries and commissions ………………… 80,000 5
Advertising …………………………………….. 32,000 −
Travel …………………………………………… 8,000 −
Miscellaneous selling expense …………………. 7,000 5
Administrative expenses:
Office and officers’ salaries……………………... 120,000 −
Supplies ………………………………………… 8,000 2
Miscellaneous administrative expense ………… 4,400 2
Total ……………………………………………. $600,000 $75

It is expected that 8,000 units will be sold at a price of $200 a unit. Maximum sales within the relevant range are 9,000 units.

Instructions
1. Prepare an estimated income statement for 2012.
2. What is the expected contribution margin ratio?
3. Determine the break-even sales in units and dollars.
4. Construct a cost-volume-profit chart indicating the break-even Sales.
5. What is the expected margin of safety in dollars and as a percentage of sales?
6. Determine the operating leverage.

Click here for the solution: Blythe Industries Inc. expects to maintain the same inventories at the end of 2012 as at the beginning of the year

Gundy Company expects to produce 1,223,880 units of Product XX in 2012

Gundy Company expects to produce 1,223,880 units of Product XX in 2012. Monthly production is expected to range from 73,280 to 111,220 units. Budgeted variable manufacturing costs per unit are: direct materials $3, direct labor $6, and overhead $10. Budgeted fixed manufacturing costs per unit for depreciation are $6 and for supervision are $2.

Prepare a flexible manufacturing budget for the relevant range value using 18,970 unit increments. (List variable costs before fixed costs.)

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Dorough Pointers Inc. expects to begin operations in January 1, 2009

Problem 14-16 Preparing a Sales Budget and Schedule of Cash Receipts

Dorough Pointers Inc. expects to begin operations in January 1, 2009. Dorough expects sales in January 2009 to total $120,000 and to increase 10 percent per month in February and March. All sales are on account. Dorough expects to collect 70 percent of accounts receivable in the month of sale, 20 percent in the month following the sale, and 10 percent in the second month following the sale.

Required
a. Prepare a sales budget for the first quarter of 2009.
b. Determine the amount of sales revenue Dorough will report on the first 2009 quarterly pro forma income statement.
c. Prepare a cash receipts schedule for the first quarter of 2009.
d. Determine the amount of accounts receivable as of March 31, 2009.

Check:
c.Feb.: $116,400
March: $140,040

Click here for the solution: Dorough Pointers Inc. expects to begin operations in January1, 2009