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FIN 419 Week 4 Answers

  • Individual Assignment Answers
  • Scott Equipment Paper (1,300 words plus all work show). 
  • Word Document in Perfect APA Formatting
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Assignment Instructions

“Prepare responses to the problems from the assignment template that I have posted in the Course Materials.”

“Scott Equipment Organization is investigating various combinations of short- and long-term debt in financing assets. Assume the organization has decided to employ $30 million in current assets and $35 million in fixed assets in its operations next year, provided the level of current assets, anticipated sales, and EBIT for next year are $60 million and $6 million, respectively. The organization’s income tax rate is 40%. Stockholders’ equity will be used to finance $40 million of assets, with the remainder financed by short- and long term debt. The organization is considering implementing one of the policies in the diagram.”

Preview of Scott Equipment Answers

Debt financing is a common method for small businesses to raise capital. The following paper will focus on Scott Equipment by formulating an aggressive, moderate, and conservative plan to finance its working capital. The working capital position, current ratio, and expected rate of return on stakeholders equity will all be essential pieces of this analysis. At the conclusion of the paper, Scott Equipment should have a range of viable options to finance its operational goals.

Preview of Individual Solutions

  1. Find the operating breakeven point in number of CDs.

As per Gitman (2006),  . We should find sales quantity in units (Q). We are provided fixed operating costs (FC) of $73,500, sales price per item (P) of $13.98, and changeable operating cost per item (VC) of $10.48; therefore we have:

The operating breakeven point in quantity of CDs is 21,000 CDs.

  1. Calculate the total operating costs at the breakeven volume found in part a.

To get the total operating expenses at the breakeven number of 21,000 CDs we should use

. Again, we know fixed operating costs (FC) are $73,500, now we know number (Q) is 21,000 CDs, and changing expenses are $10.48; consequently we have: