2. Baldwin Corp. ended the year carrying $24,239,000 worth of inventory. Had the

Question

2. Baldwin Corp. ended the year carrying $24,239,000 worth of inventory. Had they sold their entire inventory at their current prices, how many more dollars of contribution margin would it have brought to Baldwin Corp.?

$50,923,040

$24,239,000

$38,288,000

$13,915,000

5. It is January 2nd and senior management of Digby meets to determine their investment plan for the year. They decide to fully fund a plant and equipment purchase by issuing 75,000 shares of stock plus a new bond issue. Assume the stock can be issued at yesterday’s stock price ($33.61) and leverage changes to 2.8. Which of the following statements are true?

Select all that apply

Equity will be $80,726,008

The total investment for Digby will be $207,925,114

Working capital will remain the same at $10,234,523

Total Assets will rise to $218,974,723

Digby will issue stock totaling $2,520,750

Total liabilities will be $124,678,356

Cash Flow Statement Survey Andrews Baldwin Chester Digby Cash flows from operating activities Net Income (Loss) $15,020 $12,828 ($3,528) ($2,351) Adjustment for non-cash items:    Depreciation $7,508 $8,111 $15,180 $13,451    Extraordinary gains/losses/writeoffs $0 $0 $0 $0 Changes in current assets and liabilities:    Accounts payable ($147) $3,589 ($354) $2,429    Inventory $0 ($24,112) ($3,774) ($14,914)    Accounts receivable ($5,865) ($700) $1,278 ($902) Net cash from operations $16,517 ($285) $8,802 ($2,287) Cash flows from investing activities Plant improvements (net) ($15,800) ($27,700) ($50,140) ($56,860) Cash flows from financing activities Dividends paid ($25,662) $0 $0 $0 Sales of common stock $0 $0 $11,227 $16,321 Purchase of common stock $0 ($1,180) $0 $0 Cash from long term debt issued $0 $17,536 $34,324 $35,723 Early retirement of long term debt $0 $0 $0 $0 Retirement of current debt $0 ($14,271) ($25,182) ($21,757) Cash from current debt borrowing $0 $21,465 $32,640 $23,687 Cash from emergency loan $0 $0 $0 $0 Net cash from financing activities ($25,662) $23,550 $53,010 $53,975 Net change in cash position ($24,945) ($4,435) $11,672 ($5,172)

Explanation / Answer

Part (i) Since the contribution margin only considers variable costs which anyway would be part of the investory carrying cost, hence when the investory is sold at current price the contribution margin will increase by the value of inventory sold which is $24,239,000

Part (ii) We can check each statement and verify if they are true:

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