BUS303 – Business Finance – Comprehensive Problem – Module Three,,This problem builds upon each of the different modules to a logical analysis and conclusion, emphasizing the most important aspects of business finance through the completion of each of the four modules. Following is a brief description of each of the modules and the course objectives that are covered with the module.,Module One – this module will emphasize the student’s grasp of the formation of financial statements and the development of analytical measures to assess the financial condition of the business firm. (CO 1.2, 2.1),Module Two – this module will focus upon the development of pro forma financial statements given various planning assumptions. (CO 1.4),Module Three – this module will require the student to apply working capital analysis techniques and assess the cost of debt to a business firm. (CO 2.2, 3.2, 3.3, 3.4),Module Four – this final module will encompass the application of time-value of money concepts to the business firm’s decisions related to the firm’s overall cost of capital. (CO 4.1, 4.4),General Guidelines:,The proper, and professional, presentation of solutions associated with this comprehensive problem are part of the overall grading of each module. Because all analytic work is to be completed in Excel, but the solution submission is to be in Word, you must become familiar with importing schedules from Excel into Word in a professional manner. Please see the instructions contained in the Getting Started folder in Blackboard.,Each module is due as indicated in the Learning Activities folder for the particular week and is to be uploaded into the Assignment as shown in the Grade Center.,?,Module Three – 40 points,Part A:,Based on the pro forma projections for the first quarter, as provided in Module Two, Mr. Smith would like to know the breakeven point for the firm in terms of units to sell and the sales dollars for each month, on average, and for the quarter. He is considering making some changes to the pricing and fixed cost structure and would like to know how much flexibility he has.,Required: Based on the fixed costs from the pro forma income statement and the selling price and variable costs per unit, calculate the current breakeven point for the firm using the data from the 1st quarter pro forma schedules. The fixed costs are classified as selling and administrative costs and the interest expense of $9,000 for a quarter.,Part B:,Smith-John Widgets, Inc. has been running smoothly and, based on the pro forma projections that had been developed, the bank has provided the needed short-term borrowings that have helped smooth the company’s cash requirements. The company is now looking at better ways to manage the balances of inventory and, in particular, with managing the material ordering process.,Currently, the average inventory for the company has been based on 1.5 month’s supply, which resulted in a high level of inventory and few orders per year. However, based on information received in a seminar for small businesses Mr. John would like to see the policy changed to be based on the EOQ model. The current cost structure of the company has yielded the following inventory and order cost data:,,Using the information from the first three months of the year, January through March, the company has determined the following details regarding inventory costs and average balances:,,,Required: Prepare an analysis of the company’s current inventory costs and develop a recommended ordering cycle based on the application of an EOQ model. Make sure to include in your report the updated information as follows: cost breakdown of inventory costs, including carrying and ordering costs; the average inventory level; the number of orders to place each quarter; and the number of units to order with each order placed, per your recommendation.,Part C:,Currently, Smith-John does not offer early payment discounts to its customers. Mr. Smith is considering offering a cash discount to customers as a means to improve collections. He is considering the following alternatives:,,Required: Prepare a report giving Mr. Smith the cost, as a percentage, to the company of each of the proposed cash discount alternatives as presented, based on the cost of not taking a discount formula.,Part D:,In addition to the outstanding a long-term loan of $400,000 the company also has a short-term line of credit provided by the bank. Mr. Smith is negotiating with several new lending sources for additional loans and possibly an increase in borrowings. In meeting with several of these sources, Mr. Smith has received the following offers for financing:,,,Required: Calculate the effective interest rate for each of these financing offers. For Case 4 it is assumed that at the end of the ½ year the loan would have to be renegotiated at the then prevailing interest rates. Based on your analysis, identify for Mr. Smith which would be the better alternative based solely on the effective interest rate of the financing offer. Make sure to display your calculations in case Mr. Smith has any specific questions.