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– ## Week2Assignment_Case1-RatiosandFinancialPlanning-FINC600I001Summer2025-APEI.pdf
**## Week2Assignment_Case1-RatiosandFinancialPlanning-FINC600I001Summer2025-APEI.pdf**
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Instructions
Case 1 – Ratios and Financial
Planning
[Chapter 3, page 81]
In 1969, Tom Warren founded East Coast Yachts. The company’s
operations are located near Hilton Head Island, South Carolina, and the
company is structured as a sole proprietorship. The company has
manufactured custom midsize, high-performance yachts for clients, and
its products have received high reviews for safety and reliability. The
company’s yachts have also recently received the highest award for
customer satisfaction. The yachts are primarily purchased by wealthy
individuals for pleasure use. Occasionally, a yacht is manufactured for
purchase by a company for business purposes.
The custom yacht industry is fragmented, with a number of manufacturers.
As with any industry, there are market leaders, but the diverse nature of
the industry ensures that no manufacturer dominates the market. The
competition in the market, as well as the product cost, ensures that
attention to detail is a necessity. For instance, East Coast Yachts will spend
80 to 100 hours on hand-buffing the stainless steel stem-iron, which is
the metal cap on the yacht’s bow that conceivably could collide with a
dock or another boat.
Several years ago, Tom retired from the day-to-day operations of the
company and turned the operations of the company over to his daughter,
Larissa.
Because of the dramatic growth at East Coast Yachts, Larissa decided that
the company should be reorganized as a corporation and, today, the
company is publicly traded under the ticker symbol “ECY.”
Dan Ervin was recently hired by East Coast Yachts to assist the company
with its short-term financial planning and also to evaluate the company’s
financial performance. Dan graduated from college five years ago with a
finance degree, and he has been employed in the treasury department of a
Fortune 500 company since then.
The company’s past growth has been somewhat hectic, in part due to poor
planning. In anticipation of future growth, Larissa has asked Dan to
analyze the company’s cash flows. The company’s financial statements are
prepared by an outside auditor.
After Dan’s analysis of East Coast Yachts’ cash flow (at the end of our
previous chapter), Larissa approached Dan about the company’s
performance and future growth plans. First, Larissa wants to find out how
East Coast Yachts is performing relative to its peers. Additionally, she
wants to find out the future financing necessary to fund the company’s
growth. In the past, East Coast Yachts experienced difficulty in financing
its growth plan, in large part because of poor planning. In fact, the
company had to turn down several large jobs because its facilities were
unable to handle the additional demand. Larissa hoped that Dan would be
able to estimate the amount of capital the company would have to raise
next year so that East Coast Yachts would be better prepared to fund its
expansion plans.
To get Dan started with his analyses, Larissa provided the following
financial statements. Dan then gathered the industry ratios for the yacht
manufacturing industry.
East Coast Yachts
2023 Income Statement
Item Income
Sales $495,381,600
Cost of goods sold $357,466,500
Selling, general, and administrative $ 59,200,300
Depreciation $ 16,166,700
EBIT $ 62,548,100
Interest expense $ 8,910,000
EBT $ 53,638,100
Taxes (25%) $ 13,409,525
Net Income $ 40,228,575
Item Income
Dividends $ 17,437,050
Retained earnings $ 22,791,525
East Coast Yachts
2023 Balance Sheet
Current Assets Amount
Current
Liabilities
Amount
Cash and
equivalents
$ 9,096,300
Accounts
payable
$ 36,146,575
Accounts
receivable
$ 15,131,900
Accrued
expenses
$ 5,151,400
Inventory $ 16,322,100
Total
current liabilities $ 41,297,975
Other $ 949,400
Total current
assets $ 41,499,700
Fixed assets Long-term debt $137,200,000
Current Assets Amount
Current
Liabilities
Amount
Property,
plant, and
equipment
$370,828,800
Total long-
term liabilities
$137,200,000
Less
accumulated
depreciation
(92,206,700)
Net property,
plant, and
equipment
$278,622,100
Intangible assets
and others
$ 6,094,800 Stockholders'
equity
Total fixed
assets
$284,716,900 Preferred
stock
$ 1,595,700
Common
stock
$ 29,057,000
Capital
surplus
$ 24,178,000
Accumulated
retained earnings
$131,382,725
Less treasury
stock
(38,494,800)
Current Assets Amount
Current
Liabilities
Amount
Total equity $ 147,718,625
Total assets $326,216,600
Total liabilities
and
shareholders'
equity
$326,216,600
Yacht Industry Ratios
Ratio
Lower
Quartile
Median
Upper
Quartile
Current ratio .86 1.51 1.97
Quick ratio .43 .75 1.01
Total asset turnover 1.10 1.27 1.46
Inventory turnover 12.18 14.38 16.43
Receivables turnover 10.25 17.65 22.43
Debt ratio .32 .56 .61
Ratio
Lower
Quartile
Median
Upper
Quartile
Debt-equity ratio .83 1.13 1.44
Equity multiplier 1.83 2.13 2.44
Interest coverage 5.72 8.21 10.83
Profit margin 5.02% 7.48% 9.05%
Return on assets 7.05% 10.67% 14.16%
Return on equity 14.06% 19.32% 26.41%
Assignment Directions
Write a case analysis of 2,000 – 2,500 words (8 to 10 pages), content (title
page and reference page not included) in proper APA format, covering the
following requirements:
1. East Coast Yachts uses a small percentage of preferred stock as a
source of financing. In calculating the ratios for the company, should
preferred stock be included as part of the company’s total equity?
