Result of expansion into new product line

Assignment Help Financial Management

Reference no: EM131448233

Felicia & Fred recently hired a new designer who has considerable experience in product development of handbags and small leather goods. The intent was for the designer to initially work with the company’s innovation team to introduce a gift with purchase (GWP): a logo wristlet purse that can accommodate a smartphone. This GWP will be offered as a limited edition during the holiday season and customers or recipients will be encouraged through social media to participate in a survey regarding the product to determine future potential demand for handbags and other small leather goods bearing the Felicia & Fred logo.

The potential inclusion of handbags as part of the company’s product will require significant addition to the total value of Felicia & Fred’s working capital. The entire mix of assets and liabilities as part of the balance sheet might change.

Consider the following:

ANSWER MUST BE IN TWO PARAGRAPHS AND ALL QUESTIONS ANSWERED

Name three working capital elements that may change as a result of expansion into a new product line. Indicate why this element of working capital will change. What types of transactions will be either increased or initiated as a result of taking on this endeavor?

In order to maintain the company’s debt covenants, it must maintain a current ratio of 1.5. Its current ratio is presently 1.75 and has been maintained at that level for some time. What happens to a company’s current ratio if it takes on additional short-term debt or accounts payable to fund current assets when the current ratio is greater than one? Less than one?

Given your consideration of the part 2 result, should the company fund a working capital increase with short-term debt or long-term debt?

Reference no: EM131448233

Questions Cloud

What is the initial value of this forward contract : A stock is expected to pay a dividend of $1 per share in two months and again in five months. The stock price is $50 and the risk-free rate is 1% for all times. An investor has taken a short position in a six-month forward contract on the stock. What..

How many shares of xyz are outstanding : On May 5, 2015, Yahoo! Finance quotes the following about XYZ stock. How many shares of XYZ are outstanding? Round and answer to the nearest million. For example, if the answer is 500 million, then just enter "500". (Hint: Use the market capitalizati..

Calculate skys income tax refund for year : Sky Company reports a pretax operating loss of $50,000 in Year 3 for both financial reporting and income tax purposes. It's reported pretax financial income and taxable income for the previous 2 years haddock been: Year 1: $25,000 (tax rate 30%) and ..

What is the price they offer their customers : The price of heating oil today (October 16) is $2.10 per gallon. A heating oil company offers customers the opportunity to lock in heating oil for January 16 delivery at the forward price. The risk-free rate is 5% for all times (continuous compoundin..

Result of expansion into new product line : Felicia & Fred recently hired a new designer who has considerable experience in product development of handbags and small leather goods. Name three working capital elements that may change as a result of expansion into a new product line. Indicate wh..

What does your value function look like graphically : What does your value function look like graphically? Your friend the Joker gives you two newly issued dollar coins on your birthday. In terms of value, how much did you just gain? Once you have a closer look at them, though, you realize that The Joke..

Various tax services provide internal revenue code : The various tax services provide Internal Revenue Code (IRC) histories for researchers who need them. Why would tax preparers need to review prior years’ tax law?

What was your total real return on investment : You bought one of Great White Shark Repellant Co.’s 10 percent coupon bonds one year ago for $790. These bonds make annual payments and mature 6 years from now. Suppose you decide to sell your bonds today, when the required return on the bonds is 12 ..

Multimillion dollar fraud schemes : The article "Atlanta Man Convicted by Jury for Multimillion Dollar Fraud Schemes." What do you think were the key sources of digital data for providing admissible evidence?

User Account

All Pages