Making Long Term FM Decisions – Integrative Case Introduction: As a special analytical group set up by ACME Iron by the firm’s Controller, you have been tasked to respond to the following issues raised in a meeting with the CFO. You must look over several prospective financial strategies to aid in the successful growth of ACME Iron:Capital investment analysis; CAPM – Capital Asset Pricing Model determination for the company; WACC – Weighted Average Cost of Capital computations; EVA – Economic Value Analysis; MVA – Market Value Added; Capital structure of the company; Dividend policy; Stock repurchase and option pricing strategy; Bankruptcy risk analysis; Decision Tree Creation; Real option analysis of projects The CFO wants to test you out on a simple project in the first task before you get into preparing items for his board presentation in subsequent tasks and projects. He wants to see how well you perform tasks as well as how accurate and thoughtful you are in your work. Details are important to him as well as good organization/presentation and communication. Financial Statements for use on TasksACME Iron Balance Sheet AssetsCurrent assets:20142015changeCash500,000600,000100,000Investments1,000,0001,025,00025,000Inventories110,000,000117,000,0007,000,000Accounts receivable11,750,00012,500,000750,000Pre-paid expenses2,500,0002,600,000100,000Other00–Total current assets125,750,000133,725,0007,975,000Fixed assets:20142015changeProperty and equipment165,000,000175,000,00010,000,000Leasehold improvements00–Equity and other investments55,000,00065,000,00010,000,000Less accumulated depreciation15,000,00015,500,000500,000Total fixed assets235,000,000255,500,00020,500,000Other assets:20142015changeGoodwill75,000,00070,000,000(5,000,000)Total other assets75,000,00070,000,000(5,000,000)Total assets435,750,000459,225,00023,475,000 Liabilities and owner’s equityCurrent liabilities:20142015changeAccounts payable40,500,00042,400,0001,900,000Accrued wages85,000,00090,500,0005,500,000Accrued compensation10,000,00010,855,000855,000Income taxes payable4,024,0004,697,000673,000current portion of LT debt5,500,00010,350,0004,850,000Other00–Total current liabilities145,024,000158,802,00013,778,000Long-term liabilities:20142015changeLong term debt125,000,000130,000,0005,000,000Total long-term liabilities125,000,000130,000,0005,000,000Owner’s equity:20142015changeCommon stock122,000,000122,000,000–Preferred stock16,725,00016,725,000–Accumulated retained earnings27,001,00031,698,0004,697,000Total owner’s equity165,726,000170,423,0004,697,000Total liabilities and owner’s equity435,750,000459,225,00023,475,000 Income StatementACME IronDecember 2015Financial Statements in ‘000s of U.S. Dollars REVENUE Gross Sales250,000 Less: Sales Returns &Allowances2,500 Net Sales 247,500 COST OF GOODS SOLD Beginning Inventory7,500 Add: Purchases4,500 Freight-in– Direct Labor75,000 Indirect Expenses15,000 Inventory Available102,000 Less: Ending Inventory Cost of Goods Sold 102,000Gross Profit (Loss) 145,500 EXPENSES Advertising7,500 Amortization– Bad Debts5,000 Depreciation500 Dues and Subscriptions– Employee Benefit Programs18,750 Insurance2,500 Interest10,350 Legal & Professional Fees100 Licenses & Fees– Miscellaneous10 Office Expenses100 Payroll Taxes5,625 Postage3 Rent– Repairs & Maintenance5,000 Supplies2,000 Telephone120 Travel1,750 Utilities50,000 Vehicle Expenses450 Wages25,000 Total Expenses 134,758Net Operating Income 10,742 OTHER INCOME Gain (Loss) on Sale ofAssets– Interest Income1,000 Total Other Income 1,000 TAXES 4,697Net Income (Loss) 7,045
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