2. Calculate all of the ratios listed in the industry table for East Coast
Yachts for 2023. (Use Excel to do the calculations, then copy and
paste them into your paper).
3. Compare the performance of East Coast Yachts to the industry as a
whole. For each ratio, use decision criteria and comment on why it
might be viewed as positive or negative relative to the
industry. Suppose you create an inventory ratio calculated as
inventory divided by current liabilities. How would you interpret this
ratio? How does East Coast Yachts compare to the industry average
for this ratio?
4. Calculate the sustainable growth rate for East Coast Yachts.
Calculate external funds needed (EFN) and prepare pro forma income
statements and balance sheets assuming growth at precisely this
rate. Recalculate all of the ratios in the previous question given these
new criteria. What does your analysis conclude? (Use Excel to do the
calculations, then copy and paste them into your paper).
5. As a practical matter, East Coast Yachts is unlikely to be willing to
raise external equity capital, in part because the shareholders don’t
want to dilute their existing ownership and control positions.
However, East Coast Yachts is planning for a growth rate of 20
percent next year. What are your conclusions and recommendations
about the feasibility of East Coast’s expansion plans?
6. Most assets can be increased as a percentage of sales. For instance,
cash can be increased by any amount. However, fixed assets often
must be increased in specific amounts because it is impossible, as a
practical matter, to buy part of a new plant or machine. In this case,
a company has a “staircase” or “lumpy” fixed cost structure. Assume
that East Coast Yachts is currently producing at 100 percent of
capacity and sales are expected to grow at 20 percent. As a result, to
expand production, the company must set up an entirely new line at
a cost of $75 million. Prepare the pro forma income statement and
balance sheet given these new criteria. What is the new EFN with
these assumptions? What does this imply about capacity utilization
for East Coast Yachts next year? (Use Excel to do the calculations,
then copy and paste them into your paper).
Submission Guidelines
Prepare this Assignment according to the APA guidelines, including a
title page, an introduction, and a conclusion. An abstract is not
required. Use in-text citations and include a References section. A
template is included in the Resources and Supports.
In your report, make certain that you include at least three (3)
credible outside references from search engines or scholarly sources
from the APUS Online Library.
Note that your attached paper will automatically be submitted to
Turnitin, and an Originality Report should be sent back to the
classroom within around 15 minutes. The Originality report does not
actually recommend changes. It does point out where you may need
to add a citation or quotation marks (if not already cited). Once you
use it a few times, you will appreciate this tool, as it will assist you in
improving quality and content, as well as avoiding plagiarism. Your
goal is to keep direct quotations to a minimum and to make sure
that you do not just cut and paste material. Ensure that all your
references are cited. Students should strive for a TII report with a
similarity index of less than 20%.
In the Assignment dropbox, please attach your paper as a file; do
not copy & paste. Submit your assignment by 11:59 pm ET, Day 7
(Sunday).
Your paper will be evaluated according to the Writing Assignment Grading
Rubric shown below. To maximize your grade, be sure to use the proper
organization (intro, body, conclusion) and follow APA style. Your paper
should have a title page and reference page, but you do not need an
abstract for this assignment. See the PowerPoint presentation attached for
APA assistance.
