Foundations of Business Finance, BUS 860 Assignment #3 Assignment Purpose: to apply core concepts learnt from Foundations of Business Finance in a culminating assignment. Assignment Objective: to apply your understanding for analyzing, interpreting and creating financial statements including financial ratio and breakeven analysis. Textbook Chapters/Resources for Reference: chapters 1-10 (Bergeron). Deliverable Format: in Microsoft Word or PDF-copy. If you use Microsoft Excel, please copy and paste it into Microsoft Word or PDF. Please submit your assignment only in one file copy and do not submit multiple formats or copies. 1. (20 Marks) Required: a) Construct a balance sheet out of the following information. This is like a puzzle where you have to put the pieces in the correct place. You have to identify the accounts below as to whether they are an asset or a liability. Remember that the balance sheet needs to balance on both sides. Try to make it look like a proper balance sheet with the heading, sections, etc. (10 marks) b) Comment on the liquidity of the Redpart Company based on the balance sheet information given. Please substantiate your responses with relevant financial ratios. (5 marks) c) If you were a bank, would you lend money to this company? Why or why not? Please substantiate your responses with relevant financial ratios. (5 marks) Redpart Company Balance Sheet as at November 30, 2016 Cash Bank Loan Accounts Receivable Prepaid Insurance Accounts Payable Building Truck Accumulated Depreciation Owner’s Equity $2,000 $36,000 $5,000 $1,000 $21,000 $125,000 $20,000 $23,000 ???? 1 2. (21 Marks) Blanchard Co. manufactures tires for sale to distributors for an average price of $65 each. The variable costs of each tire are $43 and the monthly fixed manufacturing costs total $64,000. Required: a) What is the breakeven point? (5 marks) b) What is the breakeven point, in tires, assuming variable costs increase by 20 per cent? (5 marks) c) What do you believe is the maximum price that Blanchard Co can charge for its tire? Please substantiate your responses with relevant financial ratios. (5 marks) d) Suggest 3 other additional potential accounting items that would be potential fixed costs to Blanchard’s business. (6 marks) 3. (10 marks) Required: With the below financial information for a company for fiscal year 2016, create a budget for fiscal year 2017 assuming a growth rate of 5%/annum. Revenues Cost of Goods Sold Gross Profit Sales & General Expenses Salaries Expense Interest Expense Research & Development Expense Operating Income Taxes (20%) Net Income $100,000 12,000 88,000 3,000 2,000 1,000 5,000 77,000 15,400 $ 61,600 4. Why is the cost of capital important for an organization? Please list and explain three key criteria that you would recommend to help a company determine the optimal capital structure. (10 marks) 5. How can Present Value calculations help a company ensure that it selects the projects or investments that will generate the highest level of investment return taking into consideration Internal Rate of Return (IRR)? Is there a difference Present Value and Net Present Value? Please explain why. (5 ma 2
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