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. Hence, 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 surf-boards 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 along with 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 Christina 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, Christina has assembled the following information:

	2014	2015
Cost of goods sold	$196,619	$248,263
Cash	28,372	42,865
Depreciation	55,506	62,738
Interest expense	12,067	13,831
Selling and administrative	36,668	50,469
Accounts payable	20,143	34,091
Net fixed assets	244,881	298,350
Sales	385,724	470,172
Accounts receivable	20,104	26,078
Notes payable	22,855	24,955
Long-term debt	123,607	140,000
Inventory	38,706	52,057
New equity	0	15,000

Sunset Boards currently pays out 40% of net income as dividends to Tad and the other original investors, and it has a 30% tax rate. You are Christina’s assistant, and she has asked you to prepare the following:

1. An income statement for 2014 and 2015.

2 A balance sheet for 2014 and 2015.

3. Operating cash flow for each year.

4. Cash flow from assets for 2015.

5. Cash flow to creditors for 2015.

6. Cash flow to stockholders for 2015.

QUESTION

How would you describe Sunset Boards’ cash flows for 2015? Write a brief discussion.

Having saved $\$ 1,000$ from her summer job, Sasha responded to an ad for "Like New! OneOwner Used Cars." A salesperson for A-$1$ Used Cars watched Sasha wander around the lot until she was attracted to a bright-red compact car. Sasha told the salesperson that this car looked just right for her. He replied, "You've made a good choice. This is an excellent car. It will give you many years of good service." Although the sticker price was $\$ 3,550$, the salesperson thought that he might be able to get Sasha a $\$ 50$ discount because she was "a nice young kid getting her first car." After conferring with the sales manager, he explained to Sasha that she could have the car for $\$ 3,500$ and that the dealer could arrange to finance the car and sell her all the necessary auto insurance. Sasha knew that she would need a loan and that auto insurance was required by law. Her excitement increased as it appeared that all her needs could be met in one stop. Sasha saw a sticker on the car's window indicating that this car came with a warranty. The salesperson told her that A-$1$ Used Cars would make any repairs to the engine for damage not caused by her misuse for $30$ days or $10,000$ miles, whichever came first. Now she felt confident about using all of her savings as a down payment. After all, what repair bills could she have with such a nice car accompanied by a terrific warranty?

Taking into account your lists, role-play Sasha's encounter with the salesperson.

A person purchased a house 10 years ago for $160,000. The house was financed by paying 20% down and signing a 30-year mortgage at 7.75% on the unpaid balance. Equal monthly payments were made to amortize the loan over a 30-year period. The owner now (after the 120th payment) wishes to refinance the house due to a need for additional cash. If the loan company agrees to a new 30-year mortgage of 80% of the new appraised value of the house, which is$225,000, how much cash (to the nearest dollar) will the owner receive after repaying the balance of the original mortgage?

What food and livestock from the rest of the world traveled to the Americas?

Grieg Landscaping began construction of a new plant on December 1, 2020. On this date, the company purchased a parcel of land for $139,000 in cash. In addition, it paid$2,000 in surveying costs and $4,000 for a title insurance policy. An old dwelling on the premises was demolished at a cost of$3,000, with $1,000 being received from the sale of materials.

Architectural plans were also formalized on December 1, 2020, when the architect was paid$30,000. The necessary building permits costing $3,000 were obtained from the city and paid for on December 1 as well. The excavation work began during the first week in December with payments made to the contractor in 2021 as follows.

$$\begin{array} {lcccc} \underline{\hspace{5pt}\text{Date of Payment}\hspace{5pt}}&\underline{\hspace{2pt}\text{Amount of Payment}\hspace{2pt}}\\ \text{March 1}& \hspace{10pt}\text{\$240,000}&\\ \text{May 1}& \hspace{10pt}\text{\hspace{5pt}330,000}&\\ \text{July 1}& \text{\hspace{20pt}60,000}&\\ \end{array}$$

The building was completed on July 1, 2021.

To finance construction of this plant, Grieg borrowed $600,000 from the bank on December 1, 2020, Grieg had no other borrowings. The$600,000 was a 10-year loan bearing interest at 8%.

Instructions

Compute the balance in each of the following accounts at December 31, 2020, and December 31, 2021. (Round amounts to the nearest dollar.)

a. Land.

b. Buildings.

c. Interest Expense.

How did the Aztecs create one of the strongest empires in the Americas?

What theories explain when and how the first people arrived in the Americas?

The Sunbelt Corporation has $40 million of bonds outstanding that were issued at a coupon rate of$12^{7 / 8}$ percent seven years ago. Interest rates have fallen to 12 percent. Mr. Heath, the vice president of finance, does not expect rates to fall any further. The bonds have 18 years left to maturity, and Mr. Heath would like to refund the bonds with a new issue of equal amount also having 18 years to maturity. The Sunbelt Corporation has a tax rate of 36 percent. The underwriting cost on the old issue was 2.5 percent of the total bond value. The underwriting cost on the new issue will be 1.8 percent of the total bond value. The original bond indenture contained a five-year protection against a call, with an 8 percent call premium starting in the sixth year and scheduled to decline by one-half percent each year thereafter (consider the bond to be seven years old for purposes of computing the premium). Assume the discount rate is equal to the aftertax cost of new debt rounded up to the nearest whole number. Should the Sunbelt Corporation refund the old issue?

