Fin 370 Week 3 Problems Essay

1034 WordsDec 6, 20125 Pages
Problem 4-6 (Capital structure analysis) The Liabilities and owner’s equity for Campbell Industries is found below: Accounts Payable = $544,000 Notes Payable = $242,000 Current Liabilities = $786,000 Long-Term Debt = $1,300,000 Common Equity = $4,697,000 Total Liabilities and Equity = $6,783,000 A. What percentage of the firm’s assets does the firm finance using debt (liabilities)? (Round to one decimal place) B. If Campbell was to purchase a new warehouse for $1.1 million and finance it entirely with long-term debt, what would be the firm’s new debt ration? Solution: Total liabilities and equity = Total Assets = $6,783,000 Long term debt = $1,300,000 Current liabilities = $786,000 Total liabilities = $2,086,000 The fraction of the firm’s assets financed using debt = Debt Total Assets = $2,786,000 $6,783,000 = 30.75% If the firm purchase a new warehouse for $1.1 million and finance it entirely with long-term debt, the total liabilities and total assets would increase by the same amount. Hence, the debt ratio would undergo change. Total liabilities = $3,186,000 Total Assets = $7,883,000 Debt ratio = $3,186,000 $7,883,000 = 40.42% Problem 13-9 (Break even analysis) Accounting break even units = Fixed cost + Depreciation Selling price per unit – Variable cost per unit Project A 6270 = 99000 + 26000 SP - 54 6270 SP – 338580 = 125000 6270 SP = 463580 Selling price = 73.94 per unit Project B 730 = 495000 + 101000 990 – VC 722700 – 730 VC = 596000 730 VC = 126700 Variable cost = 173.56 per unit Project C 2000 = 4800 + D 22 - 13 18000 = 4800 + D Depreciation = $13200 Project D 2000 = FC + 17000 22 – 6 32000 = FC + 17000 Fixed cost = $15000 Project | Accounting BEP units | Price per unit | Variable cost per unit | Fixed cost | Depreciation | |

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