FIN 486

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					Following are the requirements and steps for the Week 3 assignment.

                                                                                                                                                                             GRADING MATRIX
                                                                                                                                                                        Possible Points Points Earned
   1 Complete the 2006% of sales calculations. 2005 % of sales has been calculated as an example.                                                                                      2
   2 Answer this question: why is the % of sales for sales 100%?                                                                                                                       1

We will now step through each assumption provided in the New Strategic Initiative Assumptions Memo (the original).
For each assumption, please indicate which line items on the income statement and balance sheet would be directly impacted by the assumption.
Line item reference numbers are provided in Column B of the historical statements. Assumption 1 has been completed as an example.

                                                                                                                                            Income         Balance
                                                                                                                                            Statement      Sheet Line
                                                                                                                                            Line Item(s)   Item (s)
                                                                                                                                            directly       directly
     Assumption                                                                                                                             impacted.      impacted.

                                                                                                                                            IS
   3 Assume inflation of 4% on expenses, not including depreciation and taxes. This is in addition to the                                   2,3.4,5,6,7,11 None
     This is in addition to the new initiative's costs..

   4 Assume the following regarding variables versus fixed-nature-of-income-statement operating
     expenses for the existing business:
     a. 80% of wage benefits is variable and 20% is fixed.                                                                                                                          0.5
     b. 100% of fuel expenses, purchased transportation, and operating supplies is variable.                                                                                        0.5
     c. 100% of operating taxes is fixed.                                                                                                                                           0.5
     d. 20% of insurance and claims is fixed; the balance is variable.                                                                                                              0.5
     e. Assume depreciation, even with new expenditures, is fixed as the retirement of written-off                                                                                  0.5
     assets, equaling new equipment.

   5 There will be new spending areas reflected on future budgets to reflect added satellite warehouse
     costs and space rental and costs of running the locations.
     a. In the first year, add $10 million of inflation, space rental, and operating costs at 25% of                                                                                0.5
     revenues from the new initiative.
     b. In the second year, add $10 million space rental, with inflation at the same variable percentage                                                                            0.5
     of sales.
     c. In the third year, add $7.5 million of the variable percentage of sales.                                                                                                    0.5

   6 In marketing, budget accounts have been added for new incurred costs. We will continue our                                                                                     0.5
     present promotion and launch a new program, with the assistance of our marketing partner, the ABC
     Marketing Agency. They will advise us on the type, frequency, and content of new messages.
     Assume 100% of the existing budget is fixed with respect to volume along with new expenses. We
     expect incremental expenses, with $5 million of inflation in the first three years.

   7 Our existing sales force, comprised of four national account managers, will call on clients such as                                                                            0.5
     Wal-Mart®, Sears®, and Best Buy®. Existing expenses are assumed to be 100% fixed in relation to
     revenue. To tap into specialized markets, our strategy is aimed at adding four industry-specific
     managers, each with a salary base of $50,000 and 2% commission of generated revenues.

   8 The human resources budget will not change substantially aside from added hiring, recruiting,                                                                                  0.5
     training, and drug testing fees. Assume 10% of expenses is fixed; the balance is variable with
     volume.

   9 Assume current assets and liabilities are variable. Expect an addition of $10 million to operating                                                                             0.5
     property, spent in the first year. Our payment to vendors, suppliers, and taxes will be in thirty-day
     terms. We expect all payments to be in sixty-day terms.

  10 Assume revenue growth from our existing business will grow at 8% versus 10% in past years. Our                                                                                 0.5
     new strategy, however, adds incremental consulting revenues of $3.5, $4.5, and $6.5 million in the
     first, second, and third years. New warehousing will add revenue of $10, $30, and $40 million in the
     first, second, and third years. All new revenue will be subject to commissions for industry-specific
     managers.


  11 Using 2006 data, calculate the current ratio.                                                                                                                                  0.5
  12 Using 2006 data, calculate the profit percentage                                                                                                                               0.5
  13 Using 2006 data, calculate the debt to asset ratio                                                                                                                             0.5

  14 Explain how EFN can be calculated using the income statement and balance sheet.                                                                                                0.5

  15 Complete the 2007 pro forma statements (income statement and balance sheet) using the following guidelines:                                                                     6
     Sales increase 10% from 2006.
     Use line items 4 and 9 to determine which expenses are variable (change with sales) and which are fixed.


