Module 3- Financial Planning and Growth – Financial Management
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Date
Jun 27, 2024
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3.5 | Exercises.
Problem: Short-term Financial Planning
Sales
Wind’n Wave Enterprises is a wholesaler of wind surfers,
which currently sells one model, the Wave Rider (WR). The
product is sold locally through major sports stores. The com-
pany has also begun to export, which helps to smooth out
seasonal fluctuations in production and sales. At present, the
business has three local customers and one overseas.
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Wind’n Wave 2018 Sales Forecast (Units)
Q1
Q2
Q3
Q4
Year
Local
Customer 1
43
76
58
27
204
Customer 2
56
122
87
22
287
Customer 3
33
66
48
17
164
Sub-total
132
264
193
66
655
Export
77
114
115
77
383
Total
209
378
308
143
1,038
Expected prices for 2018 for Wave Rider are:
Price (CAD Per Unit)
Local
Export
Wave Rider (WR)
900
675
Twenty percent of sales are for cash. Of the credit sales, ap-
proximately 70.0% are paid for in the quarter the sale takes
place and the balance are collected in the following quarter
with negligible bad debts.
Sales in the first quarter of 2019 are expected to be 250 units,
which is 20.0% higher than the first quarter of 2018.
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Cost of Goods Sold
Wind’n Wave gets its product from a system of small indepen-
dent contractors. In the coming year, the company expects
to be able to buy Wave Riders for CAD 525.
Seventy percent of all merchandise purchased is paid for in
that quarter.
The remainder is paid for in the following quar-
ter.
Company policy is to maintain merchandise inventory in units
equal to 30.0% of the next quarter’s estimated sales in units.
This is to guard against supply interruptions, which are fre-
quent given the size of its suppliers. Beginning inventory on
January 1, 2018 consists of 63 units.
Operating Expenses
Wind’n Waves financial manager has put together the follow-
ing information on estimated operating expenses for 2018
:
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Category
Details
Selling
Fixed component of CAD 35,500 a year plus a
variable component equal to 1.0% of sales revenue
for sales commissions.
Distribution
All variable equal to CAD 7 per unit for local sales
and CAD 15 per unit for exports.
Administrative
All fixed equal to CAD 45,200 a year including
CAD 7,000 for depreciation of fixed assets and
CAD 18,000 in rent.
All fixed costs are incurred uniformly throughout the year and
are paid for as incurred.
Capital Budget
Wind’n Wave’s financial manager has reviewed an updated list
of capital expenditures in 2018 and has selected the following
projects:
Item
Estimated
Cost
When
New computer with associated software for
bookkeeping, scheduling, and word
processing – 5-year life
CAD
26,000
End
Q1
New office equipment – 10-year life
CAD
19,500
End
Q2
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Depreciation charges for these assets were not included in
the administration budget.
Financing
Wind’n Wave has an 8.0% line of credit, which allows it to
borrow up to CAD 40,000 to finance its accounts receivable
and inventories. The bank allows Wind’n Wave to borrow up
to 50.0% of the value of their good accounts receivable but
nothing against their finished goods inventory due to its
highly specialize nature. Interest is paid quarterly and any
borrowing or paying down of the loan is be done at the end of
each quarter. The line of credit must be paid down to zero
once per year.
The company’s purchases of capital assets can be financed
with a term loan. Interest is paid quarterly at a rate of 10.0%.
The principal is paid down on a straight-line basis over the
life of the asset. Payments are made quarterly. Up to 80.0%
of the asset’s value can be borrowed.
Company policy is to try to maintain a cash balance of CAD
20,000 at all times to guard against unexpected cash out-
flows. This approximates 10.0% of quarterly cash disburse-
ments. Surplus cash can be invested in 3-month term de-
posits earning 5.0%. Interest is paid quarterly.
Quarterly and annual financial statements must be submitted
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to the bank. In addition to the required coverage ratio, the
bank requires that a current ratio of at least 1.5X be main-
tained on a quarterly basis. Also, an annual cash flow cover-
age ratio of at least 2.0 must be maintained.
The goal for the long-term debt to total capitalization ratio is
40.0%. Company policy is to match the maturity of its assets
and financing if possible.
Dividends
Regular dividends of CAD 15,000 are to be paid out each quar-
ter unless a serious cash shortage prevents it. Special divi-
dends can be paid if the company’s cash balance becomes ex-
cessive.
