Polar Sports, Inc.
Fall 2014
BA 615 Polar Sports
Question 1
1. Which factors should Mr. Weir consider in deciding whether to adopt level production?
Mr. Weir must analyze both business and financial risks of adopting level production. As a for profit firm, the first thing that Mr. Weir should consider is whether level production will increase net income and provide more value for the shareholders. The pro forma statements show that Polar Sports will be more profitable. Polar Sports will make $406,000 more in net income under level production. The difference in net income overall is due to the decrease in
COGS of $1,080,000 offset by increases in operating expenses, interest paid, and taxes and a decrease in interest earned. If Mr. Weir
…show more content…
2012 Pro Forma Cash Flow S tatement Under Level Production (in thousands of dollars)
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Operating Activities
Net income
-76 -129 -147 -158 -216 -214 -166 -130
Depreciation
25
25
25
25
25
25
25
25
Less: Increase (Decrease) in A/R
-2,704 -1,710 -202
-76 -176 -139
151
252
Less: Increase (Decrease) in Inventory
479
608
652
673
803
792
673
576
Add: Increase (Decrease) in A/P
-516
0
0
0
0
0
0
0
Add: Increase (Decrease) in Accrued Taxes
-39
-67 -215 -201 -111 -230
-86
-67
Cash flow from operations
1,619
930 -787 -931 -929 -1,073 -1,051 -1,000
Investing Activities
Less: capital expenditures
Cash flow from operating and investing
Cash available before financing activities
Financing Activities
Less: bank note repayment
Less: debt repayment
Add: bank note issuance
Cash flow from financing
Total Cash Flow
Oct
505
25
1,814
-882
0
140
-262
385 1,230
670
25
25
25
1,386 1,928
718
-612 -2,534 -1,228
0
0
0
198
633
225
-166 2,495 1,429
-25
1,594
1,594
-25
905
1,673
-25
-812
862
-25
-956
-95
826
0
0
-826
0
0
0
0
0
0
0
0
0
0
95
95
0
0
954
954
0
50
1,148
1,098
0
0
1,076
1,076
0
0
1,025
1,025
0
0
287
287
768
905
-812
-862
0
0
0
0
0
Jun
Jul
Mar
Apr
-25
-25
-25
-25
-954 -1,098 -1,076 -1,025
-954 -1,098 -1,076 -1,025
S ep
Dec
Jan
Feb
May
Inventory - Level
1227
1706
2314
2966
3639
4442
5234
5907
Inventory - Seasonal
1227
1227
1227
1227
1227
1227
1227
1227
Page 3
Aug
-25
-287
-287
Nov
-25
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