September 2023 Balance Sheet ASPEN SKI COMPANY December 31 2008 Assets Cash

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Balance Sheet ASPEN SKI COMPANY December 31 2008 Assets Cash 2023

Balance Sheet ASPEN SKI COMPANY December 31, 2008 Assets Cash . . . . . . . . . . . . . . . . . . . . . . $ 40,000 Marketable securities . . . . . . . . . 60,000 Accounts receivable . . . . . . . . . . 1,000,000 Inventory . . . . . . . . . . . . . . . . . . . 3,000,000 Gross plant and equipment . . . . . . . . . . . . . . . . 5,000,000 Less: Accumulated depreciation . . . . . . . . . . . 2,000,000 Total assets . . . . . . . . . . . . . . . . . $7,100,000 Liabilities and Stockholders’ Equity Accounts payable . . . . . . . . . . . . $1,800,000 Accrued expenses. . . . . . . . . . . . 100,000 Notes payable (current). . . . . . . . 600,000 Bonds (10%) . . . . . . . . . . . . . . . . 2,000,000 Common stock (1.5 million shares, par value $1) . . . . . . . . 1,500,000 Retained earnings . . . . . . . . . . . . 1,100,000 Total liabilities and stockholders’ equity . . . . . . . . . $7,100,000 Income Statement—2004 Sales (credit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,000,000 Fixed costs* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,800,000 Variable costs (0.60) . . . . . . . . . . . . . . . . . . . . . . . . . . 3,600,000 Earnings before interest and taxes . . . . . . . . . . . . . . 600,000 Less: Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000 Earnings before taxes . . . . . . . . . . . . . . . . . . . . . . . . 400,000 Less: Taxes @ 40% . . . . . . . . . . . . . . . . . . . . . . . . 160,000 Earnings after taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 240,000 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,200 Increased retained earnings . . . . . . . . . . . . . . . . . . . . $ 196,800 *Fixed costs include (a) lease expense of $190,000 and (b) depreciation of $400,000. Note: Aspen Ski also has $100,000 per year in sinking fund obligations associated with its bond issue. The sinking fund represents an annual repayment of the principal amount of the bond. It is not tax-deductible. Ratios Aspen Ski (to be filled in) Industry Profit margin 6.1% Return on assets  6.5% Return on equity 8.9% Receivables turnover 4.9x Inventory turnover  4.4x Fixed-asset turnover  2.1x Total-asset turnover 1.06x Current ratio 1.4x Quick ratio  1.1x Debt to total assets 27% Interest coverage  4.2x Fixed charge coverage 3.0x a. Analyze Aspen Ski Company, using ratio analysis. Compute the ratios above for Aspen and compare them to the industry data that is given. Discuss the weak points, strong points, and what you think should be done to improve the company’s performance. b. In your analysis, calculate the overall break-even point in sales dollars and the cash break-even point. Also compute the degree of operating leverage, degree of financial leverage, and degree of combined leverage. c. Use the information in parts a and b to discuss the risk associated with this company. Given the risk, decide whether a bank should loan funds to Aspen Ski. Aspen Ski Company is trying to plan the funds needed for 2009. The management anticipates an increase in sales of 20 percent, which can be absorbed without increasing fixed assets. d. What would be Aspen’s needs for external funds based on the current balance sheet? Compute RNF (required new funds). Notes payable (current) are not part of the liability calculation. e. What would be the required new funds if the company brings its ratios into line with the industry average during 2005? Specifically examine receivables turnover, inventory turnover, and the profit margin. Use the new values to recompute the factors in RNF (assume liabilities stay the same). f. Do not calculate, only comment on these questions. How would required new funds change if the company: 1. Were at full capacity? 2. Raised the dividend payout ratio? 3. Suffered a decreased growth in sales? 4 Faced an accelerated inflation rate? Additional Question 1.What does the term structure of interest rates indicate?

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