Income Taxes
The corporate tax rate is 45.0%. Taxes are paid at the end of
each quarter.
Balance Sheet
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Related Questions
From the case study, only respond to question #3
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Complete all requirements
<><>
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2. UNIV Dreamers Publishing has a choice of publishing one of two
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BOOK A
BOOK B
Probability
Profit
Profit
Probability
0.10
0.20
PhP 2,000
PHP 2,300
PhP 1,500
PhP 1.700
0.30
0.40
0.30
PhP 2.600
0.40
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0.20
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0.10
PhP 2.100
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Sales in units
Product/Year
Year 1
Year 2
Year 3
Year 4
Zandu
60,000
110,000
100,000
30,000
Eundu
75,000
137,000
125,000
37,500
Product
Zandu
Eundu
Direct material costs
14
11
Selling price
31
23
Selling price inflation (per year).
3%
Direct material cost inflation (per year)
3%
Advertisement cost (First Year)
500,000
Advertisement cost (2nd and 3rd Year)
200,000
Investment
1,000,000
Machinery
1,000,000
Fixed costs
1,000,000
Таx
25%
Residual value
1.2million
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Calculate NPV and IRR of this proposal project using MS Excel.
Hint:
Calculate expected revenue
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1.
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Problem 5-1
Redlands Inc. sells one product for $5. The variable cost per item is $3, and the fixed costs for the firm are $40.
Required:
a. Compute the breakeven point in units.
b. Compute the number of units and sales revenue needed to achieve a $20 profit. (Ignore income taxes.)
c. Assume that the income tax rate for Redlands is 40%. Compute the number of units and sales revenue needed to achieve an $18 net profit.
d. Compute the number of units and sales revenue needed to achieve an 8% profit margin. (Ignore income taxes.)
e. Compute the number of units and sales revenue needed to achieve a 12% net profit margin. (Assume a 40% income tax rate.)
f. Assume that Redlands currently sells 40 units. Redlands estimates that if it increased sales price to $6 per unit demand would decrease by…
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gine with the Toyota drive train. LP's owners had been offering engine adaptor kits
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[The following information applies to the questions dlisplayed below.]
Angle Silva has recently opened The Sandal Shop in Brisbane. Australla, a store that specializes In
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Sales price per pair of sandals
Variable expenses per pair of sandals
Contribution margin per pair of sandals
$ 26
13
$ 13
Fixed expenses per year:
Building rental
Equipment depreciation
Selling
Administrative
$ 3,900
6,500
3,900
11,700
Total fixed expenses
$ 26,000
3. Angle has decided that she must earn a profit of $19.500 the first year to Justify her time and effort. How many palrs of
sandals must be sold to attain this target profit?
Unit sales to attain target profit
pairs
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(Click the icon to view the information.)
Read the requirements.
C
Requirement 1. If SnowDelight cannot reduce its costs, what profit will it earn? State your answer in dollars and as a percent of assets. Will investors be happy with the profit level?
Complete the following table to calculate SnowDelight's projected income.
Revenue at market price
Less: Total costs
63075000
6075000
8.3
Operating income
(Round the percentage to the nearest hundredth percent, X.XX%.)
%.
SnowDelight's projected operating income (profit) as a percent of assets amounts to
Will investors be happy with this profit level?
More info
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Kailasben
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Multiple Choice
Both Accounts Receivable and Shareholders' Equity will increase by $10 million this quarter.
These events will not impact the balance sheet this quarter.
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Complete the following table to calculate Skiable Acres's projected income.
Revenue at market price
Less: Total costs
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Operating income
(Round the percentage to the nearest hundredth percent, X.XX%.)
Investors would like to earn a 10% return on investment on the company's
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ski season. The resort serves about 725,000 skiers and snowboarders each season.
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Required information
[The following information applies to the questions displayed below.]
Sub Station and Planet Sub reported the following selected financial data ($ in thousands). Sub Station's business strategy
is to sell the best tasting sandwich with the highest quality ingredients. Planet Sub's business strategy is to sell the lowest
cost sub on the planet.
Net sales
Net income
Total assets, beginning
Total assets, ending
Choose Numerator
2. Calculate Planet Sub's return on assets, profit margin, and asset turnover ratio. (Enter your answers in thousands of dollars. (i.e.
123,000 should be entered as 123).)