This paper will be graded according to the FINC Graduate Grading Paper
Rubric
Be sure to review the following before submitting your assignment:
Academic Integrity [content page]
[https://myclassroom.apus.edu/d2l/le/lessons/580823/topics/18078757](https://myclassroom.apus.edu/d2l/le/lessons/580823/topics/18078757)
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Due on Aug 17, 2025 11:59 PM
Assignment Rubric: FINC Graduate Grading Paper Rubric [content
page]
If you do not see the rubric, in the blue horizontal navigation
bar select Course Tools, then Assignments. Select the
appropriate assignment, and the rubric will be located near the
bottom of the page.
This Assignment aligns with the following:
Course Objective: 1 [content page]
Learning Objectives: 1.4, 1.5, and 1.6 [content page]
Resources and Supports
Student Paper Template [Word download]
Office 365 [webpage]: You have free access as an APUS student. Sign
in with your MyCampus Email credentials.
Submitting and Confirming a Submission : Watch this 3-
minute video if you need guidance on submitting your assignment.
[https://myclassroom.apus.edu/d2l/common/dialogs/quickLink/quickLink.d2l?ou=679977&type=dropbox&rcode=00D22884-7DC5-4408-809B-589E36B04C5A-900697](https://myclassroom.apus.edu/d2l/common/dialogs/quickLink/quickLink.d2l?ou=679977&type=dropbox&rcode=00D22884-7DC5-4408-809B-589E36B04C5A-900697)
[https://myclassroom.apus.edu/d2l/common/dialogs/quickLink/quickLink.d2l?ou=679977&type=dropbox&rcode=00D22884-7DC5-4408-809B-589E36B04C5A-900697](https://myclassroom.apus.edu/d2l/common/dialogs/quickLink/quickLink.d2l?ou=679977&type=dropbox&rcode=00D22884-7DC5-4408-809B-589E36B04C5A-900697)
[https://myclassroom.apus.edu/d2l/le/lessons/580823/topics/18078756](https://myclassroom.apus.edu/d2l/le/lessons/580823/topics/18078756)
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[https://myclassroom.apus.edu/d2l/common/dialogs/quickLink/quickLink.d2l?ou=679977&type=coursefile&fileId=Student+Paper+Template+APA+7th+_002_.docx](https://myclassroom.apus.edu/d2l/common/dialogs/quickLink/quickLink.d2l?ou=679977&type=coursefile&fileId=Student+Paper+Template+APA+7th+_002_.docx)
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**## Week2Assignment_Case1-RatiosandFinancialPlanning-FINC600I001Summer2025-APEI.pdf**
Hide Assignment Information
Turnitin™
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Instructions
Case 1 – Ratios and Financial
Planning
[Chapter 3, page 81]
In 1969, Tom Warren founded East Coast Yachts. The company’s
operations are located near Hilton Head Island, South Carolina, and the
company is structured as a sole proprietorship. The company has
manufactured custom midsize, high-performance yachts for clients, and
its products have received high reviews for safety and reliability. The
company’s yachts have also recently received the highest award for
customer satisfaction. The yachts are primarily purchased by wealthy
individuals for pleasure use. Occasionally, a yacht is manufactured for
purchase by a company for business purposes.
The custom yacht industry is fragmented, with a number of manufacturers.
As with any industry, there are market leaders, but the diverse nature of
the industry ensures that no manufacturer dominates the market. The
competition in the market, as well as the product cost, ensures that
attention to detail is a necessity. For instance, East Coast Yachts will spend
80 to 100 hours on hand-buffing the stainless steel stem-iron, which is
the metal cap on the yacht’s bow that conceivably could collide with a
dock or another boat.
Several years ago, Tom retired from the day-to-day operations of the
company and turned the operations of the company over to his daughter,
Larissa.
Because of the dramatic growth at East Coast Yachts, Larissa decided that
the company should be reorganized as a corporation and, today, the
company is publicly traded under the ticker symbol “ECY.”
Dan Ervin was recently hired by East Coast Yachts to assist the company
with its short-term financial planning and also to evaluate the company’s
financial performance. Dan graduated from college five years ago with a
finance degree, and he has been employed in the treasury department of a
Fortune 500 company since then.
The company’s past growth has been somewhat hectic, in part due to poor
planning. In anticipation of future growth, Larissa has asked Dan to
analyze the company’s cash flows. The company’s financial statements are
prepared by an outside auditor.
