# 2. PART I AND PART II OF THE ASSIGNMENT. Table of Conte

Added on - Sep 2019

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1PART I AND PART II OF THE ASSIGNMENT

2Table of ContentsPART I3PART II3-6

3PART I:Schedule 1 to Schedule 15, Please refer the “CapCo student excel template v2_Final.xlsx”Workbook.Note: The Balance Sheet Values given in the Solution does not match with the Actual Worked OutBalance Sheet for Schedule 12 to Schedule 14. Though the assumptions has been changed righlty.PART II:1.What percentage increase does this increase in selling price represent? Is it realistic to raiseprices this amount in a competitive market where Capco’s product is not differentiated?Answer: The selling price arrived at is $3,764 which is an increase of 3.12%. It is not realistic toraise prices in a competitive market.2.Based on his knowledge of the market, the owner is quite sure that the number of units soldcannot be increased unless the sales price is dropped. If the selling price was reduced by 2% to$3,577, he believes it is realistic to assume that projected monthly sales would increase salessubstantially from the current estimate of 2 additional units per month He is wondering by howmuch sales in units would have to increase each month at the lower selling price to earn$120,000 in net income (round your answer to one decimal point). Use GOAL SEEK todetermine whether this suggestion is viable if the company’sproductioncapacityis a total of 750units for the year.Answer: This suggestion is not viable as the total units required to be sold to achieve Net Incomewould be 806 units which is higher than the production capacity of 750 units per year.3.Continuing on with scenario 2), by how much would net income increase if sales increased onlyto match production capacity at the new (lower) price? [Hint: you need to calculate how muchsales in units can increase each month at the lower selling price to arrive at the productioncapacity constraint of 750 units by using GOAL SEEK.]Answer: Existing Net Income of $70,473 would increase to $99,137 ie, $28,664 (40.67%increase of existing Net Income)4.Under the scenario outlined in 2) above, what is the credit line balance at the end of Decemberassuming there was no production constraint (i.e., you can produce as much as you need)?Explainwhy it has increased so dramatically even though net income has increased substantially(i.e., the company has become more profitable)? What do we learn about the currentworkingcapitalpolicies of the company?