Analysis 4 Homework

Name: _________________________________

Assignment

1. Product Bead is being produced on both first and second shifts by company Baldwin. Compare the incremental cost of purchasing an additional unit of first shift capacity with the additional labor costs of producing that unit on second shift. It costs $3.62/unit in labor to produce Bead on first shift, second shift labor costs are 50% higher. At the current automation level of 8.0 it costs $38.00/unit of first shift capacity. Assume the only fixed costs of purchasing first shift capacity will be Depreciation on a 15 year straight line. Ignore material costs and SG&A expenses which are the same on both shifts. Which of the following statements are true?

[ ] Producing units on first shift is always more profitable than second shift because second shift labor rates are higher.
[ ] At the current automation level it would be less profitable to pay second shift rates than to buy more capacity.
[ ] At the current automation level it would be more profitable to pay second shift rates than to buy more capacity.
[ ] It is always more profitable to produce on second shift rather than buying more capacity. 

2. If Chester Corp. were to buy all of it's shares outstanding at its current price, how much would it cost Chester Corp, excluding brokerage fees?

3. If Digby uses all its cash to pay off liabilities, what will its leverage be?

4. Digby's total assets are expected to increase by 5% this year. What should they expect their leverage to be assuming Total Equity stays the same? (Digby uses Assets / Equity to determine leverage.)

5. Last year the Ferris company increased their equity. Two years ago their equity was $37,669. Last year it increased to $41,399.  What are causes of change in equity? Check all that apply.

[ ] Profits of $14,373
[ ] Depreciation of -$34,185
[ ] Issue and retirement of stock .
[ ] A bond issue of $2,928.
[ ] Dividend payment of $10,643.
[ ] Change in inventory of -$1,348.
[ ] An accounts payable change of $1,460.
[ ] A change in short term debt of -$5,882.
[ ] A change of plant and equipment of $10,310.
[ ] A change in cash of -$4,845.
[ ] Plant Improvements of $10,310

6. Company Baldwin invested $45,300,000 in plant and equipment last year. The plant investment was funded with bonds at a face value of $24,178,667 at 13.6% interest, and equity of $21,121,333. Depreciation is 15 years straight line. For this transaction alone which of the following statements are true?

[ ] On the Balance sheet, Plant & Equipment increased by $45,300,000.
[ ] On the Balance sheet, Long Term Debt changed by $24,178,667.
[ ] Since the new plant was funded with debt and equity, on the Balance sheet Retained Earnings decreased by $21,121,333, the difference between the investment $45,300,000 and the bond $24,178,667.
[ ] Depreciation increased by $3,020,000.
[ ] Buying the plant had no net effect on the Cash account, because the plant was paid for by the bond plus retained earnings.
[ ] Cash went up when the Bond was issued by $24,178,667.
[ ] Cash went down by $45,300,000 when the plant was purchased.
[ ] Cash decreased $21,121,333 to cover the reduction in equity.

7. Which description best fits Ferris' strategy? For clarity:
    [ ] A differentiator competes through good designs, high awareness, and easy accessibility.
    [ ] A cost leader competes on price by reducing costs and passing the savings to customers.
    [ ] A broad player competes in all parts of the market.
    [ ] A niche player competes in selected parts of the market.

8.What is Digby's market cap?

9. Chester Corp. is downsizing the size of their workforce by 10% (to the nearest person) next year from various strategic initiatives. How much will the company pay in separation costs if each worker receives $5,000 when separated?

10. What is the working capital of Baldwin?

Deliverables

1. Answers to the above problems