Choose Numerator
Choose Numerator
÷
=
16
÷
+
..
÷
+
Sub Station
$109,049
26,722
75,983
117,971
4
Planet Sub
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4,292
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46,133
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Asset Turnover
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| 11 ||
Return on Assets
Return on assets
Profit Margin
Profit Margin
Asset Turnover
Asset
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e
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Required information
[The following information applies to the questions displayed below.]
Angie Silva has recently opened The Sandal Shop in Brisbane, Australia, a store that specializes in fashionable sandals. In
time, she hopes to open a chain of sandal shops. As a first step, she has gathered the following data for her new store:
Sales price per pair of sandals
Variable expenses per pair of sandals
Contribution margin per pair of sandals
Fixed expenses per yeart
Building rental
Equipment depreciation
Selling
Administrative
Total fixed expenses
Break-even point in unit sales
Break-even point in dollar sales
$.30
pairs
15
$ 15
$ 11,300
11,300
Required:
1. What is the break-even point in unit sales and dollar sales? (Do not round intermediate calculations.)
9,000
13,400
$ 45,000
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Required:
Sunset’s variable costs are $43 per ticket. Hamilton Air pays Sunset 6% commission on ticket price.
Sunset’s variable costs are $40 per ticket. Hamilton Air pays Sunset 6% commission on ticket price.
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Need help with answerss! will upvote
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(Click the icon to view the information.)
Read the requirements.
Requirement 1. If SnowDelight cannot reduce its costs, what profit will it earn? State your answer in dollars and as a percent of assets. Will investors be
happy with the profit level?
Complete the following table to calculate SnowDelight's projected income
Revenue at market price
Less: Total costs
Operating income
Requirements
1 If SnowDelight cannot reduce its costs, what profit will it earn? State your answer in dollars and
as a percent of assets. Will investors be happy with the profit level?
2 Assume SnowDelight has found ways to cut its fixed costs to $36.000,000 What is its new
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initial estimates of annual sales and other critical variables are shown here: E
a. Calculate the accounting and cash break-even annual sales volume in units.
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Click the icon to view the information.)
Read the requirements.
Requirement 1. If Skiable Acres cannot reduce its costs, what profit will
it earn? State your answer in dollars and as a percent of assets. Will
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Complete the following table to calculate Skiable Acres' projected income.
Revenue at market price
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VC per unit =GHS20
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Required:
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2. Express the contribution as a percentage of sale.
3. The company plans to sale 1,500 unit in the next period. What will be the percentage margin of safety (MoS)
4. What margin should the business employ for planning purposes?
5. What total profit should the business expect in order to achieve it's planned sales?
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costs. The company's initial estimates of annual sales and other critical variables are shown here:
a. Calculate the accounting and cash break-even annual sales volume in units.
b. Bill Mayborn is the grandson of the founder of the company and is currently enrolled in his junior year at the local state university. After reviewing the accounting break-even
calculation done in part a, Bill wondered if the depreciation expense should be included in the calculation. Bill had just completed his first finance class and was well aware that
depreciation is not an actual out-of-pocket expense but rather an allocation of the cost of the printing…
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Avg. Annual Sales Avg. Profit Margin
10%
$12,500
$26,000
20%
Do not round intermediate calculations. Round your answers to the nearest dollar.
NPV (Customer A): $
NPV (Customer B): $
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Customer B ✓
Customer A:
Customer B:
is more important.
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- (a) Calculate the following:i. Break-even point in bottles and value ii.Total net profit for the year iii. Margin of safety in bottles and value Please provide a calculation for each of them.arrow_forwardPlease assist with the attached.arrow_forwardSnowDelight operates a Rocky Mountain ski resort. The company is planning its lift ticket pricing for the coming ski season. (Click the icon to view the information.) Read the requirements. C Requirement 1. If SnowDelight cannot reduce its costs, what profit will it earn? State your answer in dollars and as a percent of assets. Will investors be happy with the profit level? Complete the following table to calculate SnowDelight's projected income. Revenue at market price Less: Total costs 63075000 6075000 8.3 Operating income (Round the percentage to the nearest hundredth percent, X.XX%.) %. SnowDelight's projected operating income (profit) as a percent of assets amounts to Will investors be happy with this profit level? More info *** O a 6 9 K tab CAK je Q A W S tt 3 E D 4 C R % TI F 5 T G & 7 H U 8 J Oarrow_forward
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