After Dan’s analysis of East Coast Yachts’ cash flow (at the end of our
previous chapter), Larissa approached Dan about the company’s
performance and future growth plans. First, Larissa wants to find out how
East Coast Yachts is performing relative to its peers. Additionally, she
wants to find out the future financing necessary to fund the company’s
growth. In the past, East Coast Yachts experienced difficulty in financing
its growth plan, in large part because of poor planning. In fact, the
company had to turn down several large jobs because its facilities were
unable to handle the additional demand. Larissa hoped that Dan would be
able to estimate the amount of capital the company would have to raise
next year so that East Coast Yachts would be better prepared to fund its
expansion plans.
To get Dan started with his analyses, Larissa provided the following
financial statements. Dan then gathered the industry ratios for the yacht
manufacturing industry.
East Coast Yachts
2023 Income Statement
Item Income
Sales $495,381,600
Cost of goods sold $357,466,500
Selling, general, and administrative $ 59,200,300
Depreciation $ 16,166,700
EBIT $ 62,548,100
Interest expense $ 8,910,000
EBT $ 53,638,100
Taxes (25%) $ 13,409,525
Net Income $ 40,228,575
Item Income
Dividends $ 17,437,050
Retained earnings $ 22,791,525
East Coast Yachts
2023 Balance Sheet
Current Assets Amount
Current
Liabilities
Amount
Cash and
equivalents
$ 9,096,300
Accounts
payable
$ 36,146,575
Accounts
receivable
$ 15,131,900
Accrued
expenses
$ 5,151,400
Inventory $ 16,322,100
Total
current liabilities $ 41,297,975
Other $ 949,400
Total current
assets $ 41,499,700
Fixed assets Long-term debt $137,200,000
Current Assets Amount
Current
Liabilities
Amount
Property,
plant, and
equipment
$370,828,800
Total long-
term liabilities
$137,200,000
Less
accumulated
depreciation
(92,206,700)
Net property,
plant, and
equipment
$278,622,100
Intangible assets
and others
$ 6,094,800 Stockholders'
equity
Total fixed
assets
$284,716,900 Preferred
stock
$ 1,595,700
Common
stock
$ 29,057,000
Capital
surplus
$ 24,178,000
Accumulated
retained earnings
$131,382,725
Less treasury
stock
(38,494,800)
Current Assets Amount
Current
Liabilities
Amount
Total equity $ 147,718,625
Total assets $326,216,600
Total liabilities
and
shareholders'
equity
$326,216,600
Yacht Industry Ratios
Ratio
Lower
Quartile
Median
Upper
Quartile
Current ratio .86 1.51 1.97
Quick ratio .43 .75 1.01
Total asset turnover 1.10 1.27 1.46
Inventory turnover 12.18 14.38 16.43
Receivables turnover 10.25 17.65 22.43
Debt ratio .32 .56 .61
Ratio
Lower
Quartile
Median
Upper
Quartile
Debt-equity ratio .83 1.13 1.44
Equity multiplier 1.83 2.13 2.44
Interest coverage 5.72 8.21 10.83
Profit margin 5.02% 7.48% 9.05%
Return on assets 7.05% 10.67% 14.16%
Return on equity 14.06% 19.32% 26.41%
Assignment Directions
Write a case analysis of 2,000 – 2,500 words (8 to 10 pages), content (title
page and reference page not included) in proper APA format, covering the
following requirements:
1. East Coast Yachts uses a small percentage of preferred stock as a
source of financing. In calculating the ratios for the company, should
preferred stock be included as part of the company’s total equity?
2. Calculate all of the ratios listed in the industry table for East Coast
Yachts for 2023. (Use Excel to do the calculations, then copy and
paste them into your paper).
3. Compare the performance of East Coast Yachts to the industry as a
whole. For each ratio, use decision criteria and comment on why it
might be viewed as positive or negative relative to the
industry. Suppose you create an inventory ratio calculated as
inventory divided by current liabilities. How would you interpret this
ratio? How does East Coast Yachts compare to the industry average
for this ratio?
4. Calculate the sustainable growth rate for East Coast Yachts.
Calculate external funds needed (EFN) and prepare pro forma income
statements and balance sheets assuming growth at precisely this
rate. Recalculate all of the ratios in the previous question given these
new criteria. What does your analysis conclude? (Use Excel to do the
calculations, then copy and paste them into your paper).
5. As a practical matter, East Coast Yachts is unlikely to be willing to
raise external equity capital, in part because the shareholders don’t
want to dilute their existing ownership and control positions.
