Question: Bradburn Corporation was formed five years ago
Bradburn Corporation was formed five years ago through an initial public offering (IPO) of common shares. Daniel Brown, who owns 15% of the common shares, was one of the organizers of Bradburn and is its current president. The company has been successful, but it is currently experiencing a shortage of funds. On June 10, 2020, Daniel Brown approached the Hibernia Bank, asking for a 24-month extension on two $35,000 notes, which are due on June 30, 2020, and September 30, 2020. Another note for $6,000 is due on March 31, 2021, but he expects no difficulty in paying this note on its due date. Brown explained that Bradburn's cash flow problems are due primarily to the company's desire to finance a $300,000 plant expansion spent evenly over the next two fiscal years through internally generated funds. The plant expansion will be used in operations following the completion of the construction in 2023. The commercial loan officer of Hibernia Bank requested financial reports for the past two fiscal years. These reports are reproduced below. 
Note 2: Depreciation charges on the plant and equipment of $100,000 and $102,500 for fiscal years ended March 31, 2019 and 2020, respectively, are included in cost of goods sold. Additional information: 
Instructions a. Calculate the following items for Bradburn Corporation. 1. Current ratio for fiscal years 2019 and 2020. Round to two decimal places. 2. Quick (acid-test) ratio for fiscal years 2019 and 2020. Round to two decimal places. 3. Receivables turnover for fiscal year 2020. Round to one decimal place. 4. Inventory turnover for fiscal year 2020. Round to one decimal place. 5. Asset turnover for fiscal year 2020. Round to two decimal places. 6. Gross profit percentage for fiscal years 2019 and 2020. Round to one decimal place. 7. Profit margin on sales for fiscal years 2019 and 2020. Round to one decimal place. 8. Return on assets for fiscal years 2019 and 2020. (Assume total assets were $1,688,500 at March 31, 2018.) Round to one decimal place. 9. Return on common share equity for fiscal years 2019 and 2020. (Assume total equity was $1,499,000 at March 31, 2018.) Round to one decimal place. 10. Earnings per share for fiscal years 2019 and 2020. Round to the nearest cent. 11. Payout ratio for fiscal years 2019 and 2020. Round to one decimal place. 12. Debt to total assets for fiscal years 2019 and 2020. Round to one decimal place. 13. Free cash flow to operating cash flows for fiscal years 2019 and 2020. Round to one decimal place. 14. Book value per share for fiscal years 2019 and 2020. Round to two decimal places. 15. Percentage change in sales, cost of goods sold, gross margin, and net income after tax from fiscal year 2019 to 2020. Round to two decimal places. b. Identify and explain what other financial reports and/or financial analyses might be helpful to the commercial loan officer of Hibernia Bank in evaluating Daniel Brown's request for a time extension on Bradburn's notes. c. Assume that the percentage changes experienced in fiscal year 2020 as compared with fiscal year 2019 for sales, cost of goods sold and operating expenses will be repeated in each of the next two years. Assume that the depreciation expense will increase at the same rate as that of cost of goods sold. Also assume that dividends of $2 per share will be paid in 2021 and 2022. Is Bradburn's desire to finance the plant expansion from internally generated funds realistic? Discuss. d. Should Hibernia Bank grant the extension on Bradburn's notes considering Daniel Brown's statement about financing the plant expansion through internally generated funds? Discuss.
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Bradburn Corporation Statement of Financial Position March 31 Assets 2020 2019 Cash $ 18,200 12,500 Notes receivable (current) 148,000 132,000 Accounts receivable (net) 131,800 125,500 Inventories (at cost) 105,000 50,000 Plant and equipment (net of depreciation) 1,449,000 1,420,500 Total assets $1,852,000 $1,740,500 2020 2019 Equity and Liabilities Share capital-common (130,000 shares issued) $1,300,000 $1,300,000 Retained earnings (note 1) 388,000 282,000 Accrued liabilities 9,000 6,000 Notcs payable (current) 76,000 61,500 Accounts payable 79,000 91,000 Total equity and liabilities $1,852,000 $1,740,500 Note 1: Cash dividends were paid at the rate of $1 per share in fiscal year 2019 and $2 per share in fiscal year 2020. Bradburn Corporation Income Statement For the Fiscal Years Ended March 31 2020 2019 Sales $3,000,000 $2,700,000 Cost of goods sold (note 2) 1,530,000 1,425,000 Gross margin 1,470,000 1,275,000 Operating expenses 860,000 780,000 Income before income tax 610,000 495,000 Income tax (30%) 183,000 148,500 Net income $ 427,000 $ 346,500 2020 2019 1. Cash flows from operating activities 2. Capital cxpenditures for the ycar $459,000 $350,000 128,000 110,000
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