Watt's Lighting Stores made the following sales projections for the next six months. All sales are credit sales.

  March

$

48,000  

    June

$ 52,000  

  April

54,000  

    July

60,000  

  May

43,000  

    August

62,000  

Sales in January and February were $51,000 and $50,000, respectively.       Experience has shown that of total sales, 10 percent are uncollectible, 35 percent are collected in the month of sale, 45 percent are collected in the following month, and 10 percent are collected two months after sale.

(a)

Prepare a monthly cash receipts schedule for the firm for March through August. (Omit the "$" sign in your response.)

WATT'S LIGHTING STORES Cash Receipts Schedule

January

February

March

April

May

June

July

August

  Sales

$   

$   

$   

$   

$   

$   

$   

$   

  Collections of current sales

  Collections of prior month's sales

  Collections of sales 2 months   earlier

  Total cash receipts

$   

$   

$   

$   

$   

$   

(b)

Of the sales expected to be made during the six months from March through August, how much will still be uncollected at the end of August? How much of this is expected to be collected later? (Omit the "$" sign in your response.)

Amount

  Uncollected

$   

  Expected to be collected

$   

VOLT BATTERY COMPANY

Summary of Cash payments

Dec.

Jan.

Feb.

March

April

May

June

  Units produced

  Material cost 

$   

$   

$   

$   

$   

$   

  Labor cost

  Overhead cost

  Interest

  Employee bonuses

  Total cash payments

$   

$   

$   

$   

$   

$   

The Volt Battery Company has forecast its sales in units as follows:

  January

2,300

May

2,850  

  February

2,150

June

3,000  

  March

2,100

July

2,700  

  April

2,600

Volt Battery always keeps an ending inventory equal to 130% of the next month's expected sales. The ending inventory for December (January's beginning inventory) is 2,990 units, which is consistent with this policy.

      Materials cost $12 per unit and are paid for in the month after purchase. Labor cost is $5 per unit and is paid in the month the cost is incurred. Overhead costs are $13,500 per month. Interest of $9,500 is scheduled to be paid in March, and employee bonuses of $14,700 will be paid in June.

(a)

Prepare a monthly production schedule for January through June.

VOLT BATTERY COMPANY Production Schedule

Jan.

Feb.

March

April

May

June

July

  Forecasted unit sales

  Desired ending inventory

  Beginning inventory

  Units to be produced

(b)

Prepare a monthly summary of cash payments for January through June. Volt  produced 2,100 units in December. (Omit the "$" sign in your response.)

Harry's Carryout Stores has eight locations. The firm wishes to expand by two more stores and needs a bank loan to do this. Mr. Wilson, the banker, will finance construction if the firm can present an acceptable three-month financial plan for January through March. The following are actual and forecasted sales figures:

Actual

Forecast

Additional Information

  November

$ 270,000

January

$ 420,000

April forecast

$ 410,000  

  December

360,000

February

460,000

March

420,000

Of the firm's sales, 30 percent are for cash and the remaining 70 percent are on credit. Of credit sales, 40 percent are paid in the month after sale and 60 percent are paid in the second month after the sale. Materials cost 40 percent of sales and are purchased and received each month in an amount sufficient to cover the following month's expected sales. Materials are paid for in the month after they are received. Labor expense is 25 percent of sales and is paid for in the month of sales. Selling and administrative expense is 25 percent of sales and is also paid in the month of sales. Overhead expense is $31,500 in cash per month.

     Depreciation expense is $10,700 per month. Taxes of $8,700 will be paid in January, and dividends of $5,500 will be paid in March. Cash at the beginning of January is $94,000, and the minimum desired cash balance is $89,000.

(a)

Prepare a schedule of monthly cash receipts for January, February and March. (Omit the "$" sign in your response.)

HARRY’S CARRY-OUT STORES Cash Receipts Schedule

November

December

January

February

March

April

  Sales

$   

$   

$   

$   

$   

$   

  Cash sales

  Credit sales

  Collections in the month   after credit sales)

  Collections two months   after credit sales)

  Total cash receipts

$   

$   

$   

(b)

Prepare a schedule of  monthly cash payments for January, February and March. (Omit the "$" sign in your response.)

HARRY’S CARRY-OUT STORES Cash Payments Schedule

January

February

March

  Payments for purchases

$   

$   

$   

  Labor expense

  Selling and admin. exp.

  Overhead

  Taxes

  Dividends

  Total cash payments

$   

$   

$   

(c)

Prepare a schedule of monthly cash budget with borrowings and repayments for January, February and March. (Leave no cells blank - be certain to enter "0" wherever required. Negative amounts should be indicated by a minus sign. Omit the "$" sign in your response.)

HARRY’S CARRY-OUT STORES Cash Budget

January

February

March

  Total cash receipts

$   

$   

$   

  Total cash payments

  Net cash flow

  Beginning cash balance

  Cumulative cash balance

  Monthly loan or (repayment)

  Cumulative loan balance

  Ending cash balance

$   

$   

$   

The Manning Company has financial statements as shown below, which are representative of the company’s historical average.

