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Fnce370 assign 2 marked
Overview of Corporate Finance (Athabasca University)
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Fnce370 assign 2 marked
Overview of Corporate Finance (Athabasca University)
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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
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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
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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
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August 2019
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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
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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
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