Answer To Case Studies Financial Management
Answer To Case Studies Financial Management
Answer To Case Studies Financial Management
Submitted To:
Prof. Armando B. Bo, CPA
Submitted By:
Engr. Gerald M. Garces
Option No. 2 – Offer Michael Jordan $53.4 million (30% of $178 million) for a
two-year contract or $26.7 million a season based on the current value of
Chicago Bulls at $178 million according to the latest Financial World survey
of professional sports team.
Option No.3 – Offer Michael Jordan $29.2 million for a two-year contract or
$14.5 million a season based on the present value of the available relevant
cash flows using the long-term investment rate of 10% prevailing in the US
during the playing years of Jordan.
1
For easier computation, this can be computed in Microsoft Excel using the functional formula, Net Present
Value, which is NPV(rate,values).
Offer to Michael Jordan for a two-year contract $29,162,786.32
4. To determine how much should the Chicago Bulls offer to pay Michael
Jordan for the next two years based on his contribution to the financial
success of the team
The best option is Option No. 2 - Offer Michael Jordan $53.4 million (30% of
$178 million) for a two-year contract or $26.7 million a season based on the
current value of Chicago Bulls at $178 million according to the latest
Financial World survey of professional sports team.
Due to its advantages and limited disadvantages, Option No.2 is the best option
since it will surely make Michael Jordan stay with the Chicago Bulls.
Answer: AR Turnover for 19x3 is 6.38. We cannot compute for 19x2 since there is insuffi cient data (i.e. no beginning balance fo 19x2)
d) Inventory Turnover
Answer: Inventory Turnover for 19x3 is 6.38. We cannot compute for 19x2 since there is insuffi cient data (i.e. no beginning balance fo 19x2)
C. If sales fall to P3 million, what will happen to current ratio? Ignore any possible
efects of profits.
Current ratio will decrease from 2.57 to 2.00.
D. Suppose that sales increased by 20 percent and Good Earth Poultry wanted to
keep its current ratio to the present level, how much additional bank loan can it
afford? Is this amount within the existing credit limit? How was the increase in
current assets financed?
If sales increased by 20% and the company wanted to keep its current
ratio at 2.57, the company must increase its bank loan from 260,000 to 312,000.
This amount is not within the existing credit limit with the bank, but they may
request the bank to increase its credit limit.
E. Suppose that sales increased by 15 percent and Good Earth Poultry wanted to
finance all of the increase in current assets with a bank loan, how much additional
bank loan would the company need? What will happen to the current ratio?
If sales increaed by 15% and the company wanted to finance all of the
increase in current assets with a bank loan, the company must increase its
loan from 260,000 to 422,000. The current ratio will decrease from 2.57 to 1.78.
GOOD EARTH POULTRY COMPANY
E
D
Percentage
A B C (Sales increased (Sales increased (If all increase in C/A will
of Sale
by 20%) by 15%) come from a bank loan)
Current Assets
Cash 60,000.00 0.01 81,818.18 40,909.09 72,000.00 69,000.00 60,000.00
Receivable 120,000.00 0.03 163,636.36 81,818.18 144,000.00 138,000.00 120,000.00
Inventory 900,000.00 0.20 1,227,272.73 613,636.36 1,080,000.00 1,035,000.00 900,000.00
Total C/A 1,080,000.00 0.25 1,472,727.27 736,363.64 1,296,000.00 1,242,000.00 1,080,000.00
Total C/A based on
percentage of sale - the given
Total C/A 162,000.00
Current Liabilities
Accounts Payable 160,000.00 0.04 218,181.82 109,090.91 192,000.00 184,000.00 184,000.00
Bank Loan 260,000.00 0.06 260,000.00 260,000.00 312,000.00 260,000.00 422,000.00
Total C/L 420,000.00 0.10 478,181.82 369,090.91 504,000.00 444,000.00 606,000.00
CURRENT 1-30 DAYS 31-60 DAYS 61-90 DAYS 91-120 DAYS TOTAL
June 1,050,000.00 1,050,000.00
May 500,000.00 500,000.00
April 230,000.00 230,000.00
March and prior 520,000.00 520,000.00
TOTAL - 1,050,000.00 500,000.00 230,000.00 520,000.00 2,300,000.00
UNCOLLECTIBLE - 30,000.00 105,000.00 116,760.00 114,220.00 365,980.00
COLLECTIBLE - 1,020,000.00 395,000.00 113,240.00 405,780.00 1,934,020.00
VI. PROBLEM SOLVING 12-B9 Economic order quantity and reorder point
The Box Company used 40,000 kg. of heavy duty staples per month. The cost
of carrying staples as inventory was P3.14 per kg. per year. Every order of the
staples P1,300. The company used staples for cardboard boxes that it produced at a
constant rate. It wanted to keep stocks because the supplier took 21 days to deliver.
Questions:
a) What was the economic order quantity for staples?
b) At what level of inventory of staples should Box Company reorder?
Answers:
a) Economic order quantity for staples
Formula:
EOQ= √
2 x D x Co
Ch
Where:
D= Demand per year
Co = Cost per order
Ch = Cost of holding per unit of inventory
GIVEN
Where:
D= 480,000 (40,000 kg. X 12 months)
Co = P1300
Ch = 3.14
EOQ= √
2 x 480,000 x 1300
3.14
EOQ=
√ 1,248,000,000
3.14
EOQ=√397,452,229.30
EOQ=19,936.20
Answer:
ROP = 1,333.33 X 21 days
ROP = 28,000
* The inventory reorder point is 28,000 kg. If the level of stocks for this item falls
below that number, the new order should be placed immediately. Each time the Box
Company stock hits 28,000 kg. staples, the company would send a purchase order
to their staple supplier.
19x1
(GIVEN) 19x2
HAVALARI, INC
FORECASTED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 19X2
19X1 19X2
SALES 8,000,000.00 100% 12,000,000.00 Forecasted and Given in the problem
COGS and Operating Expense 7,600,000.00 95% 11,400,000.00
Net Profit 400,000.00 5% 600,000.00
Less Dividends of 30% 120,000.00 180,000.00
Net Incom After Dividend 280,000.00 420,000.00
2. Evaluate the financial position of the Havalari Inc, as of December 31, 19x2
compared to previous year. What risk the Company face in 19x2 assuming that it
achieves its sales target.
Based on the forecasted balance sheet of Havalari Inc for 19x2, to support the
company's target to increase its sales by 50% without issuance of additional
common stock and mantaining the 0.25 long term debt to equity ratio, short
term bank financing will be the next choice for source of fund. As shown
above, bank loan with beginning balance of P150,000 became P2,212,500 as
of December 19x2. However, availing short term financing will also require the
company to produce enough cash within the year to payoff the loan upon
maturity. But based on the forecasted data, Havalari Inc, may not be able to
meet its payment obligation as they will only have P450,000 of cash by the
end of 19x2.