Analysis 5 Homework

Name: _________________________________

Assignment

1. Your Competitive Intelligence team reports that a wave of product liability lawsuits is likely to cause Andrews to pull the product Able entirely off the market this year. Assume Andrews scraps all capacity and inventory this round, completely writing off those assets and escrowing the proceeds to a settlement fund, and assume these lawsuits will have no effect on any other products of Andrews or other companies. Without Andrews's product Able, how much can the industry currently produce in the market segment where Able is primarily sold? Consider only products primarily sold in that segment last year. Ignore current inventories. Figures in thousands (000).

2. What if last year the Andrews Corporation issued 208,000 shares at $42.00 per share. The effect on the balance sheet would have been:

( ) Common Stock increased $8,736,000; Retained Earnings decreased $8,736,000.
( ) Cash increased $8,736,000; Common Stock decreased $8,736,000.
( ) Cash increased $8,736,000 Common Stock increased $8,736,000.
( ) Retained Earnings increased $8,736,000; Cash increased $8,736,000.

3. What was Erie's dividend yield last year?

4. Which of your products has the highest ROS?

5. The Digby company will continue to train their existing workforce at their current level to help reduce turnover and improve productivity next year. Employee training costs $20 per hour. How much would their training costs per employee be to the nearest dollar?

6. Baldwin's Baker product has an awareness of 72%. Baldwin's Baker product manager is determined to have more awareness for Baker than Andrews' Able product. She knows that the first $1M in promotion generates 22% new awareness, the second million adds 23% more and the third million adds another 5%. She also knows one-third of Baker's existing awareness is lost every year. Assuming that Able's awareness stays the same next year (77%), out of the promotion budgets below, what is the minimum Baldwin's Baker product manager should spend in promotion to earn more awareness than Andrews' Able product?

7. Chester has a new design for their product Cid next round that can reduce their material cost of producing units from the current material cost (see Capstone Courier) to $8.10. Chester passes on half of all cost savings by cutting the current price to customers. For simplicity:

- Use current labor costs from the Capstone Courier
- Assume all period costs as reported on Chester's Income Statement will remain the same.

Determine how many units (000) of product Cid would need to be sold next round to break even on the product.

8. Your company Andrews has a bond retiring in 2008. This bond has an interest rate of 13.5%, a face value of $10,300,000 and a closing price of $102.53. Since your company had sold these 10 year bonds at $100, you would be buying them back at a:

( ) Premium
( ) Discount
( ) Par

9. Looking at the Erie's  Balance Sheet, suppose they want to increase their leverage to 3.0 by issuing bonds and buying back stock.  How many bonds (in dollars) would they need to sell?

Deliverables

1. Answers to the above problems