Financial Homework Help

24 hours to complete assigment, must understand Finance and guarnatee an A.

Credit Decision Problem

You are called to the office of David West, the senior commercial lender for your employer, Western Bank & Trust. Mr. West informs you that due to an emergency, he will be away for several days. Mr. Stevens asks that that you review the loan application of Sanders Sales Company and make a recommendation to him, in memo form, to approve or reject the loan request. The recommendation should have attachments with appropriate financial ratio information on Sanders Sales existing financial statements, should include NPV–style evaluation of the future cash flows resulting from investment in Jackson Inc. (see below), and other financial data you deem necessary to support your recommendation.

Sanders Sales Company is requesting a $450,000 loan to help them buy the stock of Jackson Inc., a competitor in the same line of business as Sanders Sales. Sanders Sales Company will use $150,000 of its own cash and investments, in addition to the loan proceeds, to pay the purchase price of $600,000. The loan would be repaid with ten annual payments including principal and interest at an 8% APR. The loan would be collateralized by the stock purchased. Sanders Sales would be a new account for Western Bank & Trust. Sanders Sales is looking for a new banker as they have outgrown the resources of their current banker. Credit reports indicate that Sanders Sales has a good credit history.

Mr. West provides you the file containing the loan request, financial statements for Sanders Sales Company for the three preceding years, and financial information regarding investment cash flow information for Jackson Inc.

Prospective Financial Information – Jackson Inc.

Jackson’s sales in the first year following acquisition are expected to be $625,000. Sales are expected to increase by 12% per year for years 2 & 3, by 9% per year for years 4 & 5, and then decrease by 13% per year for years 6-10. Sales for years 11-13 are expected to decrease by 17% each year. (All increases and decreases are based on the previous year’s sales). It is anticipated that there will be no further sales or other cash flows after 13 years.

Cost of goods sold is expected to be 62% of sales each year and operating expenses are expected to be 12% of sales. Future cash flows are expected to be materially the same as sales, cost of goods sold and expenses. Income tax is expected to be 35% of income for all years.

Presume that net income approximates annual cash inflows. Complete the projected income statement and use the net present value method to support the investment decision. The company uses an 8% cost of capital to evaluate investment decisions, using NPV as the tool to evaluate investments.

Expected Outcomes

1) Compute the appropriate financial ratio information for the financial statements of Sanders Sales Company.

2) Perform the Financial Statement Projections, Net Present Value, & IRR computations for Jackson Inc.

Compose a memo to Mr. West, making a recommendation to approve or reject the loan request. Use the outcomes from your NPV, IRR and ratio analysis and any other pertinent financial information to support your decision. (Complete the memo in Microsoft Word and upload all parts to Moodle).

>Projections

)

NPV
IRR

												Jackson Inc.
Complete the project income statement and (	NPV	IRR	Projected Income Statement
Years
1	3	4	5	6	7	8	9	10	11	12	13
Sales
COGS
Gross profit
Operating expenses
Operating income
Tax at 35%
Net income

P & L

, and

2012 2011 2010
Provision For Income Taxes

	Sanders Sales Company
Profit & Loss Statement
For the Years Ended December 31,				2012	2011	2010
Net Sales	$ 3,985,266	$ 4,395,877	$ 4,657,880
Cost of Goods Sold	3,228,065	3,560,660	3,772,883
Gross Profit on Sales	$757,201	$835,217	$884,997
Operating Expenses:
General and Administrative	$310,966	$299,550	$219,815
Selling	234,550	203,240	156,340
Total Operating Expenses	$545,516	$502,790	$376,155
Operating Income	$211,685	$332,427	$508,842
Other Income (Expense):
Interest Income	$11,320	$13,220	$25,610
Interest Expense	(20,400)	(16,800)	(12,000)
Net Other Income	($9,080)	($3,580)	$13,610
Income Before	Provision For Income Taxes	$202,605	$328,847	$522,452
70,912	115,096	182,858
Net Income	$131,693	$213,750	$339,594

Balance Sheet

Sanders Sales Company
Balance Sheet
2012 2011 2010

At December 31, 2012, 2011, and 2010
Current Assets:
Cash	$208,335	$228,242	$240,362
Short-term investments	234,455	237,700	261,000
Accounts Receivable	391,200	324,118	268,400
Inventories	334,400	295,600	190,400
Prepaid Expenses	88,000	64,300	36,600
Total Current Assets	$1,256,390	$1,149,960	$996,762
Property, Plant and Equipment	$6,920,000	$5,905,087	$4,810,750
Less Accumulated Depreciation	2,300,000	2,000,000	1,700,000
Net Property, Plant and Equipment	$4,620,000	$3,905,087	$3,110,750
Total Assets	$5,876,390	$5,055,047	$4,107,512
Current Liabilities:
Accounts Payable	$ 304,900	$ 203,322	$ 188,335
Accrued Expenses	218,102	189,265	179,477
Short Term Notes Payable	265,000	225,000	165,000
Current Portion On Long-term Debt	75,000	55,000	35,000
Total Current Liabilities	$ 863,002	$ 672,587	$ 567,812
Long-term Debt:
Net Long-term Debt	635,245	556,010	567,000
Total Liabilities	$ 1,498,247	$ 1,228,597	$ 1,134,812
Stockholders’ Equity
Paid-in Capital:
Common Stock	$2,350,000	$2,150,000	$1,800,000
Additional Paid In Excess of Par	1,340,000	1,120,000	830,000
Total Paid-in Capital	$3,690,000	$3,270,000	$2,630,000
Retained Earnings	688,143	556,450	342,700
Total Stockholders’ Equity	$4,378,143	$3,826,450	$2,972,700
Total Liabilities and Stockholders’ Equity	$ 5,876,390	$ 5,055,047	$ 4,107,512

