Question 1
Big Ben Enterprise only makes sales by credit. However, they have decided they need to take advantage of prompt account payment to improve the cash flow to the business. They cu
ently offer a 3% discount for payment made within the first month after sale. Analysis of collections shows the following:
· 30% pay in 1 month
· 50% pay in 2 months
· 10% pay in 3 months
· 8% pay in 4 months
· 2% not received
If cost of capital is 1% per month, what rate of discount should be offered on cash sales to equate for the value of a cash sale with the present value of a credit sale? This rate of discount will be offered to ensure the firm is no worse off.
Question 2
Bond Company have been buying product in lots of 100 units.
This represents 3 months demand.
The cost per unit is $50.
The ca
ying cost is $10 per unit per annum.
The cost of placing each order is $101.25
· Calculate the economic order quantity, and
· Calculate the inventory related costs using this information.
Question 3
The capital structure of Bobs Enterprises Ltd during the whole of the financial year has been as listed:
Nominal Value
Market Value
Ordinary Shares $1 Fully Paid
$400,000
$800,000
10 % Preference Shares
$200,000
$220,000
Mortgage Finance
$300,000
$300,000
Last years dividend for the company was 8 cents and this rate is expected to grow at a rate of 5% per annum.
The market value of the shares is $2 per share. The market value of the preference shares is $2.20. Interest of $19,500 per annum is payable on the mortgage. The company tax rate is 30%.
Please calculate WACC.
Question 4
Given that the company tax rate is 30% calculate the imputation credit and taxable amount for the following dividends received by resident individual shareholders?
(a) $3,500
(b) $21,000
(c) $49,000
Question 5
Below are the Financial Statements for George Pty Ltd covering 2017 to 2019.
George Pty Ltd
Profit & Loss Statement as at 30th June 2019
2017
2018
2019
Income
Sales
1,365.218
1,529,381
1,331,658
Commissions
35,193
38,223
24,895
Interest
2,953
3,568
1,129
Total Income
1,403,364
1,571,172
1,357,682
Less Cost Of Sales
Opening Stock
675,181
706,355
630,521
Plus Purchases
1,000,200
965,201
823,856
Less Closing Stock
706,355
630,521
425,456
Total Cost of Sales
969,026
1,041,035
1,028,921
Gross Profit
434,338
530,137
328,761
Expenses
Advertising
15,222
15,588
14,321
Bank Charges
558
493
485
Accounting
10,100
10,500
11,000
Insurance
12,567
12,852
13,201
Rental
18,000
18,500
19,000
Interest Payable
1,147
4,350
8,291
Amenities
2,893
2,421
1,489
Depreciation
5,200
4,800
12,300
Electricity
4,852
4,952
5,025
Rates and Charges
3,984
4,085
4,293
Telephone
5,359
4,981
5,039
Office Supplies
3,168
2,751
2,289
Wages
300,008
312,852
238,721
Superannuation
26,198
28,213
21,758
Total expenses
409,256
427,338
357,212
Net Profit / (Loss)
25,082
102,799
-28,451
Net Profit / (Loss) after Tax
17,557
71,959
-28,451
George Pty Ltd
Balance Sheet as at 30th June 2019
2017
2018
2019
Assets
Cu
ent Assets
Bank
72,848
239,871
403,580
Stock
706,355
630,521
425,456
Debtors
35,852
59,321
65,537
Prepayments
1,650
1,294
-
Total Cu
ent Assets
816,705
931,007
894,573
Non Cu
ent Assets
Plant & Equipment
45,893
48,900
51,265
Less Acc Depreciation
-38,953
-40,753
-43,153
Vehicles
25,000
25,000
53,000
Less Acc Depreciation
-20,621
-22,621
-32,521
Land @ 53 Hicks Rd
-
100,000
100,000
Total Non Cu
ent Assets
11,319
110,526
128,591
Total Assets
828,024
1,041,533
1,023,164
Liabilities
Cu
ent Liabilities
Creditors
125,891
143,754
152,851
GST Paid
-4,568
-5,264
-7,341
GST Collected
8,568
9,251
8,673
PAYG
4,563
4,819
3,929
Superannuation
8,978
16,582
21,112
Total Cu
ent Liabilities
143,432
169,142
179,224
Non Cu
ent Liabilities
Loan – ANZ Bank
-
85,000
85,000
Total Non Cu
ent Liabilities
-
85,000
85,000
Total Liabilities
143,432
254,142
264,224
Net Assets
684,592
787,391
758,940
Equity
Owners Equity
500,000
500,000
500,000
Retained Earnings
184,592
287,391
258,940
Total Equity
684,592
787,391
758,940
Additional Information
· 75% of sales are on credit, payable in 30 days
· Published Industry Averages
· Cu
ent Ratio 3:1
· Liquid Ratio 1.5:1
· Inventory Turnover Rate 2 times per yea
· Accounts Receivable Collection Period 14 days
· Gross Profit Ratio 30%
· Net Profit Ratio 5%
· Debt to Equity Ratio 50%
· Long Term Debt 10%
· Total Debt to Total Assets 30%
Based on the information provided please calculate the following ratios:
(a) Cu
ent Ratio
(b) Liquid Ratio
(c) Inventory Turnover Rate
(d) Accounts Receivable Collection Period
(e) Gross Profit Ratio
(f) Net Profit Ratio
(g) Debt to Equity Ratio
(h) Long Term Debt
(i) Total Debt to Total Assets
Based on the results from these calculations please prepare a report for the business owner identifying any issues you have identified. Include your calculations as an appendice to your report. The report should be a 1000 words.