However, East Coast Yachts is planning for a growth rate of 20
percent next year. What are your conclusions and recommendations
about the feasibility of East Coast’s expansion plans?
6. Most assets can be increased as a percentage of sales. For instance,
cash can be increased by any amount. However, fixed assets often
must be increased in specific amounts because it is impossible, as a
practical matter, to buy part of a new plant or machine. In this case,
a company has a “staircase” or “lumpy” fixed cost structure. Assume
that East Coast Yachts is currently producing at 100 percent of
capacity and sales are expected to grow at 20 percent. As a result, to
expand production, the company must set up an entirely new line at
a cost of $75 million. Prepare the pro forma income statement and
balance sheet given these new criteria. What is the new EFN with
these assumptions? What does this imply about capacity utilization
for East Coast Yachts next year? (Use Excel to do the calculations,
then copy and paste them into your paper).
Submission Guidelines
Prepare this Assignment according to the APA guidelines, including a
title page, an introduction, and a conclusion. An abstract is not
required. Use in-text citations and include a References section. A
template is included in the Resources and Supports.
In your report, make certain that you include at least three (3)
credible outside references from search engines or scholarly sources
from the APUS Online Library.
Note that your attached paper will automatically be submitted to
Turnitin, and an Originality Report should be sent back to the
classroom within around 15 minutes. The Originality report does not
actually recommend changes. It does point out where you may need
to add a citation or quotation marks (if not already cited). Once you
use it a few times, you will appreciate this tool, as it will assist you in
improving quality and content, as well as avoiding plagiarism. Your
goal is to keep direct quotations to a minimum and to make sure
that you do not just cut and paste material. Ensure that all your
references are cited. Students should strive for a TII report with a
similarity index of less than 20%.
In the Assignment dropbox, please attach your paper as a file; do
not copy & paste. Submit your assignment by 11:59 pm ET, Day 7
(Sunday).
Your paper will be evaluated according to the Writing Assignment Grading
Rubric shown below. To maximize your grade, be sure to use the proper
organization (intro, body, conclusion) and follow APA style. Your paper
should have a title page and reference page, but you do not need an
abstract for this assignment. See the PowerPoint presentation attached for
APA assistance.
This paper will be graded according to the FINC Graduate Grading Paper
Rubric
Be sure to review the following before submitting your assignment:
Academic Integrity [content page]
[https://myclassroom.apus.edu/d2l/le/lessons/580823/topics/18078757](https://myclassroom.apus.edu/d2l/le/lessons/580823/topics/18078757)
[https://myclassroom.apus.edu/d2l/common/dialogs/quickLink/quickLink.d2l?ou=679977&type=dropbox&rcode=00D22884-7DC5-4408-809B-589E36B04C5A-900697](https://myclassroom.apus.edu/d2l/common/dialogs/quickLink/quickLink.d2l?ou=679977&type=dropbox&rcode=00D22884-7DC5-4408-809B-589E36B04C5A-900697)
Due on Aug 17, 2025 11:59 PM
Assignment Rubric: FINC Graduate Grading Paper Rubric [content
page]
If you do not see the rubric, in the blue horizontal navigation
bar select Course Tools, then Assignments. Select the
appropriate assignment, and the rubric will be located near the
bottom of the page.
This Assignment aligns with the following:
Course Objective: 1 [content page]
Learning Objectives: 1.4, 1.5, and 1.6 [content page]
Resources and Supports
Student Paper Template [Word download]
Office 365 [webpage]: You have free access as an APUS student. Sign
in with your MyCampus Email credentials.
Submitting and Confirming a Submission : Watch this 3-
minute video if you need guidance on submitting your assignment.
[https://myclassroom.apus.edu/d2l/common/dialogs/quickLink/quickLink.d2l?ou=679977&type=dropbox&rcode=00D22884-7DC5-4408-809B-589E36B04C5A-900697](https://myclassroom.apus.edu/d2l/common/dialogs/quickLink/quickLink.d2l?ou=679977&type=dropbox&rcode=00D22884-7DC5-4408-809B-589E36B04C5A-900697)
[https://myclassroom.apus.edu/d2l/common/dialogs/quickLink/quickLink.d2l?ou=679977&type=dropbox&rcode=00D22884-7DC5-4408-809B-589E36B04C5A-900697](https://myclassroom.apus.edu/d2l/common/dialogs/quickLink/quickLink.d2l?ou=679977&type=dropbox&rcode=00D22884-7DC5-4408-809B-589E36B04C5A-900697)
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