Professor Crocker H. Liu
| Financial Management, Spring 2000 Tire City Case
Frequently Asked Questions | |
Note: What I'm trying to make you do is THINK! To read things carefully. To make judgements for yourself without your parents/teachers telling you what to do. This is an INDIVIDUAL project and therefore, anyone who cheats will be given an F in the course.
Marine Corp. slogan: The weak quit when they experience pain, the strong quit only when the mission is accomplished.
Collaborating with Others:
* I would like to know if we can work on the case with another student to make things a bit easier and more productive, but still hand in separate ...view middle of the document...
Would you please clarify that?
Did you look at your accounting text to see whether this is a true statement? You need to revisit your accounting principles. Finance doesn't exist in a vacuum. It builds on knowledge that you learn in accounting, marketing, management, etc. The term "balance" sheet means things must be in balance. Assets (your investments) must equal how you finance those investments (either through debt and/OR equity). Debt is considered liabilities. What do you think the answer to your question should be??
* Do we use the assumption/income statement/balance sheet that you use in the sample sheet or do we use the set up in the Tire City case?
You can model it whichever way you want to. Hey, it's like eating an OREO cookie. Some people like to unscrew the cookie and eat the cream first, other people just put the whole cookie in their mouth. I gave you an example where I like to put all of the assumptions on the top so that I can easily find where I made my mistake.
* How can we find the sales increase for year 1993 if we don't know the sales value for 1992?
Use sales for 1993 as the base year.
* Are we supposed to measure the annual increase in sales with 1993 for every year or are we supposed to compare it to the previous year? The previous year seems more logical. And I'm having trouble trying to figure out how I'm supposed to find the percentages for 1997 and the forecasting for 1998.
I think that you answered your own question. What does "annual increase" mean? Does it mean from one year to the next or from the base year to the year in question? The case suggests how you derive the percentages for 1997 (see the paragraph on page 2 entitled Mr. Martin's Task). Does the case ask you to forecast 1998???
COGS, Accounts Receivables, Accounts Payable, etc:
* For the A/R in the Tire City Case, do we just take the percentage of sales from the actual income statement and balance sheets (years 1993 to 1995)? Or do we use the projected A/R given in the green textbook (Corporate Finance: A Valuation Approach), where Projected A/R = (projected average collection period)/365 x projected sales.
Do a straight forward A/R as a percentage of sales as stated in the case. The Benninga and Sarig (BS) give a variation of this simple ratio. This case also entails following instructions so the formulas may vary from what the BS book say
* When forecasting future A/R, A/P, and inventories, do we also use the percentage of sales technique? In chapter 6 of BS, they project A/R, A/P, and inventories by calculating the average collection period, average payable period, and inventory days. Which method do we use?
It's nice to know that students are reading the BS book prior to doing the assignment. Both methods are correct. We're doing a simple percentage as was demonstrated in class. More specifically, calculate the relevant historical ratios such as accounts...