Use the following information to answer the next five questions: A small business called The Grandmother Calendar Company began selling personalized photo calendar kits. The kits were a hit, and sales soon sharply exceeded
13. Corporate Borrowing lf the firm was so successful at selling, why wouldn’t a bank or some other lender step in and provide it with the cash it needed to continue?
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Corporate Finance (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
- Bannister Company, an electronics firm, buys circuit boards and manually inserts various electronic devices into the printed circuit board. Bannister sells its products to original equipment manufacturers. Profits for the last two years have been less than expected. Mandy Confer, owner of Bannister, was convinced that her firm needed to adopt a revenue growth and cost reduction strategy to increase overall profits. After a careful review of her firms condition, Mandy realized that the main obstacle for increasing revenues and reducing costs was the high defect rate of her products (a 6 percent reject rate). She was certain that revenues would grow if the defect rate was reduced dramatically. Costs would also decline as there would be fewer rejects and less rework. By decreasing the defect rate, customer satisfaction would increase, causing, in turn, an increase in market share. Mandy also felt that the following actions were needed to help ensure the success of the revenue growth and cost reduction strategy: a. Improve the soldering capabilities by sending employees to an outside course. b. Redesign the insertion process to eliminate some of the common mistakes. c. Improve the procurement process by selecting suppliers that provide higher-quality circuit boards. Required: 1. State the revenue growth and cost reduction strategy using a series of cause-and-effect relationships expressed as if-then statements. 2. Illustrate the strategy using a strategy map. 3. Explain how the revenue growth strategy can be tested. In your explanation, discuss the role of lead and lag measures, targets, and double-loop feedback.arrow_forwardMorgan Williams Ltd (MWL) is a long-established department store in central Wellington and was for many years highly profitable. One way in which it rewarded its directors was to employ their children, who were students, over the summer break. The company paid these student-employees wages far in excess of market rates. In recent years, MWL became heavily reliant on cruise ship passengers to maintain its business. Due to the Covid 19 pandemic, the last cruise ship visited in March 2020. MWL was slow to develop an online presence. Also, many people, whose offices are in central Wellington, started to work from home. By June 2020, MWL’s sales were down by 90%, and by September 2020, MWL was in serious financial difficulty. December is usually MWL’s best month for sales, but December 2020 was a disaster and the company started to lay off staff. In March 2021, MWL failed to pay its GST and other tax liabilities. Southpac, the company’s bank, threatened to seize MWL’s stock, in terms of a…arrow_forwardExeter Group is a large retail company that has brick-and-mortar outlets throughout the Southeast. They have been in business for many years, but two years ago started an online sales channel to offset slowing in-store sales. The human resources (HR) department at Exeter handles tasks for the two divisions that make up Exeter: Retail and Online. Retail Division manages the company's traditional business line. This business, although still profitable, is currently not growing and may be shrinking slightly. Online Division, on the other hand, has experienced double-digit growth from the beginning. The cost allocation system at Exeter allocates all corporate costs to the divisions based on a variety of cost allocation bases. HR costs are allocated based on the average number of employees in the two divisions. There are two basic activities in the HR Department. The first is employee maintenance (payroll administration, benefits, and so on), which is an ongoing activity and requires the…arrow_forward
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- Krall Company recently had a computer malfunction and lost a portion of its accounting records. The company has reconstructed some of its financial performance measurements including components of the return on investment calculations.Required:Help Krall rebuild its information database by completing the following table: (Do not round your intermediate calculations. Round your final answers to 2 decimal places, (i.e. 0.1234 should be entered as 12.34%.).) Return on Investment Profit Margin Investment Turnover Operating Income Sales Revenue Average Invested Assets % % $50,000.00 $714,000.00 $1,550,000.00 % 9.80 % 0.50 $123,970.00 $2,530,000.00 % 15.70 % 1.15 $1,955,000.00 11.10 % % 2.80 $505,000.00arrow_forwardThe current power outages are affecting productivity of ABC Ltd. Even though demand is high, they cannot produce enough to meet the needs of their customers. The best option is to buy a generator but they have other very urgent issues to resolve with money primary among them been payment of salaries. Management does not know how long the outages will last and the possible reactions of the staff should they fail to pay them. Use financial techniques to support your decision.arrow_forwardA large brokerage company is assessing the introduction of a new computer system to improve routing and execution of customer orders. The managing director wants to install a new Smart Routing system, whereas another director prefers the Direct Routing system. Each machine provides the same order-execution ability and can satisfy the broker’s obligation to give investors the best possible order execution. The initial cost of each system is $170,000, but because of differing software, maintenance, and processing requirements, estimates of the after-tax costs of operation differ. These are as follows: Period Smart Routing Direct Routing 1 39,000 56,000 2 48,000 61,000 3 48,000 61,000 4…arrow_forward
- Kendall & Floyd provides landscaping services in Eastvale. Sara Kendall, the owner, is concerned about the recent losses the company has incurred and is considering dropping its yard cleanup services, which she feels are marginal to the company's business. She estimates that doing so will result in lost revenues of $67,800 per year (including the lost tree business from customers who use the company for both services). The present manager will continue to supervise the tree services with no reduction in salary. Without the yard cleanup business, Sara estimates that the company will save 14 percent of the equipment leases, labor, and other costs. She also expects to save 29 percent on rent and utilities. The Income statement before dropping the yard cleanup service follows. Required: a. Prepare a report of the differential costs and revenues if the yard cleanup service is discontinued. b. Should Sara discontinue the yard cleanup service? Complete this question by entering your answers…arrow_forwardPlease explain proper steps by Step and Do Not Give Solution In Image Format ? And Fast Answering Please ?arrow_forwardKrall Company recently had a computer malfunction and lost a portion of its accounting records. The company has reconstructed some of its financial performance measurements including components of the return on investment calculations. 1. Help Krall rebuild its information database by completing the following table: Note: Round your intermediate calculations to 2 decimal places. Round your final answers to 2 decimal places, (i.e. 0.1234 should be entered as 12.34%.). Return on Investment Profit Margin Investment Turnover Operating Income Sales Revenue Average Invested Assets $51,000.00 $709,000.00 $1,420,000.00 4.06% 9.90% 0.41 $105,128.10 $2,590,000.00 24.14% 14.20% 1.70 $3,043,000.00 11.205 5.09% 2.20 $519,000.00arrow_forward
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