IOWA FIN341 2020 JUNE Week 1 Case Study Latest

FIN341 Corporate Financial Management

Week 1 Case Study

CASH FLOWS AT EAST COAST YACHTS

Because of the dramatic growth at East Coast Yachts, Larissa decided that the company should be reorganized as a corporation. Time has passed and, today, the company is publicly traded under the ticker symbol “ECY”.

Dan Ervin was recently hired by East Coast Yachts to assist the company with its short-term financial planning and also to evaluate the company’s financial performance. Dan graduated from college five years ago with a finance degree, and he has been employed in the treasury department of a Fortune 500 company since then.

EAST COAST YACHTS

2017 Income Statement

Sales      $611,582,000

Cost of goods sold           431,006,000

Selling, general, and administrative         73,085,700

Depreciation         19,958,400

EBIT       $  87,531,900

Interest expense                 11,000,900

EBT         $  76,531,000

Taxes        30,612,400

Net income        $  45,918,600

Dividends            17,374,500

Retained earnings           $  28,544,100

The company’s past growth has been somewhat hectic, in part due to poor planning. In anticipation of future growth, Larissa has asked Dan to analyze the company’s cash flows. The company’s financial statements are prepared by an outside auditor. Nearby you will find the most recent income statement and the balance sheets.

Larissa has also provided the following information. During the year, the company raised $40 million in new long-term debt and retired $22.6 million in long-term debt. The company also sold $24.2 million in new stock and repurchased $35.64 million. The company purchased $59.5 million in fixed assets, and sold $6,718,200 in fixed assets.

 

 

East Coast Yachts Balance Sheet

Larissa has asked Dan to prepare the statement of cash flows. She has also asked you to answer the following questions:

How would you describe East Coast Yachts’ cash flows?

Which cash flows statement more accurately describes the cash flows at the company?

In light of your previous answers, comment on Larissa’s expansion plans.

In addition to your responses to the 3 questions, be sure to also prepare and submit the statement of cash flows.