Fin 370 Week 3 Questions

1.

(Related to Checkpoint 4.2 on page 86) (Capital structure analysis) The liabilities and

owners’ equity for Campbell Industries is found below:

Accounts payable $ 453,000

Notes payable 250,000

Current liabilities $ 703,000

Long-term debt $1,263,000

Common equity $5,067,000

Total liabilities and equity $7,033,000

a. What percentage of the firm’s assets does the firm finance using debt (liabilities)? (round to one decimal place)

2.

The following table contains current asset and current liability balances for Deere and Company (DE):

QQ

($ thousands) 2008 2007 2006

Current assets

Cash and cash equivalents 2211400 2278600 1687500

Short-term investments 0 1623300 0

Net receivables 3944200 3680900 3508100

Inventory 3041800 2337300 1957300

Total current assets 9197400 9920100 7152900

Current liabilities

Accounts payable 6562800 3186100 4666300

Short/current long-term debt 8520500 9969400 8121200

Other current liabilities 0 2766000 0

Total current liabilities 15083300 15921500 12787500

Measure the liquidity of Deere & Co. for each year using the company’s net working capital and current ratio.

Is the trend in Deere’s liquidity improving over this period? Why or why not?

3.

You just received a $4,000 bonus.

a. Calculate the future value of $4,000, given that it will be held in the bank for9 years

and earn an annual interest rate of 8%.

b. Recalculate part (A) using a compounding period that (1) semiannual and (2) bimonthly

c. Recalculate parts (A) and (B) using an annual interest rate of 16%?

d. Recalculate part (A) using a time horizon of 18 years at an annual interest rate of 8%?

e. What conclusions can you draw when you compare the answers in parts (c) and (d) with the answers in parts (a) and (b)?

4.

Break even analysis

2. The Marvel Mfg. Company is considering whether or not to construct a new robotic production facility. The cost...