ASSUMPTIONS Balance Sheets (current assets shaded) 2007 2008 2009 2010 2011 Cash & Equivalents $75 $75 $90 $100 $100 Accounts Receivable 300 400 600 550 500 Inventory       150 250 350 250 250 Net Fixed Assets 525 575 610 540 465 Total Assets $1,050 $1,300 $1,650 $1,440 $1,315 (current liabilities shaded) Accounts Payable $125 $175 $250 $225 $200 Notes Payable 165 162 178 136 99 Accrued Operating Exp. 60 161 165 89 76 Long-Term Debt 500 400 300 100 50 Shareholders Equity 200 402 757.2 890.2 890.2 Total Liabilities & NW $1,050 $1,300 $1,650 $1,440 $1,315 Income Statements Revenues (Sales) $1,500 $2,250 $3,000 $2,000 $1,500 Cost of Goods Sold 600 900 1200 800 600 Operating Expenses 600 797 895 750 725 Depreciation 35 50 65 70 75 Interest 30 33 28 25 10 Taxes 94 188 325 142 36 Net Profit 141 282 487.2 213 54 Dividends 40 80 132 80 54 2.)  Suppose a firm pays a $50,000 trade credit obligation to a supplier in cash. A.  What impact does this transaction have on the firm’s current ratio if the initial current ratio equaled 1?

B.   What impact does this transaction have on the firm’s current ratio if the intial current ratio is 0.5?

C.  What impact does this transaction have on the firm’s current ratio if the initial current ratio equaled 1.7?

4.  Mississippi Delta, Inc. has been selling switching equipment to computer companies on net-30 terms, in which payment is expected by 30 days from the invoice date.  Concerned about deteriorating collection patterns, the credit manager has divided customers into two groups for examination purposes: 

Prompt payors and laggards.  Prompt payors (80 percent of Mississippi Delta’s customers) pay, on average, in 35 days, versus a 72-day average for the laggards.  The manager wonders if the credit terms should be modified to include a 2 percent cash discount on invoices paid within 10 days.  The average invoice is the same for both groups, roughly $4,000.  The manager expects 50% of the prompt payors to pay in exactly 10 days and the average on the other half to slip to 40 days.  He thinks that 20% of the laggards will pay in 10 days and the average on the others will slip to 80 days.  Given these forecasts, he is not sure that the lost revenue from discount takes (who would then pay only 98% of the invoiced dollar amount) justifies the improved collection.  The company’s annual cost of capital is 11%. 

A.) Using NPV calculations, show the PV of the present collection experience.

B.) Calculate the NPV of the proposed 2/10, net-30 terms.

C.) Based on your NPV analysis, should Mississipi Delta Inc. adopt the cash discount?

D.) What other factors should be taken into account before Mississippi Delta Inc. makes a switch, assuming such is justifiable on an NPV basis?

E.)Sensivity analysis involves varying the key assumptions, one at a time, and observing the effect on the key decision criterion-such as profits or NPV.  In the NPV analysis above, how could could one carry out sensitivity analysis?  (If you have a financial spreadsheet available, conduct a sensitivity analysis that varies the number of prompt payors who will pay in exactly 10 days and report your findings.)

 

