Demello Case Solution

2. Bigger Isn’t Always Better! - TEACHING NOTE
Table I Quickfix Autoparts Balance Sheet
2000 ASSETS Cash and marketable securities Accounts receivable Inventory Current assets Land, buildings, plant, and equipment Accumulated depreciation Net fixed assets Total assets LIABILITIES AND EQUITIES Short-term bank loans Accounts payable Accruals Current liabilities Long-term bank loans Mortgage Long-term debt Total liabilities Common stock (100,000 shares) Retained earnings Total equity Total liabilities and equity 2001 2002 2003 2004

$155,000 10,000 250,000 $415,000

$309,099 12,000 270,000 $591,099

$75,948 20,000 500,000 $595,948

$28,826 77,653 520,000 $626,480

$18,425 90,078 560,000 $668,503

$250,000 (25,000) $225,000 $640,000

$250,000 (50,000) $200,000 $791,099

$500,000 (100,000) $400,000 $995,948

$500,000 (150,000) $350,000 $976,480

$500,000 (200,000) $300,000 $968,503

$50, 000 10,000 5,000 $65,000 $63,366 175,000 $238,366 $303,366 $320,000 16,634 $336,634

$145,000 10,506 5,100 $160,606 $98,000 173,000 $271,000 $431,606 $320,000 39,493 $359,493

$140,000 19,998 7,331 $167,329 $196,000 271,000 $467,000 $634,329 $320,000 41,619 $361,619

$148,000 15,995 9,301 $173,296 $190,000 268,000 $458,000 $631,296 $320,000 25,184 $345,184

$148,000 16,795 11,626 $176,421 $183,000 264,000 $447,000 $623,421 $320,000 25,082 $345,082

$640,000

$791,099

$995,948

$976,480

$968,503

1

Table II Quickfix Autoparts Income Statement

2000
Net sales Cost of goods sold Gross profit Admin and selling exp Depreciation Miscellaneous expenses Total operating exp EBIT Interest on ST loans Interest on LT loans Interest on mortgage Total interest Before-tax earnings Taxes Net income Dividends on stock Additions to retained earnings EPS (100,000 shares) $600,000 480,000 $120,000 $30,000 25,000 2,027 $57,027 $62,973 $15,000 8,000 12,250 $35,250 $27,723 11,089 $16,634 0

2001
$655,000 537,100 $117,900 $15,345 25,000 3,557 $43,902... [continues]

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