Fi 512 Weeks 1-3

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FI 512 Week 1 Answer Key

Chapter 1

1. [Financing Concepts] The following ventures are at different stages in their life cycles. Identify the likely stage for each venture and describe the type of financing each venture is likely to be seeking and identify potential sources for that financing. A. Phil Young, founder of Pedal Pushers, has an idea for a pedal replacement for children’s bicycles. The Pedal Pusher will replace existing bicycle pedals with an easy release stirrup to help smaller children hold their feet on the pedals. The Pedal Pusher will also glow in the dark and will provide a musical sound as the bicycle is pedaled. Phil is seeking some financial help in developing working prototypes. Since the venture is still in the idea stage and searching for prototype capital, the venture would be classified in the development stage. While in this stage, the venture will be making efforts to obtain seed financing, which typically comes from the entrepreneur’s assets or from family and friends. B. Petal Providers is a firm that is trying to model the U.S. floral industry after its European counterparts. European flower markets tend to have larger selections at lower prices. Revenues started at $1 million last year when the first “mega” Petal Providers floral outlet was opened. Revenues are expected to be $3 million this year and $15 million next year after two additional stores are opened.

Since the venture has already established sizable revenue and is in the process of growing its venture by opening new stores, the firm has just entered the rapid growth stage.

Chapter 2 2. [Financial Ratios and Performance] Following is financial information for three ventures: Venture XX Venture ZZ Venture YY After-tax Profit Margins 5% 15% 25% Asset Turnover 2.0 times 1.0 times 3.0 times A. Calculate the return on assets for each firm.

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