Acme Dog Clinic is evaluating a project that costs $69,455 and has expected net cash inflows of $15,500 per year for 6 years.

Acme Dog Clinic is evaluating a project that costs $69,455 and has expected net cash inflows of $15,500 per year for 6 years.
The first inflow occurs one year after the cost outflow, and the project has a cost of capital of 11.8%.
1. What is the project’s payback?
2. What is the project’s NPV?
3. What is the project’s IRR?
4. is the project financially acceptable? Why or why not?

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Baxter Products manufactures office furniture by using an assembly-line process. All direct aterials are introduced at the start of the process, and conversion cost is incurred evenly throughout manufacturing.

Baxter Products manufactures office furniture by using an assembly-line process. All direct aterials are introduced at the start of the process, and conversion cost is incurred evenly throughout manufacturing. An examination of the company's Work-in-Process account for August revealed the following selected information:

August 1 balance: 6000 units, 40% complete, cost $44,600*
Production started: 1,800 units
Direct materials used during August: $90,000
August conversion cost: $51,400

Production completed: 1,400 units

*Supplementary records disclosed direct material cost of $30,000 and conversion cost of $14,600.

Conversations with manufacturing personnel revealed that the ending work in process was 80% complete.

Required:
A. Determine the number of units in the August 31 work-in-process inventory.
B. Calculate the cost of goods completed diring August, and prepare the
appropriate journal entry to record completed production.
C. Determine the cost of the August 31 work-in-process inventory.

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Nicholals Company manufactures TVs. Some of the company's data

Nicholals Company manufactures TVs.   Some of the company's data was misplaced.  

Use the following information to replace the lost data.

F-Favorable & U-Unfavorable

Analysis	Actual Results	Flexible Variances	Flexible Budget	Sales Volume Variances	Static Budget
Units Sold	112,500		112,500		103,125
Revenues	$42,080	$1,000(F)	(A)?	$1,400(U)	(B)?
Variable Costs	(C ?	$200(U)	$15,860	$2,340(F)	$18,200
Fixed Costs	$8,280	$860(F)	$9,140		$9,140
Operating Income	$17,740	(D)?	$16,080	(E)?	$15,140
NEED A through F

A.) What are the respective flexible-budget revenues for A?
B.) What are the static-budget revenues for B?
C.) What are the actual variable costs for C?
D.) What is the total flexible-budget variance for D?
E.) What is the total sales-volume variance for E?
F.) What is the total static-budget variance?


TUTORIAL PREVIEW

A.)  What are the respective flexible-budget revenues for A?

Flexible budget variance = Actual results – Flexible Budget amounts

1,000 (F) = 42,080 – Flexible Budget amounts

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ACC 440 WEEK 4 P4-18 – Incomplete Data with Purchase Differential P4-18 Kasper Corporation acquired controlling interest over Timmin Company on January 1, 20X7, and a consolidated balance was prepared. Partial balance sheet data for Kasper, Timmin, and the consolidated

ACC 440 WEEK 4 P4-18 – Incomplete Data with Purchase Differential

P4-18 Incomplete Data with Purchase Differential

Chapter 4 Problems:

P4-18 – Incomplete Data with Purchase Differential

P4-18 Kasper Corporation

P4-18 Incomplete Data with Purchase Differential

P4-18 Kasper Corporation acquired controlling interest over Timmin Company on January 1, 20X7, and a consolidated balance was prepared. Partial balance sheet data for Kasper, Timmin, and the consolidated

entity follow:

KASPER CORPORATION AND TIMMIN COMPANY

Partial Balance Sheet Data

January 1, 20X7

Kasper                    Timmin                    Consolidated

Item                                                                         Corporation             Company                Entity

Cash and Accounts Receivable                           $180,000                                 $ 60,000                  $ 240,000

Inventory                                                                                200,000                   100,000                   328,000

Land                                                                       100,000                   50,000                     167,000

Buildings and Equipment (net)                            400,000                   150,000                   588,000

Investment in Timmin Stock                                                 ?