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ACC 700 Milestone One Guidelines and Rubric The first milestone is a rough draft of the first artifact for your professional portfolio, financial statements and analysis. You will complete a set of financials as described in the appendix section of the prompt below for a fictitious company called Chester Inc. You will then submit a report of your findings and recommendations. This will be graded using the rubric at the end of this document and is an opportunity for you to organize your thoughts and receive feedback from your instructor for the final submission. You should note that the submission guidelines for this milestone are less demanding than those for the final submission. Once you have submitted this milestone and received feedback from your instructor, it is up to you to incorporate this feedback and complete the artifact by meeting the submission guidelines found in the Final Project Guidelines and Rubric document. Client One – Chester, Inc. (Financial Statements and Analysis) Chester, Inc. is a large, publicly traded client at S.N.H.U., LLC. Your task is to develop a comprehensive, professional report for the board of directors. To do this, you will use Chester, Inc.’s trial balance to compose comparative financial statements, analyze data, and interpret results. These financial statements must be in good form in accordance with Generally Accepted Accounting Principles (GAAP). Next, you will assess the performance of Chester, Inc. using the financial statements that you created, along with industry performance data and the financial statements of a competitor. In addition, Chester, Inc. is considering expanding into the global market. They would like you to highlight key areas of the financial statements you have prepared and identify how they would be reported differently if composed under International Financial Reporting Standards (IFRS) rather than GAAP. Background and Financial Information Chester, Inc. is a large, publicly traded client operating in athletic wear including clothing, shoes, and accessories. Direct competitors include Columbia Sportswear Company (COLM – NYSE) and Under Armour, Inc. (UA – NYSE). All of these companies operate in the textile-apparel clothing industry. Chester Inc. operates on a calendar year. Reference the Milestone One Chester Inc. Trial Balance spreadsheet for the past three years’ financials (2013, 2014, and 2015). Additional information:  Land with the land improvements were sold at book value (no gain or loss) in 2014. (Note: To evaluate the sale, use the following accounts: land, building and land improvements, and Other Noncurrent Assets)  New equipment purchased with cash for $2,739,067 in 2014  New storage building purchased with cash for $135,000 in 2015  No investments have been sold or purchased in 2014 or 2015 There are currently 8,275,000 shares of common stock outstanding. No additional common stock has been sold or repurchased in any of the aforementioned years. Artifact One: Financial Statements and Analysis The first artifact that you will include in your portfolio is the comprehensive, professional report that you create for the board of directors of Chester, Inc.—a large publicly traded client at S.N.H.U., LLC. The report should contain your findings with the financial statements package as an appendix (Excel attachment). Incorporate the feedback that you receive from your instructor during the development of this artifact. Appendix: These sections should be completed first, before you write your report. Use the proper format for each section in accordance with Generally Accepted Accounting Principles (GAAP) and note and explain differences under International Financial Reporting Standards (IFRS) where appropriate:  Income statement  Balance sheet  Statement of retained earnings  Statement of cash flows (indirect method)  Ratio analysis o Liquidity – minimum of three key ratios with supporting calculations with a minimum of three years of data o Profitability – minimum of three key ratios with supporting calculations with a minimum of three years of data o Solvency – minimum of three key ratios with supporting calculations with a minimum of three years of data  Vertical and horizontal analysis o Both vertical and horizontal for the income statement with a minimum of three years of data o Both vertical and horizontal for the balance sheet with a minimum of three years of data Report of Findings and Recommendations: The report is the key section of this artifact and will be written after you complete the analysis in the sections in the appendix above. The report will demonstrate your understanding of financial statements, what they contain, what they mean, and how they are used in strategic decision making. As you know, numbers are useless if we do not know what they mean and how to use them. The financial statements, ratios, and vertical/horizontal analysis should be analyzed and interpreted in order to assess and explain the performance of the organization. In your report, you must:  Address all three key ratios in each ratio category. Include what each ratio indicates and how the organization performed against its key competitor and industry averages.  Address all key findings in the vertical and horizontal analysis of the income statement and balance sheet. As a general rule, anything over 10% warrants addressing. Guidelines for Submission: All financial calculations should be complete. Your paper must be submitted as a four- to five-page Microsoft Word document with double spacing, 12-point Times New Roman font, one-inch margins, and two to three sources cited in APA format. Round all answers up to the nearest dollar value in any calculations. Note that this milestone is a rough draft and the submission guidelines are different for the final project. The final paper will be 8–10 pages in length with at least five sources. Refer to the guidelines for submission in the Final Project Guidelines and Rubric document. Instructor Feedback: This activity uses an integrated rubric in Blackboard. Students can view instructor feedback in the Grade Center. For more information, review these instructions. Critical Elements Proficient (100%) Not Proficient (0%) Value Income Statement Completes the income statement using the proper format for each section in accordance with Generally Accepted Accounting Principles (GAAP) and notes and explains differences under International Financial Reporting Standards (IFRS) where appropriate Does not complete the income statement using the proper format for each section in accordance with Generally Accepted Accounting Principles (GAAP); differences under International Financial Reporting Standards (IFRS) are not noted or explained 5 Balance Sheet Completes the balance sheet using the proper format for each section in accordance with Generally Accepted Accounting Principles (GAAP) and notes and explains differences under International Financial Reporting Standards (IFRS) where appropriate Does not complete the balance sheet using the proper format for each section in accordance with Generally Accepted Accounting Principles (GAAP); differences under International Financial Reporting Standards (IFRS) are not noted or explained 10 Statement of Retained Earnings Completes the statement of retained earnings using the proper format for each section in accordance with Generally Accepted Accounting Principles (GAAP) and notes and explains differences under International Financial Reporting Standards (IFRS) where appropriate Does not complete the statement of retained earnings using the proper format for each section in accordance with Generally Accepted Accounting Principles (GAAP); differences under International Financial Reporting Standards (IFRS) are not noted or explained 10 Statement of Cash Flows Completes the statement of cash flows using the proper format for each section in accordance with Generally Accepted Accounting Principles (GAAP) and notes and explains differences under International Financial Reporting Standards (IFRS) where appropriate Does not complete the statement of cash flows using the proper format for each section in accordance with Generally Accepted Accounting Principles (GAAP); differences under International Financial Reporting Standards (IFRS) are not noted or explained 10 Ratio Analysis Performs a ratio analysis for liquidity, profitability, and solvency with a minimum of three years of data using the proper format for each section in accordance with Generally Accepted Accounting Principles (GAAP) and notes and explains differences under International Financial Reporting Standards (IFRS) where appropriate Does not perform a ratio analysis for liquidity, profitability, and solvency with a minimum of three years of data using the proper format for each section in accordance with Generally Accepted Accounting Principles (GAAP); differences under International Financial Reporting Standards (IFRS) are not noted or explained 10 Vertical and Horizontal Analysis Performs a vertical and horizontal analysis of the income statement and balance sheet using the proper format for each section in accordance with Generally Accepted Accounting Principles (GAAP) and notes and explains differences under International Financial Reporting Standards (IFRS) where appropriate Does not perform a vertical and horizontal analysis of the income statement and balance sheet using the proper format for each section in accordance with Generally Accepted Accounting Principles (GAAP); differences under International Financial Reporting Standards (IFRS) are not noted or explained 10 Key Ratios Addresses all three key ratios in each ratio category; includes what each ratio indicates and how the organization performed against its key competitor and industry averages Does not address all three key ratios in each ratio category or include what each ratio indicates and how the organization performed against its key competitor and industry averages 20 Vertical and Horizontal Analysis Addresses all key findings in the vertical and horizontal analysis of the income statement and balance sheet Does not address all key findings in the vertical and horizontal analysis of the income statement and balance sheet 20 Articulation of Response Submission has no major errors related to citations, grammar, spelling, syntax, or organization Submission has critical errors related to citations, grammar, spelling, syntax, or organization that prevent understanding of ideas 5 Earned Total 100%

 

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