- (TCO B) Which of the following best defines a partnership?
- (TCO D) The planning of cash needs of a business is conducted using a life cycle approach. Which of the following tasks is/are performed in the development stage of the life cycle?
- (TCO C) Describe the types of resources (assets) needed for a new product venture during its development and start-up stages. Comment on the likely revenues and expenses during these early life cycle stages.
- (TCO B) You’re the sole owner of Duarte Spring Company; you paid $200K for the business when you acquired the firm five years ago. Duarte is a manufacturer of high-end springs used by major aerospace and aircraft manufacturing companies. Six months ago, you completed your largest project to date--a $500,000 order delivered to Boeing Corporation. Regrettably, you just received notice from Boeing’s lawyers reporting that they incurred a $50 million loss because your part failed and forced Boeing to miss key delivery dates of its new jumbo jet for customers. What is the dollar amount your personal loss exposure if Duarte Spring Company is a) a sole proprietorship, and b) if it is a C-Corporation, and explain why?
- (TCO C) ServerSolutions’ management has asked you to help the firm identify its EBDAT breakeven level. The company has only one product, the Pinnacle Server, a blazing fast network server that accelerates corporate database network access. The firm’s servers sell for $4,500 each. Each server costs $3,000 in materials and manufacturing costs (all production is outsourced to an external manufacturer). The firm’s office lease in Puget Sound is $210,000 annually, its magazine advertising expense is $390,000 per year, and compensation costs are $300,000 annually.
Complete the following, and show all your calculations for each.
Part 1: Calculate the firm’s a) EBDAT revenue, and b) contribution profit margin at EBDAT breakeven.
Part 2: If the firm sells 1,800 servers, what will be its c) gross profit percentage, d) operating income, and e) operating income percentage? (Show all calculations)
- (TCO A, D) Gander Gloves has created a special synthetic that is used to line the inside of baseball gloves and remove the “sting” of catching balls. Several universities and three Major League Baseball teams have already ordered gloves with the special lining, at $600 per glove. In 2013, the company has $8 million in revenue, and $800,000 in net income. Gander Gloves began the year with $1 million in book equity on January 1. Complete the following, and show all your calculations for each:
a) Forecast the firm’s 2018 sales, assuming a 60% sales growth rate per year starting in 2014.
b) Assuming Gander Gloves pays out no dividends in 2013, what is the firm’s maximum sustainable growth rate?
c) Compare Gander Glove’s anticipated sales growth rate with the firm’s maximum sustainable growth rate (which you just calculated in (b). Will the firm be able to support its growth through internally generated funds? If so, discuss the financial reasons why this is so using the textbook’s concept of maximum sustainable growth rate. If you believe the firm will not be able to support its growth, explain why and discuss what action management must take.
d) Part 1: If the firm pays out $300,000 in dividends, what is the firm’s retention rate? Part 2: Assuming the firm pays out $300,000 in 2013 dividends, what is Gander Glove’s sustainable growth rate?
e) After paying $300,000 in 2013 dividends on December 31, what will be Gander Glove’s new book equity balance?
f) Use your final answer for (e) to answer the following: if Gander Glove’s balance sheet shows liabilities with a book value of $800,000, what is book value of the firm’s assets?
- (TCO A) Differentiate among the three components of a sound business model; describe each component in detail, and then explain how they work together to provide a sound business model.