Fugate Inc. is considering these two alternatives to finance its construction of a new $2 million plant:

1. Issuance of 200,000 shares of common stock at the market price of$10 per share.
2. Issuance of $2 million, 6% bonds at face value.

Complete the table and indicate which alternative is preferable.

$$\begin{array}{lcc} &\underline{\textbf{Issue Stock}}&\underline{\textbf{Issue Bond}}\\[5pt] \text{Income before interest and taxes}&\text{\$\hspace{1pt}1,500,000}&\text{\$\hspace{1pt}1,500,000}\\ \text{Interest expense from bonds}&\underline{\text{\hspace{50pt}}}&\underline{\text{\hspace{50pt}}}\\ \text{Income before income taxes}\\ \text{Income tax expense (30\\\%)}&\underline{\text{\hspace{50pt}}}&\underline{\text{\hspace{50pt}}}\\ \text{Net income}&\underline{\underline{\text{\$\hspace{45pt}}}}&\underline{\underline{\text{\$\hspace{45pt}}}}\\[3pt] \text{Outstanding shares}&\underline{\text{\hspace{50pt}}}&\underline{\text{\hspace{17pt}700,000}}\\ \text{Earnings per share}&\underline{\underline{\text{\$\hspace{45pt}}}}&\underline{\underline{\text{\$\hspace{45pt}}}}\\ \end{array}$$

What were the long-term effects of slavery in the Americas?

Did you know that you can get lots of financial information free of charge? Go to finance.yahoo.com. Use the quote lookup located on the left side to get financial information about any publicly traded company. 1. For your company of choice, obtain the most recent income statement and balance sheet information by clicking on the financials in the bottom left hand corner. 2. Click on competitors to obtain a direct competitor comparison with your company of choice. Select a competing company and obtain their most recent income statement and balance sheet information. 3. Calculate the following risk ratios for both companies for the most recent year. Based on these calculations, which company appears to be more risky? a. Receivables turnover ratio. b. Inventory turnover ratio. c. Current ratio. d. Acid-test ratio. e. Debt to equity ratio. 4. Calculate the following profitability ratios for both companies for the most recent year. Based on these calculations, which company appears to be more profitable? a. Gross profit ratio. b. Return on assets. c. Profit margin. d. Asset turnover. e. Return on equity.

The Robinson Corporation has $\$ 43$ million of bonds outstanding that were issued at a coupon rate of $113 / 4$ percent seven years ago. Interest rates have fallen to $10^{3 / 4}$ percent. Mr. Brooks, the vice president of finance, does not expect rates to fall any further. The bonds have 17 years left to maturity, and Mr. Brooks would like to refund the bonds with a new issue of equal amount also having 17 years to maturity. The Robinson Corporation has a tax rate of 30 percent. The underwriting cost on the old issue was $2.4$ percent of the total bond value. The underwriting cost on the new issue will be $1.7$ percent of the total bond value. The original bond indenture contained a five-year protection against a call, with a 9 percent call premium starting in the sixth year and scheduled to decline by one-half percent each year thereafter. (Consider the bond to be seven years old for purposes of computing the premium.) Assume the discount rate is equal to the aftertax cost of new debt rounded up to the nearest whole number. Compute the discount rate.

What were the causes and effects of the migration of Europeans and Africans to the Americas?

James Kirk is a financial executive with McDowell Enterprises. Although James Kirk has not had any formal training in finance or accounting, he has a “good sense” for numbers and has helped the company grow from a very small company ($500,000 sales) to a large operation ($45 million in sales). With the business growing steadily, however, the company needs to make a number of difficult financial decisions in which James Kirk feels a little “overhis head.” He therefore has decided to hire a new employee with “numbers” expertise to help him. As a basis for determining whom to employ, he has decided to ask each prospective employee to prepare answers to questions relating to the following situations he has encountered recently. Here are the questions.

• a. In 2016, McDowell Enterprises negotiated and closed a long-term lease contract for newly constructed truck terminals and freight storage facilities. The buildings were constructed on land owned by the company. On January 1, 2017, McDowell took possession of the leased property. The 20-year lease is effective for the period January 1, 2017, through December 31, 2036. Advance rental payments of $800,000 are payable to the lessor (owner of facilities) on January 1 of each of the first 10 years of the lease term. Advance payments of$400,000 are due on January 1 for each of the last 10 years of the lease term. McDowell has an option to purchase all the leased facilities for $1 on December 31, 2036. At the time the lease was negotiated, the fair value of the truck terminals and freight storage facilities was approximately$7,200,000. If the company had borrowed the money to purchase the facilities, it would have had to pay 10% interest. Should the company have purchased rather than leased the facilities?
• b. Last year the company exchanged a piece of land for a non-interest-bearing note. The note is to be paid at the rate of $15,000 per year for 9 years, beginning one year from the date of disposal of the land. An appropriate rate of interest for the note was 11%. At the time the land was originally purchased, it cost$90,000. What is the fair value of the note?
• c. The company has always followed the policy to take any cash discounts on goods purchased. Recently, the company purchased a large amount of raw materials at a price of $800,000 with terms 1/10, n/30 on which it took the discount. McDowell has recently estimated its cost of funds at 10%. Should McDowell continue this policy of always taking the cash discount?