MBA 650 Regent University Matthews Models Quiz
Quiz 3 Matthew’s ModelsMatthew Reedmer owns two Matthew’s Models stores in Florence, South Carolina. He believes that the stores have been successful and he wants to open a new store in Sumter about 30 miles west of Florence. Matt has been in the retail line for over 20 years, and he worked at his uncle’s hobby shop while in high school and college before starting his own store at the age of 25. Two big secrets to a successful toy store operation are good location and product selection. Matt’s first store is located in downtown Florence. Since Matt had been born and raised in Florence, he attracted a good customer base that remained loyal to his store after some of the giant chain related toy stores began to move into the area. About 10 years ago, Matt saw the change in customer shopping habits and purchased a second store near an interchange to Interstate 95 in a rapidly growing retail area. Lots of new families had moved into the area, and Matt could not totally rely on the “good old boy” market alone to sustain his market share. This second store catered to the younger more mobile generation that shopped at or near malls.Matt now was looking into other markets. Sumter was not located on the interstate, but the area was growing because of its proximity to the state capital of Columbia, which was just 30 miles to its west. Matt believed that the people of Sumter who commuted to work in Columbia would prefer to limit their driving for shopping activities to the immediate Sumter area. Also, since Matt was a respected citizen of Florence, his reputation as an honest businessman had spread to Sumter. He believed he could quickly build up a new customer base in that location. The big chain type stores also did not seem as interested in the Sumter area, preferring instead to locate in the larger metropolitan areas of Columbia and Florence.The appropriate toy items to feature in his stores were very important. Matt felt that his area of influence was strictly regional, and he did not have to carry much of the standard inventory of the national chain type of toy stores. His toy lines were more a reflection of local interest; thus NASCAR related items were hot sellers. Matt’s clientele also seemed interested in computer action games and a new line of Ya’ll talking dolls.Matt went to the Florence National Bank to inquire about funding for the new store location. He had found an abandoned furniture store in downtown Sumter along Main Street that was up for sale for $280,000. The store seemed to be the right size and at a good location. A grocery store was in the same block with ample off street parking. Matt brought his balance sheet for the last two years and an income statement for the last operating year to the bank to support his request for a retail loan of $250,000. (Copies of the financial statements are listed at the end of the quiz). Nick Tightwad, the local bank loan vice president had been a friend of Matt’s for many years. He was a customer at Matt’s toy store on close out sales, and his bank had underwritten the funding for the second store. Nick was excited about Matt’s expansion goals and the prospect of another business loan with his friend. At the same time, Nick had to live up to his reputation. He was not about to approve a loan unless he was almost 100 percent sure that the borrower would not default. Matt’s past success had alleviated much of Nick’s concern, but he still wanted to complete a detailed analysis of the financial performance of Matthew’s Models during the last calendar year. Upon reviewing the balance sheet, Nick noticed a drop in cash during the last year even though Matt showed a strong profitable performance. The current financial statements did not seem to give enough information to answer Nick’s questions and he asked Matt to prepare a statement of cash flows for the year ending December 31, 20x7.
Matthew’s ModelsBalance SheetDecember 31, 20x6ASSETSCash$ 38,500Accounts Receivable43,000Inventory126,000Other Current Assets17,500Total Current Assets$225,000Land$100,000Furnishings, Fixtures & Vehicles$150,000Less Accumulated Depreciation-30,000Furnishings, Fixtures & Vehicles (net)120,000Building400,000Less Accumulated Depreciation175,000Building (net)225,000Total Long-Term Assets445,000Total Assets$670,000LIABILITIESAccounts Payable$ 57,500Short-Term Notes Payable20,000Other Current Liabilities13,000Total Current Liabilities$ 90,500Long-Term Notes Payable400,000Total Liabilities$490,500EQUITIESCapital$100,000Retained Earnings79,500Total Equities$179,500Total Liabilities and Equity$670,000
Matthew’s ModelsIncome StatementFor the Year Ended December 31, 20x7Sales Revenue$600,000Less Cost of Goods Sold310,000Gross Margin290,000Less Operating ExpensesSelling and Administrative$106,200Depreciation Furnishings 5,000Depreciation Building15,000Total Operating Expenses126,200Operating Income163,800Interest Expense$50,000Loss on Vehicle Sale2,500Total Other Expenses52,500Net Income Before Taxes111,300Less Income Taxes39,300Net Income$72,000
Matthew’s ModelsBalance SheetDecember 31, 20x7ASSETSCash$2,600Accounts Receivable71,000Inventory193,000Other Current Assets18,900Total Current Assets$285,500Land$100,000Furnishings, Fixtures & Vehicles$166,000Less Accumulated Depreciation-28,500Furnishings, Fixtures & Vehicles (net)137,500Building400,000Less Accumulated Depreciation190,000Building (net)210,000Total Long-Term Assets447,500Total Assets$733,000LIABILITIESAccounts Payable$ 91,500Short-Term Notes Payable35,000Other Current Liabilities7,000Total Current Liabilities$133,500Long-Term Notes Payable388,000Total Liabilities$521,500EQUITIESCapital$100,000Retained Earnings111,500Total Equities$211,500Total Liabilities and Equity$733,000 Required:1. Develop a Statement of Cash Flows for Matthew’s Models for the year ending December 31, 20x7. 2. Analyze the financial performance of Matthew’s Models based on all the financial statements.3. If you were Matt, how would you explain to Nick the financial situation to help justify the loan request.4. If you were Nick, would you approve the loan for Matt? Why or why not?