WORK IS TO BE DONE INDIVIDUALLY. SHARED WORK WILL BE GIVEN A SCORE OF ZERO.
Calculate your answers using excel or a financial calculator. Print the result and bring to class
Monday, July 20, 2015. Be sure to show your work either by showing the keystrokes on the
calculator or the formula in excel.
1 Compute the additional financing needed by Mahony Services Inc. (MSI) if sales are
expected to increase from a current level of $22 million to a new level of
$26 million over the coming year. MSI expects earnings after taxes to equal
$1 million over the next year (2014). MSI intends to pay a $400,000 dividend next year.
The current year balance sheet for MSI is as follows:
Mahony Services, Inc. Balance Sheet as of December 31, 2013
Cash $1,500,000 Accounts Payable $4,000,000
Accounts Receivable $1,800,000 Notes Payable $3,000,000
Inventories $6,300,000 Long-term Debt $2,100,000
Net Fixed Assets $3,000,000 Stockholder’s Equity $3,500,000
Total Assets $12,600,000 Total liabilities and equity $12,600,000
2 Mahony Machinery is attempting to develop and market a new quilting machine. Fixed costs to develop and
produce the new quilting machine are estimated to be $8 million per year. The variable cost to make each
machine has been estimated at $1,000. The marketing research department has recommended a price of
$3,000 per machine.
A) What is the breakeven level of output for the new quilting machine?
B) If management expects to generate a target profit of $1.5 million from the machine each year, how many machines must be sold?
3 Mahony Company sells on terms of “net 30.” Annual credit sales are
$60 million, and its accounts receivable average 10 days overdue.
A) Determine Mahony Company’s investment in receivables.
B) Suppose that annual credit sales decline by 10% and customers
delay their payments to an average of 20 days past due. Determine
the company’s new level of receivables investment.
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