1- 1- You own a small restaurant and you are evaluating your menu offerings to decide which items to continue to offer or to introduce. In 2-4 sentences, please explain what factors you would want to use in making that decision, including the relevant financial information you would want.
2- 2- You have been asked to assess the value of a Laundry business, which serves both retail and commercial clients (hotels, etc.). The following is some key financial information of the LLC.
• $50,000: Cash balance (in excess of working capital requirements)
• $100,000: Business loan payable balance.
• $300,000: Cost of equipment purchased 6 years ago (12-year asset life)
• $160,000: Accumulated depreciation balance on equipment
• $400,000: Replacement cost of equipment (i.e., cost of new equipment)
• $250,000: Appraised market value of equipment
• $100,000: Historical cost (and current replacement cost) of other assets (sign, decorations, cash register, chairs, etc.) – all fully depreciated
• $20,000: Salvage value of other assets.
• $30,000: Working capital balance (mainly supplies and accounts receivable)
• $90,000: Net Income (which is expected to be unchanged in the future – no growth anticipated)
• 12: average P/E ratio for this type of business (i.e., 11.1% is required return)
a) Please estimate the value of the business (LLC) using the following methods:
i. Capitalization of earnings: ________
ii. Full Replacement Cost: _________
iii. Adjusted Book Value (disposal value):________
iv. Accounting Net Book Value: _________
b) What method makes the most sense to you? Why?
c) Please list 2-3 potential risks of buying this business.
3- 3- Woolworth’s retail store has the following financial results:
· Sales: $ 500
· COGS: $ 320
· Inventories: $ 80
· Accts Payable: $ 50
· Accts Receivable $ 70
Please calculate the following:
a) Inventory Conversion period: ______
b) DSO: _____________
c) Payable Deferral period: ______
d) Gross Margin % ________
e) CCC: ___________
4- 4- Joe’s trading company has the following projected financial results for 2013:
• $4,200,000 sales
$3,000,000 cost of goods sold
• $600,000 capital (fixed asset) expenditures
• $300,000 owner’s equity
• $200,000 depreciation (same for tax and book purposes)
• $50,000 increase in inventory
• $40,000 decrease in accounts receivable
• $60,000 increase in accounts payable
• $500,000 overhead expenses (excluding Depreciation)
• $ 80,000 interest expense
• 35% effective tax rate.
Please calculate the following
a) Joe’s cash flow: _________
b) Joe’s net income for 2013: _________
c) Gross Margin % _________
d) Profit Margin % _________