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Studocu is not sponsored or endorsed by any college or university Fnce370 assign 2 marked Overview of Corporate Finance (Athabasca University) Studocu is not sponsored or endorsed by any college or university Fnce370 assign 2 marked Overview of Corporate Finance (Athabasca University) Downloaded by Umaima Usman (umaimausman2k@gmail.com) lOMoARcPSD|3866758

FNCE 370v10: Assignment 2 Assignment 2 is worth 5% of your final mark. Complete and submit Assignment 2 after you complete Lesson 6. Questio n Marks available Marks Awarded Referenc e 1 20 14 Lesson 2 2 4 4 Lesson 2 3 10 10 Lesson 3 4 13 13 Lesson 4 5 7 3 Lesson 4 6 10 10 Lesson 4 7 7 5 Lesson 4 8 9 8 Lesson 5 9 9 8 Lesson 5 10 5 3 Lesson 6 11 6 6 Lesson 6 Total 100 84 Note on Decimal Places When working through numerical problems, use as many decimal places as shown on your financial calculator. Do not round your calculated answers until you have reached the final answer. When you reach your final answer, round as follows, unless the question specifies otherwise (e.g., see the instructions for pro-forma statements in Question 1).  Percentages: round to two decimal places  Dollars: round to two decimal places  Others: round to four decimal places FNCE 370v10 1 August 2019 Downloaded by Umaima Usman (umaimausman2k@gmail.com) lOMoARcPSD|3866758

Questions Use the following information for Delta Corporation to answer question 1: (20 marks total) Year 20X1 20X2 Net sales $1,500,000 $1,656,598 Cost of goods sold 675,000 745,469 Depreciation 270,000 298,188 Interest paid 43,600 44,000 Cash 127,500 140,811 Accounts receivable 450,000 496,980 Inventory 525,000 579,809 Net fixed assets 1,800,000 1,987,918 Accounts payable 375,000 414,150 Notes payable 45,000 50,000 Long-term debt 500,000 500,000 Common stock 1,000,000 1,000,000 Retained earnings 982,500 1,241,368 Tax rate 35% 35% Dividend payout 30% 30% 1. Delta has 600,000 common shares outstanding. The firm is projecting a 20% increase in net sales for the coming year (20X3). Delta uses the percentage of sales approach to plan for its financing needs. In using this approach, the firm assumes that cost of goods sold, all assets (current and fixed), and accounts payable will all remain a constant percentage of sales. Depreciation expense is assumed to be 15% of net fixed assets, while notes payable and long-term debt will remain at the same level as 20X2. The interest rate charged on notes payable and long-term debt is also expected to remain the same. The firm will aim to maintain its dividend payout of 30% for the foreseeable future. a. Construct the pro-forma Statement of Comprehensive Income and Statement of Financial Position for Delta Corporation for 20X3. Calculate the external financing needed (EFN) for 20X3. Round all your numbers in the pro-forma statements to the nearest dollar. (4 marks) Delta Corporation Pro-forma Statement of Comprehensive Income 20X3 FNCE 370v10 2 August 2019 Downloaded by Umaima Usman (umaimausman2k@gmail.com) lOMoARcPSD|3866758

Sales $1987918 Cost of goods sold(COGS) $894563 Depreciation $298188 Earnings Before Interest Taxes $612941 Interest Paid $44000 Taxable Income $691530 Taxes (35%) $242036 Net Income $449494 Dividends $134848 Additions to Retained Earnings $314646 Delta Corporation Pro-forma Statement of Financial Position 20X3 Assets Liabilities Current Assets Current Liabilities Cash $168973 Accounts Payable $496980 Accounts Receivable $596376 Note Payable $50000 FNCE 370v10 3 August 2019 Downloaded by Umaima Usman (umaimausman2k@gmail.com) lOMoARcPSD|3866758

Inventory $695771 Total Current Liabilities $546980 Total Current Assets $1461120 Long Term Debt $500000 Total Liabilities $1046980 Net Fixed Assets $2385502 Owners’ Equity Common Stock $1000000 Retained Earnings $1556014 Total Owners’ Equity $2656014 Total Assets $3846622 Total Liabilities and Owners’ Equity $3602994 External Financing Needed $243628 The total external financing needed is $243628 for Delta Corporation. 4 marks b. Based on its 20X2 information, what is Delta’s capital intensity ratio? Round your answer to four decimal places. (1 mark) Capital Intensity Ratio = Total Assets/Sales = 3,250,518/1,656,598 = 1.9350  1 mark c. What is Delta’s full capacity sales if it is currently operating at 80% capacity (20X2)? Round your answer to the nearest integer. (1 mark) Current Sales = 1,656,598 = 80%* full capacity sales Full capacity sales = 1656598/.80 = 2,070,748  1 mark FNCE 370v10 4 August 2019 Downloaded by Umaima Usman (umaimausman2k@gmail.com) lOMoARcPSD|3866758

d. Recalculate the firm’s external financing needed (EFN) for 20X3 if Delta is only operating at 80% capacity. Assume that if the 20X3 net sales is lower than full capacity sales, then the net fixed assets in 20X3 will be the same as the net fixed assets in 20X2 (i.e., assume that the firm will purchase just enough fixed assets to cover depreciation expense for 20X3). Interpret this EFN number. (5 marks) Delta Corporation Pro-forma Statement of Comprehensive Income 20X3 Sales $1656598 Cost of goods sold(COGS) $745469 Depreciation $357825 Earnings Before Interest Taxes $733530 Interest Paid $44000 Taxable Income $568941 Taxes (35%) $199129 Net Income $369812 Dividends $110944 Additions to Retained Earnings $258868 Delta Corporation Pro-forma Statement of Financial Position 20X3 Assets Liabilities Current Assets Current Liabilities Cash $140811 Accounts Payable $414150 FNCE 370v10 5 August 2019 Downloaded by Umaima Usman (umaimausman2k@gmail.com) lOMoARcPSD|3866758

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