Zamboni Icers Corporation:

QUESTION 2

1. Last year Conklin, Inc. had a total assets turnover of 1.33 and an equity multiplier of 1.75. Its sales were $295,000 and its net income was $10,600. The CFO believes that the company could have operated more efficiently, lowered its costs, and increased its net income by $10,250 without changing its sales, assets, or capital structure.

a. Had it cut costs and increased its net income by $10,250, how much would the ROE have changed? (10 points)

b. If increasing sales or improving margins is not possible how can the firm improve its ROE? What are the pros and cons of this approach? (10 points)

QUESTION 3

1. Zantel Inc. has current assets of $4,700, net fixed assets of $24,300, short-term debt of $1,000, total current liabilities (including short-term debt) of $4,100, and long-term debt of $14,000.

a. What is the value of Zantel’s total equity on balance sheet? (5 points)

b. What is the amount of net working capital? (5 points)

c. What is the debt/equity ratio? If the industry average debt/equity is 1.5x and keeping equity constant, how much debt should the firm add/reduce to match industry average? (10 points

QUESTION 4

1. Consider the following financial statement information for the Zamboni Icers Corporation:

Item	Beginning		Ending
Inventory	$6,478		$7,656
Accounts receivable	3,933		4,648
Accounts payable	5,334		6,304
Net sales		$61,254
Cost of goods sold		40,677

a. Compute the operating cycle. Compute the cash cycle. (20 points)

b. Is the cash cycle efficient for Zamboni? (5 points)

c. If Walmart has negative cash cycle, is it good/bad for the firm? Why? (5 points)

QUESTION 5

1. The most recent financial statement for Edibles Inc. are shown below (assuming no income taxes):

Sales	$5,560
Costs	3,770
Net Income	$1,790
Assets	$15,000		Debt	$6,600
			Equity	8,400
Total	$15,000			$15,000

Assets and costs are proportional to sales. Debt and equity are not. No dividends are paid. Next year’s sales are projected to be $6,879. What is the external financing needed?