   The firm is expecting a 40 percent increase in sales next year, and management is concerned about the company’s need for external funds. The increase in sales is expected to be carried out without any expansion of fixed assets, but rather through more efficient asset utilization in the existing store. Among liabilities, only current liabilities vary directly with sales.

Income Statement

  Sales

$

300,000  

  Expenses

246,800  

  Earnings before interest and taxes

$

53,200  

  Interest

9,100  

  Earnings before taxes

$

44,100  

  Taxes

17,100  

  Earnings after taxes

$

27,000  

  Dividends

$

5,400  

Balance Sheet

Assets

Liabilities and Stockholders' Equity

  Cash

$

9,000  

  Accounts payable

$

29,000  

  Accounts receivable

56,000  

  Accrued wages

2,250  

  Inventory

70,000  

  Accrued taxes

4,750  

   Current assets

$

135,000  

    Current liabilities

$

36,000  

  Fixed assets

86,000  

  Notes payable

9,100  

  Long-term debt

25,500  

  Common stock

125,000  

  Retained earnings

25,400  

  Total assets

$

221,000  

  Total liabilities and     stockholders' equity

$

221,000  

Using the percent-of-sales method, determine the amount of external financing needs, or a surplus of funds required by the company. (Hint: A profit margin and payout ratio must be found from the income statement.) (Do not round intermediate calculations. Input the amount as positive value. Omit the "$" sign in your response.)

  The firm  $  in .

Air Purifier, Inc., computes its break-even point strictly on the basis of cash expenditures related to fixed costs. Its total fixed costs are $2,410,000, but 10 percent of this value is represented by depreciation. Its contribution margin (price minus variable cost) for each unit is $32. How many units does the firm need to sell to reach the cash break-even point? (Round your answer to the nearest whole number.)

  Cash break-even point

 units  

Sinclair Manufacturing and Boswell Brothers Inc. are both involved in the production of brick for the homebuilding industry. Their financial information is as follows:

Capital Structure

Sinclair

Boswell

  Debt @ 11%

$

1,260,000   

0   

  Common stock, $10 per share

840,000   

$

2,100,000   

    Total

$

2,100,000   

$

2,100,000   

  Common shares

84,000   

210,000   

  Operating Plan

  Sales (61,000 units at $20 each)

$

1,220,000   

$

1,220,000   

    Less: Variable costs

976,000   

610,000   

($

16 per unit)  

($

10 per unit)  

    Fixed costs

0   

311,000   

  Earnings before interest and taxes (EBIT)

$

244,000   

$

299,000   

(a)

If you combine Sinclair’s capital structure with Boswell’s operating plan, what is the degree of combined leverage? (Enter only numeric value rounded to 2 decimal places.) 

  Degree of combined leverage

(b)

If you combine Boswell’s capital structure with Sinclair’s operating plan, what is the degree of combined leverage? (Enter only numeric value.)

  Degree of combined leverage

(d)

In part b, if sales double, by what percentage will EPS increase? (Omit the "%" sign in your response.)

  EPS will increase by

 %  

Dickinson Company has $11,840,000 in assets. Currently half of these assets are financed with long-term debt at 9.2 percent and half with common stock having a par value of $8. Ms. Smith, vice-president of finance, wishes to analyze two refinancing plans, one with more debt (D) and one with more equity (E). The company earns a return on assets before interest and taxes of 9.2 percent. The tax rate is 45 percent.

     Under Plan D, a $2,960,000 long-term bond would be sold at an interest rate of 11.2 percent and 370,000 shares of stock would be purchased in the market at $8 per share and retired.

     Under Plan E, 370,000 shares of stock would be sold at $8 per share and the $2,960,000 in proceeds would be used to reduce long-term debt.

(a)  

Compute the earnings per share for the current plan and the two new plans. (Round your answers to 2 decimal places. Omit the "$" sign in your response.)

Current Plan

Plan D

Plan E

  Earnings per share

$   

$   

$   

(b-1)

Compute the earnings per share if return on assets fell to 4.60 percent. (Round your answers to 2 decimal places. Leave no cells blank - be certain to enter "0" wherever required. Negative amounts should be indicated by a minus sign. Omit the "$" sign in your response.)

Current Plan

Plan D

Plan E

  Earnings per share

$   

$   

$   

(b-2)

Which plan would be most favorable if return on assets fell to 4.60 percent? Consider the current plan and the two new plans.

(b-3)

Compute the earnings per share if return on assets increased to 14.2 percent. (Round your answers to 2 decimal places. Omit the "$" sign in your response.)

Current Plan

Plan D

Plan E

  Earnings per share

$   

$   

$   

(b-4)

Which plan would be most favorable if return on assets increased to 14.2 percent? Consider the current plan and the two new plans.

(c-1)

If the market price for common stock rose to $10 before the restructuring, compute the earnings per share. Continue to assume that $2,960,000 in debt will be used to retire stock in Plan D and $2,960,000 of new equity will be sold to retire debt in Plan E. Also assume that return on assets is 9.2 percent. (Round your answers to 2 decimal places. Omit the "$" sign in your response.)

Current Plan

Plan D

Plan E

  Earnings per share

$   

$   

$   

(c-2)

If the market price for common stock rose to $10 before the restructuring, which plan would then be most attractive?