  16 Does Huffman need to borrow money?            That would be your EFN calculation                                                                                               2.5




                                                                                                         TOTAL POINTS FOR ASSIGNMENT                                                20              0
                                        Huffman Trucking Historical Financial Statements
                                                                     (Unaudited)
                                                                   (In Thousands)
Income Statement                                                                                                     Historical Data
                                                    Line Item                                   2006 % of              2005 % of
                                                   Reference    2007 Estimate    2006             Sales      2005        Sales       2004              2003        2002
Revenue                                        IS 1                             $879,944                    $807,288     100.00% $685,432             $603,852    $555,778

Operating Expenses
  Salaries, Wages & Benefits                   IS 2                             $353,739                    $330,597         40.95%       $293,212    $266,556    $251,468
  Fuel Expense                                 IS 3                             $217,363                    $192,357         23.83%       $139,389    $111,067    $104,780
  Operating Supplies and Expenses              IS 4                             $152,318                    $136,319         16.89%       $121,442    $107,471     $95,956
  Purchased Transportation                     IS 5                              $89,957                     $82,529         10.22%        $75,026     $64,400     $54,392
  Operating Taxes & Licenses                   IS 6                              $18,613                     $17,989          2.23%        $16,170     $14,700     $14,272
  Insurance & Claims                           IS 7                              $13,526                     $13,006          1.61%        $11,587     $10,534      $9,405
  Provision for Depreciation                   IS 8                               $2,726                      $2,738          0.34%         $2,663      $2,590      $2,598

Total Operating Expenses                       IS 9                             $848,242                    $775,535         96.07%       $659,489    $577,318    $532,871

Operating Income from Continuing Operations    IS 10                                $31,702                  $31,753          3.93%        $25,943     $26,534     $22,907

Interest Expense                               IS 11                                   $790                     $901          0.11%         $1,036      $1,147      $1,111
Tax Expense                                    IS 12                                $11,701                  $12,050          1.49%        $10,917     $10,879      $9,163

Net Income                                     IS 13                                $19,211                  $18,802          2.33%        $13,990     $14,508     $12,633



Balance Sheet                                                                                                           Historical Data
                                                  Line Item                                     2006 % of                 2005 % of
                                                  Reference                          2006         Sales      2005           Sales          2004       2003         2002
Current Assets
  Cash & Cash Equivalents                      BS 1                              $51,993                     $38,893          4.82%        $33,610     $30,071     $22,086
  Accounts Receivable                          BS 2                              $56,292                     $57,441          7.12%        $53,935     $46,043     $48,492
  Prepaid Expenses & Supplies                  BS 3                               $3,443                      $3,343          0.41%         $3,269      $3,174      $2,760
Total Current Assets                           BS 4                             $111,728                     $99,677         12.35%        $90,814     $79,288     $73,338

Carrier Operating Property (at cost)           BS 5                                  $73,024                 $70,957          8.79%        $69,009     $67,103     $65,166
  Less: Allowance for Depreciation             BS 6                                 ($57,536)               ($55,477)        -6.87%       ($53,473)   ($51,424)   ($49,356)
Net Carrier Operating Property                 BS 7                                  $15,488                 $15,480          1.92%        $15,536     $15,679     $15,810

Assets of Discontinued Operations              BS 8                                 $16,192                  $18,891          2.34%        $21,590     $24,288     $26,987
Goodwill (net)                                 BS 9                                 $57,767                  $53,977          6.69%        $55,646     $56,782     $51,380
Other Assets                                   BS 10                                $26,613                  $24,194          3.00%        $23,263     $25,564     $25,822

Total Assets                                   BS 11                            $227,788                    $212,219         26.29%       $206,849    $201,601    $193,337




Current Liabilities
  Accounts Payable                             BS 12                                $47,124                  $39,936          4.95%        $42,038     $30,462     $31,404
  Salaries & Wages                             BS 13                                $29,753                  $27,048          3.35%        $24,313     $21,904     $20,664
  Current Portion of Long-Term Debt            BS 14                                 $2,204                   $2,514          0.31%         $2,890      $3,200      $3,544
  Freight & Casualty Claims Payable            BS 15                                 $9,746                   $8,941          1.11%         $8,356      $7,737      $7,369
Total Current Liabilities                      BS 16                                $88,827                  $78,439          9.72%        $77,597     $63,303     $62,981

Long-Term Liabilities
  Accrued Pension & Post Retirement Health Care BS 17                               $58,362                  $52,721          6.53%        $47,390     $42,694     $38,813
  Long-Term Debt                                BS 18                               $13,431                  $15,318          1.90%        $17,607     $20,497     $22,697
Total Long Term Liabilities                     BS 19                               $71,793                  $68,039          8.43%        $64,997     $63,191     $61,510


Shareholders' Equity
   Common Stock
   ($1 par value
   Authorized: 20,000,000 shares)              BS 20                                 $3.882                   $3.882          0.00%         $3.882      $3.882      $3.882
   Treasury Shares                             BS 21                                ($1.952)                 ($1.952)         0.00%        ($1.952)    ($1.952)    ($1.952)
   Retained Earnings                           BS 22                                $67,166                  $65,739          8.14%        $64,253     $75,105     $68,844
Total Shareholders' Equity                     BS 23                                $67,168                  $65,741          8.14%        $64,255     $75,107     $68,846

Total Liabilities and Shareholders' Equity     BS 24                            $227,788                    $212,219         26.29%       $206,849    $201,601    $193,337
The only assumption you need to use for the pro forma is a 10% increase in sales. The other assumptions
he other assumptions are from the strategic direction memo

				
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