BUSN 379 Week 2 Case Study – Latest 2016
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BUSN 379 Week 2 Case Study – Latest 2016
CHAPTER CASE
CASH FLOWS AND FINANCIAL STATEMENTS AT SUNSET
BOARDS, INC.
Sunset Boards is a small company that manufactures and sells
surfboards in Malibu. Tad Marks, the founder of the company, is in charge of
the design and sale of the surfboards, but his background is in surfing, not
business. As a result, the company’s financial records are not well maintained.
The initial investment in Sunset Boards was provided by Tad and
his friends and family. Because the initial investment was relatively small,
and the company has made surfboards only for its own store, the investors
haven’t required detailed financial statements from Tad. But thanks to word of
mouth among professional surfers, sales have picked up recently, and Tad is
considering a major expansion. His plans include opening another surfboard
store in Hawaii, as well as supplying his “sticks” (surfer lingo for boards) to
other sellers.
Tad’s expansion plans require a significant investment, which he
plans to finance with a combination of additional funds from outsiders plus
some money borrowed from banks. Naturally, the new investors and creditors
require more organized and detailed financial statements than Tad has
previously prepared. At the urging of his investors, Tad has hired financial
analyst Paula Wolfe to evaluate the performance of the company over the past
year.
After rooting through old bank statements, sales receipts, tax
returns, and other records, Paula has assembled the following information:
|
2013
|
2014
|
|
|
Cost of goods sold
|
$169,969
|
214,607
|
|
Cash
|
24,524
|
26,056
|
|
Depreciation
|
47,980
|
54,230
|
|
Interest expense
|
10,442
|
11,954
|
|
Selling &
administrative expenses
|
33,425
|
43,626
|
|
Accounts payable
|
43,344
|
48,090
|
|
Net fixed assets
|
211,680
|
264,021
|
|
Sales
|
333,426
|
406,427
|
|
Accounts receivable
|
17,378
|
22,542
|
|
Notes payable
|
19,757
|
21,571
|
|
Long-term debt
|
106,848
|
119,976
|
|
Inventory
|
36,570
|
50,185
|
|
New equity
|
0
|
20,160
|
Sunset Boards currently pays out 50 percent of net income as
dividends to Tad and the other original investors, and has a 20 percent tax
rate. You are Paula’s assistant, and she has asked you to prepare the
following:
1. An income statement for 2013 and 2014.
2. A balance sheet for 2013 and 2014.
3. Operating cash flow for each year.
4. Cash flow from assets for 2014.
5. Cash flow to creditors for 2014.
6. Cash flow to stockholders for 2014.
QUESTIONS
1.How would you describe Sunset Boards’ cash flows for 2014? Write
a brief discussion.
2.In light of your discussion in the previous question, what do
you think about Tad’s expansion plans?
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