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Date Posted: 10:36:16 11/17/00 Fri
Author: Richard J. Fendler
Subject: FI 4020 Exam Solution Key (Tues Class)

1.
Net income 87
+ Depreciation 44
-Inc. AR -174
-Inc. Inv -317
+ Inc. NP trade 157 (operating since related to IS)
+ Inc. AP 119
+ Inc. Acc. exp. 12
- Gain on sale -10
+ Loss on sale +10
----
Net cash flow (72)

Sell assets 55
Purchase GFA 135 (change in NFA + Depreciation from IS + book value of sold assets).
---
Net cash flow (80)

Inc. NP, Bank 247
Dec. NP, Mr. Stark -105
Dec. LT Debt -17
----
Net cash flow 125


2. Cash = 50, AR = 249, Inv. = 558, Property, net = 164.
NP = 398, AP = 100, Acc. exp = 44, CPLT Debt = 7, LT Debt = 55, Net worth = 417.

Dividend is a substitute for salary increase (note that bank imposed a freeze on his salary).


3. Current paymetn period = 47.26 days (using COGS) or 45.13 days (using purchases).

If reduce to 12 days, AP = 65. Since AP originally 256, Notes payable must be 191. Interest on 191 = 191*.08 = 15.

Benefit = 2% of annual purchases = (.02)(2042) = 41.

Net = 41 - 15 = 26.


4. Cash = -2609.

Most common error was inventory. Remember that Inventories should be beginning inventories + purchases (600 per month) - COGS (from income statement) = ending inventory.

5. Note that for first 8 months of year, actual shipments (8,688) differ from expected shipments (11,919) by 27%. Only 11% of this difference is explained by the controll devices that caused bottlenecks (1320/11919). The rest (16%) is unexplained. Why? Old equipment - look at depreciation relative to gross fixed assets - machinery 75% depreciated = old.

If period is 30 days, then AR should equal that month's sales for past several months. In fact, sales in Aug = 507 but AR = 684. Sales in July = 723, but AR = 1269. Same pattern for June and May. In fact, over past 4 months, 26% f all accounts are over 30 dys outstanding.


6. 64%

Management too conservative. Large cash balances do not produce a return. Stockholders want maximum return. Stock price is most probably languishing.

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