Ratios

2012 2011 2010

COMPLETE The Financial Ratios for 2012, 2011, & 2010:	Financial Ratios – Sanders Sales
	Current ratio
	Quick Ratio
Accounts Receivable Turnover
	Inv Turnover
	Debt ratio
	Profit Margin
	Return on Assets
	Return on Equity
	Fixed Asset Turnover
Average Collection Period

Industry Ratios

2012 2011 2010

Current ratio

Quick Ratio

23.0

Inv Turnover

23.0

Debt ratio

Profit Margin

24% 24%

Return on Assets

9.00% 9.00%

Return on Equity

12.00% 12.00%

Fixed Asset Turnover

2.00

15.87

Industry Averages – Compare w/ Sanders calculations
1.92	1.90	1.83
1.22	1.19	1.15
A/R Turnover	24.0			23.0
23.5	22.0
28%	27%	26%
		24%
		9.00%
		1	2.00
2.50	2.25
Avg Collection Period	15.21		15.87

FINANCIAL RATIOS

Liquidity

Current Ratio

Current Assets
Current Liabilities

Quick Ratio

Current Assets – Inventory
Current Liabilities

Average Collection Period

365 / Accounts Receivable Turnover

Accounts Receivable Turnover

Credit Sales
Accounts Receivable

Inventory Turnover

Cost of Goods Sold
Inventory

Operating Profitability

Profit Margin

Net Income
Sales

Return on Total Assets

Net Income
Total Assets

Fixed Assets Turnover

Sales
Net Fixed Assets (Property, Plant, & Equipment)

Total Asset Turnover

Sales
Total Assets

Return on Equity

Net Income
Stockholders’ Equity

Debt

Debt Ratio

Total Liabilities
Total assets

Presume all sales are credit sales.

Customers are given credit terms of 2/10, n/30.

>Problem

50,000 to expand their business and add a dealership in Hatton, ND.

You are a young loan officer working for Goose River Bank in Mayville, ND.

Your boss, Mr. Jefferson, has handed you the file of a new customer for the bank, Mayville Motors Inc.

They are looking for a loan of $

Enclosed you will find the income statement and balance sheet for Mayville Motors for the past 3 years.

Conduct the necessary ratio analysis in order to determine whether to grant them a loan.

After conducting the analysis, write a memo to Mr. Jefferson detailing your decision.

Be sure to backup your decision using your ratios and industry averages.

Income Statements

00,000

900,000 600,000

,000

100,000

30,000

40,000

4,000

)

	2009		20	10		20	11
Sales Revenue	1,	900,000	1,		7	1,	600,000
COGS	1,000,000	1,	100,000	1,150,000
Gross Profit	450,000
Operating Expenses:
Selling				300,000	257,000	2	41
General & Admin.	69,000	72,000
Leases		40,000	25,000		30,000
Depreciation	35,000
Total Operating Expenses	470,000	386,000	383,000
Earnings Before Interest and Taxes	430,000		21	67,000
Interest Expense	24,000	29,000	34,000
Net Profit Before Taxes	406,000	185,000	33,000
Taxes (	35%	142,100	64,750	11,550
Net Profit After Taxes	263,900	120,250	21,450

Balance Sheet

2009 2010 2011

54,000

$75,000 $75,000

300,000 300,000 300,000

$375,000 $375,000

,600

Current Assets:
Cash	$135,000	$104,365	$85,650
Accounts Receivable	111,250	192,005	212,410
Inventories	98,850	157,330	175,830
Total Current Assets	$345,100	$453,700	$473,890
Property, Plant and Equipment	$778,150	$930,000	$1,0	54,000
Less Accumulated Depreciation	170,000	205,000	245,000
Net Property, Plant and Equipment	$608,150	$725,000	$809,000
Total Assets	$953,250	$1,178,700	$1,282,890
Current Liabilities:
Accounts Payable	$ 82,350	$ 103,550	$ 122,390
Accrued Expenses	37,000	64,300
Short Term Notes Payable	19,000	31,000	38,100
Current Portion On Long-term Debt	28,000	43,000	54,500
Total Current Liabilities	$ 166,350	$ 231,550	$ 279,290
Long-term Debt:
Net Long-term Debt	80,000	120,000	155,000
Total Liabilities	$ 246,350	$ 351,550	$ 434,290
Stockholders’ Equity
Paid-in Capital:
Common Stock (75,000 shares @ $1 per share)			$75,000
Additional Paid In Excess of Par
Total Paid-in Capital			$375,000
Retained Earnings	331,900	452,150	473,600
Total Stockholders’ Equity	$706,900	$827,150	$8	48
Total Liabilities and Stockholders’ Equity	$ 953,250	$ 1,178,700	$ 1,282,890

Ratios

21 41 48

10 7 7 11

35%

2,009	2,010	2,011	Industry Avg.
Current ratio	2.07	1.96	1.70
Quick Ratio	1.48	1.28	1.07
Average Collection Period	22 days
Inv Turnover
Debt ratio	25.84%	29.83%	33.85%
Gross Profit Margin	47.37%	35.29%	28.13%	55%
Earnings Per Share	3.52	1.60	0.29	$2.25

Memo

To:

From:

Date:

Re:

Turn in your highest-quality paper
Get a qualified writer to help you with

“ Financial Homework Help ”

Get high-quality paper

NEW! AI matching with writer

Still stressed with your coursework?

Get quality coursework help from an expert!

Order now