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apnachannel51214Texas A & M University - Texarkana

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Ratio Analysis at S & S Air, Inc.
Chris Guthrie was recently hired by S&S Air, Inc., to assist the
company with its financial planning and to evaluate the company's
performance. Chris graduated from college five years
ago with a finance degree. He has been employed in the finance
department of a Fortune 500 company since then.

S&S Air was founded 10 years ago by friends Mark
Sexton and Todd Story. The company has manufactured and
sold light airplanes over this period, and the company's products
have received high reviews for safety and reliability. The
company has a niche market in that it sells primarily to ind~
viduals who own and fly their-own airplanes. The company
has two models; the Birdie, which sells for $53,000, and the
Eagle, which sells for $78,000.

Although the company manufactures aircraft, its operations
are different from commercial aircraft companies. S&S
Air builds aircraft to order. By using prefabricated parts, the
company can complete the manufacture of an airplane in only
five weeks. The company also receives a deposit on each
order, as well as another partial payment before the order is
complete. In contrast, a commercial airplane may take one
and one-half to two years to manufacture once the order is
placed.

Mark and Todd have provided the following financial
statements. Chris has gathered the industry ratios for the light
airplane manufacturing industry.


Income Statement
Sales 30,499,420
Cost of goods sold 22,224,580
Other expenses 3,867,500
Depreciation 1,366,680
EBIT 3,040,660
Interest 478,240
Taxable income 2,562,420
Taxes (40%) 1,024,968
Net income 1,537,452
Dividends 560,000
Add to retained earnings 977,452

S&SAIR,INC.
2006 Balance Sheet
Assets
Current assets
Accounts receivable 708,400
Cash $ 441,000
Inventory 1,037,120
Total current assets $ 2,186,520

Fixed assets
Net plant and equipment $16,122,400

Total assets $18,308,920


Liabilities and Equity
Current liabilities

Accounts payable $ 889,000
Notes payable 2,030,000
Total current liabilities $ 2,919,000

Long-term debt $ 5,320,000

Shareholder equity
Common stock $ 350,000
Retained earnings 9,719,920
Total equity $10,069,920
Total liabilities and equity $18,308,920


Light Airplane Industry Ratios
Lower quartile median Upper quartile
Current Ratio .50 1.43 1.89
Quick Ratio .21 .38 .62
Cash Ratio .08 .21 .39
Total Asset Turnover .68 .85 1.38
Inventory Turnover 4.89 6.15 10.89
Receivables turnover 6.27 9.82 14.11
Total Debt Ratio .44 .52 .61
Debt-Equity Ratio .79 1.08 1.56
Equity Multiplier 1.79 2.08 2.56
Times Interest Earned 5.18 8.06 9.83
Cash Coverage Ratio 5.84 8.43 10.27
Profit Margin 4.05% 6.98% 9.87%
Return on Assets 6.05% 10.53% 13.21%
Return on Equity 9.93% 16.54% 26.15%



Questions:
1. Using the financial statements provided for S &S Air, calculate each of the ratios listed in the table for the light aircraft industry.
2

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Kuehner estimates that it can lease Parker Road Plaza for $19.00 per square foot (GLA) base rent with a 3 percent overage on gross sales in excess of $200 per square foot (GLA). The company expects rents to increase by 5 percent per year during the lease period and tenant reimbursements to run $8 per square foot (GLA) and to increase at the same rate as rents. Kuehner expects to have the shopping center 70 percent leased during the first year of operation After that, vacancies should average about 5 percent per year. The vacancy losses should be cal-culated on the entire gross potential income, which includes minimum rents, percentage rents and tenant reimbursements. Sales, which are expected to average $220 per square foot (GLA) for the first year of operation, should grow at 6 percent per year. The operating expenses are expected to average $14 per square foot of GLA for the first year and will increase at the same rate as the rents. Kuehner will collect an additional 5 percent of EGI as an annual management fee. The final sales price is expected to be $19.9 million and Kuehner will incur sales expenses of 2 percent. Two schedules provide necessary information about this phase of the project:

1. What cash flows would Kuehner Development Co. earn before and after taxes for Parker Road Plaza if it were operated for five years (assuming the marginal tax rate to be 35% for ordinary income, 20% capital gains, and 25% for depreciation recapture)?

2. What cash flows will Kuehner realize before and after taxes from the sale of the project after five years?

3. Assuming that Kuehner's before-tax required rate of return is 16 percent, should the company develop Parker Road Plaza? Also determine BTNPV and BTIRR.

 

 

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Assignment Brief and Guidance:

EMC Cloud Solutions is reputed as the nationā€™s most reliable Cloud solution provider in Sri Lanka. A number of high-profile businesses in Sri Lanka including Esoft Metro Camps network, SME Bank Sri Lanka and WEEFM are facilitated by EMC Cloud Solutions. EMC Cloud provides nearly 500 of its customers with SaaS, PaaS & IaaS solutions with high-capacity compute and storage options. Also, EMC is a selected contractor for Sri Lanka, The Ministry of Defense for hosting government and defense systems.

EMCā€™s central data center facility is located at Colombo Sri Lanka along with its corporate head-office in Bambalapitiya. Their premises at Bambalapitiya is a six-story building with the 1st floor dedicated to sales and customer services equipped with public wifi facility. Second-floor hosts HR, Finance and Training & Development departments and the third-floor hosts boardroom and offices for senior executives along with the IT and Data center department. Floor 4,5,6 hosts computer servers which make up the data center.

With the rapid growth of information technology in Kandy area in recent years, EMC seeks opportunity to extend its services to Kandy, Sri Lanka. As of yet, the organization still considers the nature of such extension with what to implement, where is the suitable location and other essential options such as security are actually being discussed.

You are hired by the management of EMC Solutions as a Security Expert to evaluate the security-related specifics of its present system and provide recommendations on security and reliability related improvements of its present system as well as to plan the establishment of the extension on a solidĀ  security foundation.

Activity 01

Assuming the role of External Security Consultant, you need to compile a report focusing on following elements to the board of EMC Cloud Solutions;
Identify types of security risks EMC Cloud is subject to, in its present setup and the impact, such issues would create on the business itself.

Develop and describe security procedures for EMC Cloud to minimize the impact of issues discussed in section (1.1) by assessing and treating the risks.

Activity 02
Discuss how EMC Cloud and its clients will be impacted by improper/ incorrect configurations which are applicable to firewalls and VPN solutions.

Explain how following technologies would benefit EMC Cloud and its Clients by facilitating a ā€˜trusted networkā€™. (Support your answer with suitable illustrations).
DMZ
Static IP iii) NAT
Discuss the benefits of implementing network monitoring systems.


Activity 03
Formulate a suitable risk assessment procedure for EMC Cloud solutions to safeguard itself and its clients.


Explain the mandatory data protection laws and procedures which will be applied to data storage solutions provided by EMC Cloud. You may also highlight on risk management methodology.

Comment on the topic, ā€˜IT Security & Organizational Policyā€™

'IT Security and Organizational Policy' Activity 01: Identifying Security Risk...

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