# 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 | |