4 Questions The financial statement amounts are in millions

4 Questions: The financial statement amounts are in millions

1. It is January 2nd and senior management of Digby meets to determine their investment plan for the year. They decide to fully fund a plant and equipment purchase by issuing 75,000 shares of stock plus a new bond issue. Assume the stock can be issued at yesterday’s stock price ($33.61) and leverage changes to 2.8. Which of the following statements are true?

Select all that apply. Select: 3

Equity will be $80,726,008

The total investment for Digby will be $207,925,114

Working capital will remain the same at $10,234,523

Total Assets will rise to $218,974,723

Digby will issue stock totaling $2,520,750

Total liabilities will be $124,678,356

2. Next year Baldwin plans to include an additional performance bonus of 0.25% in its compensation plan. This incentive will be provided in addition to the annual raise, if productivity goals are reached. Assuming the goals are reached, how much will Baldwin pay its employees per hour?

$28.15      $31.04   $28.22 $29.63

3. Suppose the Chester company begins to compete through good designs, high awareness and easy accessibility for their existing products, what strategy would they be implementing?

4. Baldwin Corp. ended the year carrying $24,239,000 worth of inventory. Had they sold their entire inventory at their current prices, how many more dollars of contribution margin would it have brought to Baldwin Corp.?

Baldwin 2019 Income Statement (Product Name:) Bead Bid Bold Buddy Na Na Na Na 2019 Total Common Size Sales $47,139 $27,438 $44,388 $45,179 $0 $0 $0 $0 $164,144 100.0% Variable Costs: Direct Labor $13,666 $6,753 $10,141 $9,481 $0 $0 $0 $0 $40,040 24.4% Direct Material $19,256 $12,311 $17,597 $17,698 $0 $0 $0 $0 $66,863 40.7% Inventory Carry $165 $602 $1,082 $1,059 $0 $0 $0 $0 $2,909 1.8% Total Variable $33,087 $19,666 $28,820 $28,238 $0 $0 $0 $0 $109,812 66.9% Contribution Margin $14,052 $7,772 $15,567 $16,941 $0 $0 $0 $0 $54,332 33.1% Period Costs: Depreciation $2,104 $1,707 $2,100 $2,200 $0 $0 $0 $0 $8,111 4.9% SG&A: R&D $934 $9 $727 $634 $0 $0 $0 $0 $2,304 1.4%     Promotions $1,300 $1,300 $1,300 $1,300 $0 $0 $0 $0 $5,200 3.2%     Sales $900 $900 $800 $800 $0 $0 $0 $0 $3,400 2.1%     Admin $398 $232 $375 $382 $0 $0 $0 $0 $1,387 0.8% Total Period $5,636 $4,147 $5,302 $5,315 $0 $0 $0 $0 $20,401 12.4% Net Margin $8,416 $3,625 $10,265 $11,626 $0 $0 $0 $0 $33,931 20.7% Definitions: Sales: Unit sales times list price. Direct Labor: Labor costs incurred to produce the product that was sold. Inventory Carry Cost: the cost to carry unsold goods in inventory. Depreciation: Calculated on straight-line 15-year depreciation of plant value. R&D Costs: R&D department expenditures for each product. Admin: Administration overhead is estimated at 1.5% of sales. Promotions: The promotion budget for each product. Sales: The sales force budget for each product. Other: Charges not included in other categories such as Fees, Write Offs, and TQM. The fees include money paid to investment bankers and brokerage firms to issue new stocks or bonds plus consulting fees your instructor might assess. Write-offs include the loss you might experience when you sell capacity or liquidate inventory as the result of eliminating a production line. If the amount appears as a negative amount, then you actually made money on the liquidation of capacity or inventory. EBIT: Earnings Before Interest and Taxes. Short Term Interest: Interest expense based on last year\'s current debt, including short term debt, long term notes that have become due, and emergency loans. Long Term Interest: Interest paid on outstanding bonds. Taxes: Income tax based upon a 35% tax rate. Profit Sharing: Profits shared with employees under the labor contract. Net Profit: EBIT minus interest, taxes, and profit sharing. Other $7,144 4.4% EBIT $26,786 16.3% Short Term Interest $3,473 2.1% LongTerm Interest $3,175 1.9% Taxes $7,048 4.3% Profit Sharing $262 0.2% Net Profit $12,828 7.8%

Solution

Answer -

1.

Total assets - Total Liabilities = Total stockholders’ Equity

218,974,723 - 124,678,356 = 94,296,367

New stock Issued = 75,000 *33.61 = 2,520,750

Total Stockholders\' Equity (above) - New stock issued (above) = Old Stock

$94,296,367 - $2,520,750 = $91,775,617

Leverage = total assets/ Total stockholders’ equity

=218,974,723/94,296,367 = 2.32

Since this doesn\'t gives us the desired leverage figure, we can\'t be confident of TA, TSE, and TL

Following Statements are correct

2.  

Total raise = 5% + 0.25% = 5.25%

Present wages = $28.15

Baldwin will pay = $28.15 (1.0525) = $29.63

3. If chester Company Expand to other market with Good design, High Awarness and easy accessiblity than company should go for Broad Differentiation Because it will help the comany to charge the premium price, company can earn consumer loyalty due to the good and unique design, High awarness and good quilty will help to better sales due to the service provided.

4.

Assuming inventory is sold at the amount valued, Baldwin corp. will generate the revenue equivalent to the worth of inventory. i.e. $24,239,000

Hence, correct option is $24,239,000.