Question

Scenario for Part B

You have been engaged by Jasper Industries to examine its projected ?nancial statements for 2016.

(a)The Packaging Division’s operating forecast assumes that the Lamar facility will be completed and operating at 46% of capacity on February 2, 2016. It is highly improbable that the facility will be operational before December 31, 2015. For every month’s delay in opening the facility, the revenues of the Packaging Division are reduced by $164,000 and operating earnings are reduced by $48,000.

1.    Determine the estimated completion date of the Lamar facility:

2.    Estimate the financial impact of the Lamar facility opening:

(b)Jasper intends to sell certain real estate and facilities held by the Assembly Division at an after-tax pro?t of $935,000. The proceeds of this sale will be used to retire outstanding debt (described in c).

1.    Determine the cost and tax basis of the land:

2.    Determine the market value of the real estate:

3.    Determine the authorization responsibility for use of the proceeds:

4.    Determine the after-tax profit and proceeds:       

(a)Jasper will call and retire all outstanding 6% subordinated debentures (callable at 104).  Given the present interest rate of 5% on similar debt, it is expected that the debentures will require the full call premium. A rise in market interest rates to 6% would reduce the loss on bond retirement from the projected $75,000 to $65,000.

1.    Determine what amount is adequate for bond repurchase:

2.    Determine the authorization responsibility for the retirement:

3.    Determine the most probable cost of repurchasing the bonds:

Answer 1

Answer 1 in the image

(a)Jasper will call and retire all outstanding 6% subordinated debentures (callable at 104).  Given the present interest rate of 5% on similar debt, it is expected that the debentures will require the full call premium. A rise in market interest rates to 6% would reduce the loss on bond retirement from the projected $75,000 to $65,000.

1.    Determine what amount is adequate for bond repurchase:

Bonds can be recalled at $ 104

2.    Determine the authorization responsibility for the retirement:

Jasper will be authorized after getting consent from debenture trustees

3.    Determine the most probable cost of repurchasing the bonds:

Carrying value in the books because there is change in market interest rates.

*** an expert here is allowed to answer 4 sub parts in case of multipart quesitoms. ***