10.

value:

3.00 points

Problem 4-19 Schedule of cash receipts [LO2]

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

$ 48,000
54,000
43,000

June $ 52,000
July
60,000
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.)

Sales

January
$

February
$

WATT'S LIGHTING STORES

Cash Receipts Schedule
March
April
$
$

May
$

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

11.
value:

4.00 points

Problem 4-23 Schedule of cash payments [LO2]

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

2,300 May

2,850

2,150 June

3,000

March
April

2,100 July
2,600

2,700

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.

Jan.
Forecasted unit sales
Desired ending inventory
Beginning inventory

Units to be produced

VOLT BATTERY COMPANY

Production Schedule
Feb.
March
April

May

(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.)
VOLT BATTERY COMPANY

Dec.

Jan.

Summary of Cash payments

Feb.

March

April

Units
produce
d
Materia
l cost

Labor
cost
Overhe
ad cost
Interest
Employ
ee
bonuses
Total
cash
payment
s

12.
value:

5.00 points

Problem 4-25 Complete cash budget [LO2]

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.)

Sales

November
$

HARRYS CARRY-OUT STORES

Cash Receipts Schedule
December
January
$
$

February
$

March
$

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.)
HARRYS CARRY-OUT STORES
Cash Payments Schedule
January
February
$
$
Payments for purchases

March
$

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.)

Total cash receipts

HARRYS CARRY-OUT STORES

Cash Budget
January
February
$
$

March
$

Total cash payments

Net cash flow

Beginning cash balance

Cumulative cash balance

Monthly loan or (repayment)
Cumulative loan balance
Ending cash balance

13.
value:

1.00 points

Problem 4-28 Percent-of-sales method [LO3]

The Manning Company has financial statements as shown below, which are representative of the
companys historical average.
The firm is expecting a 40 percent increase in sales next year, and management is concerned about
the companys 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.
Sales
Expense
s

Income Statement
$

300,000
246,800

Earnings
before
interest
and taxes
Interest

9,100

Earnings
before
taxes
Taxes

Assets
$

Account
s
receivabl
e
Inventor
y
Current
assets
Fixed
assets

Total
assets

44,100
17,100

Earnings
after taxes
Dividend
s

Cash

53,200

27,000

5,400

Balance Sheet
Liabilities and Stockholders' Equity
Accounts
9,000
$
29,000
payable
56,000

Accrued
wages

2,250

70,000

Accrued
taxes

4,750

Current
liabilities
Notes
86,000
payable
Long-term
debt
Common
stock
Retained
earnings

135,000

Total
liabilities and
stockholder
221,000 s' equity

36,000
9,100
25,500
125,000
25,400

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

$
(Click to select)

in

.
(Click to select)

rev: 09_10_2011
check my workeBook Linkreferences

16.
value:

1.00 points

Problem 5-8 Cash break-even analysis [LO2]

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.)
units

Cash break-even point

check my workeBook Linkreferences

23.
value:

2.00 points

Problem 5-20 Combining operating and financial leverage [LO5]

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

Debt @ 11%
Common
stock, $10 per
share
Total
Common
shares
Operating
Plan
Sales (61,000
units at $20
each)
Less:
Variable costs

Capital Structure
Sinclair
$
1,260,000

Boswell
0

840,000

2,100,000

2,100,000

2,100,000

84,000

1,220,000

210,000

976,000
($

16 per unit)

1,220,000
610,000

($

10 per unit)

Fixed costs
Earnings
before interest
and taxes
(EBIT)

311,000

244,000

299,000

(a) If you combine Sinclairs capital structure with Boswells 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 Boswells capital structure with Sinclairs 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

check my workeBook Linkreferences

24.
value:

3.00 points

Problem 5-23 Leverage and sensitivity analysis [LO6]

Dickinson Company has $11,840,000 in assets. Currently half of these assets are financed with longterm 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.)

Earnings per share

Current Plan
$

Plan D
$

Plan E
$

(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.
Plan D
Current Plan
Plan E
(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.)

Earnings per share

Current Plan
$

Plan D
$

Plan E
$

(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.
Plan D
Plan E
Current Plan
(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.)

Earnings per share

Current Plan
$

Plan D
$

Plan E
$

(c-2) If the market price for common stock rose to $10 before the restructuring, which plan would then be
most attractive?
Current Plan
Plan E

Plan D