FIN 200: Assignment Workbook Week 6 Solution

FIN 200

Axia College of University of Phoenix (UoP)

Introduction to Finance: Harvesting the Money Tree

Finance 200 Assignment Workbook Week 6 Solution

Week 6 Checkpoint: Credit Policy Decisions

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The Niara Corporation Office Supplies division is considering a more liberal credit policy to increase sales. Pertinant financial data follows:

Uncollectible Accounts 9%
Collection Costs (% of new sales) 6%
Production and Selling Costs (% of new sales) 65%
Accounts Receivable Turnover 3
Inventory Turnover 5
Income Taxes 35%
Sales Increase $ 45,000
No other asset buildup will be required to service the new accounts

a. What is the level of accounts receivable to support this sales expansion?
b. What would be The Niara Corporation’s incremental aftertax return on investment?
c. Should The Niara Corporation liberalize credit if a 15 percent aftertax return on investment is required?
d. What would be the total incremental investment in accounts receivable and inventory to support an increase in sales?
e. Given the income determined in part b and the investment determined in part d, should The Niara Corporation extend more liberal credit terms?

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FIN 200: Assignment Workbook Week 4 Solution

FIN 200

Axia College of University of Phoenix (UoP)

Introduction to Finance: Harvesting the Money Tree

Finance 200 Assignment Workbook Week 4 Solution

Week 4 Checkpoint: Breakeven Analysis

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A business unit of The Niara Coporation sells beans to the military. The following is the associated financial data:

Quantity (Q) 25 lb
Sales Price (P) $ 8 per bag
Fixed Costs (FC) $ 75,000
Variable Costs (VC) $ 0.07 per pound
Interest Expense (I) $ 8,000

a . What is the break‐even point in bags?
b . Calculate the profit or loss on:
7,500 bags
15,000 bags
c. Calculate the degree of operating leverage at:
15,000 bags
24,000 bags
Why does the degree of operating leverage change as the quantity sold increases?
d. Calculate the degree of financial leverage at both sales levels in question c.
e. What is the degree of combined leverage at both sales levels in question c?
You must show your work to receive credit.

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FIN 200: Assignment Workbook Week 2 Solution

FIN 200

Axia College of University of Phoenix (UoP)

Introduction to Finance: Harvesting the Money Tree

Finance 200 Assignment Workbook Week 2 Solution

Week 2 CheckPoint: Financial Ratios

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Using the financial statements for The Niara Corporation, calculate the 13 basic ratios found in the chapter.
You must show your work to get credit.

Niara Corporation
Income Statement
For the Year Ended December 31, 2009
Sales $ 2,200,000
Cost of goods sold 1,300,000
Gross profits 900,000
Selling and administrative expense 420,000
Depreciation expense 150,000
Operating income 330,000
Interest expense 90,000
Earnings before taxes 240,000
Taxes 80,000
Earnings after taxes 160,000
Preferred stock dividends 10,000
Earnings available to common stockholders $ 150,000
Shares outstanding 120,000
Earnings per share $1.25

Statement of Retained Earnings
For the Year Ended December 31, 2009
Retained earnings, balance, January 1, 2009 $ 500,000
Add: Earnings available to common stockholders, 2009 150,000
Deduct: Cash dividends declared and paid in 2009 30,000
Retained earnings, balance, December 31, 2009 $ 620,000

Niara Corporation
Balance Sheet
December 31, 2009
Year‐End
Assets 2009
Current assets:
Cash $ 135,000
Accounts receivable (net) 340,000
Inventory 405,000
Prepaid expenses 25,000
Total current assets 905,000
Investments (long‐term securities) 50,000
Plant and equipment 2,450,000
Less: Accumulated depreciation 1,150,000
Net plant and equipment 1,300,000
Total assets $ 2,255,000
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $ 475,000
Notes payable 400,000
Accrued expenses 60,000
Total current liabilities 935,000
Long‐term liabilities:
Bonds payable, 2009 80,000
Total liabilities 1,015,000
Stockholders’ equity:
Preferred stock, $100 par value 90,000
Common stock, $1 par value 120,000
Capital paid in excess of par 410,000
Retained earnings 620,000
Total stockholders’ equity 1,240,000
Total liabilities and stockholders’ equity $ 2,255,000

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FIN 200: Week Two Solution

FIN 200

Axia College of University of Phoenix (UoP)

Introduction to Finance: Harvesting the Money Tree

Fin 200 Week 2 Solution

CheckPoint: Financial Ratios

• Resource: Ch. 3 of Foundations of Financial Management
• Due Date: Day 5 [Individual forum]
• Complete Problem 34 on p. 84.

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Using the financial statements for the Goodyear Calendar Company, calculate
The 13 basic ratios found in the chapter.

GOODYEAR CALENDAR COMPANY
Balance Sheet
December 31, 2008
Assets
Current assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 40,000
Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,000
Accounts receivable (net) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,000
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180,000
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 370,000
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,000
Plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 450,000
Less: Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . (100,000)
Net plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . 350,000
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 760,000
GOODYEAR CALENDAR COMPANY
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 90,000
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000
Accrued taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110,000
Long-term liabilities:
Bonds payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170,000
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280,000
Stockholders’ equity
Preferred stock, $100 par value . . . . . . . . . . . . . . . . . . . . . . . . 90,000
Common stock, $1 par value . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000
Capital paid in excess of par . . . . . . . . . . . . . . . . . . . . . . . . . . 230,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . 480,000
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . $ 760,000
GOODYEAR CALENDAR COMPANY
Income Statement
For the Year Ending December 31, 2008
Sales (on credit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,000,000
Less: Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,300,000
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 700,000
Less: Selling and administrative expenses . . . . . . . . . . . . . . . 400,000*
Operating profit (EBIT) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,000
Less: Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000
Earnings before taxes (EBT) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280,000
Less: Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112,000
Earnings after taxes (EAT) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 168,000
*Includes $10,000 in lease payments.

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