Total                                                                       $ ?                           $360,000                                 $1,323,000

Accounts Payable                                                  $ 70,000                  $ 40,000                  $ 110,000

Bonds Payable                                                      300,000                                                   300,000

Common Stock                                                      ?                              150,000                   250,000

Retained Earnings                                                                567,000                   170,000                   ?

Noncontrolling Interest                                                                                                        96,000

Total                                                                       $ ?                           $360,000                                 $1,323,000

The fair value of Timmin’s land was $80,000, and the fair value of its buildings and equipment was

$220,000 at the date of acquisition.
Required
a. What amount of retained earnings is reported in the consolidated balance sheet?
b. What percentage ownership of Timmin does Kasper hold?
c. What is the fair value of inventory held by Timmin at January 1, 20X7?
d. What is the fair value of Timmin’s net assets at January 1, 20X7?
e. What amount did Kasper pay to acquire its ownership in Timmin?
f. Give all eliminating entries needed to prepare the consolidated balance sheet for Kasper and Timmin.

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Castellino Company, operating at full capacity, sold 80000 units at a price of $70.75 per unit during 2008. Its income statement for 2008 is as follows

Castellino Company, operating at full capacity, sold 80000 units at a price of $70.75 per unit during 2008. Its income statement for 2008 is as follows:
Sales 5,660,000
Cost of goods sold 2,100,000
Gross profit 3,560,000
Expenses:
Selling 1,500,000
Admin. 900,000
Total expenses..........2,400,000
Income from operations 1,160,000
                                                                                                                                 SOLUTION
The division of costs between fixed and variable is as follows:
Cost of Sales: fixed = 50% variable = 50%
selling expenses: fixed = 30% variable = 70%
Administrative expenses: fixed = 60% variable = 40%

Management is considering a plant expansion program that will permit an increase of $884,375 in yearly sales. The expansion will increase fixed costs by $265,000, but will not affect the relationship between sales and variable costs.

1. Determine for 2008 the total fixed costs and the total variable costs.
2. Determine for 2008 (a) the unit variable cost and (b) the unit contribution margin.
3. Compute the break-even sales (units) for 2008.
4. Compute the break-even sales (units) under the proposed program.
5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $1,160,000 of income from operations that was earned in 2008.
6. Determine the maximum income from operations possible with the expanded plant.
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13-20 Champs, Inc., incurred the following costs during March

13-20  Cost of goods manufactured, cost of goods sold, and income statement.

13-20 Champs, Inc., incurred the following costs during March:
Selling expenses...........$31,675
Direct labor...................$56,628
Interest expense............$8,213
Manufacturing overhead, actual..$40,950
Raw materials used.......$92,196
Administrative expenses...$24,600

Required:
During the month, 3,900 units of product were manufactured and 2,200 units of product were sold. On March1, Champs, Inc., carried no inventories. On March 31, there were no inventories for raw materials or work in process.

a) Calculate the cost of goods manufactured during March and the average cost per unit of product manufactured.
b) Calculate the cost of goods sold during March.
c) Calculate the difference between cost of goods manufactured and cost of goods sold. How will this amount be reported in the financial statements?
d) Prepare a traditional (absorption) income statement for Champs, Inc., for the month of March. Assume that sales for the month were $207,060 and the company's effective income tax rate was %35.
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13.9 Hartford, Inc., produces automobile bumpers

13.9 Hartford, Inc., produces automobile bumpers.

13.9 Manufacturing overhead--over/underapplied.

13.9 Hartford, Inc., produces automobile bumpers. Overhead is applied on the basis of machine hours required for cutting and fabricatiing. A predetermined overhad application rate of $12.70 per machine hour was established for 2007
Required:
a) If 9,000 machine hours were expected to be used during 2007, how much overhead was expected to be incurred?
b) Actual overhead incurred during 2007 totaled $121,650, and 9,100 machine hours were used during 2007. Calculate the amount of over- or underapplied overhead for 2007
c) Explain the accounting necessary for the over- or underapplied overhead for the next year.
                                                                                                                CLICK HERE FOR THE SOLUTION

Riordan Corporation is interested in purchasing a state-of-the-art

Riordan Corporation is interested in purchasing a state-of-the-art widget machine for its manufacturing plant. The new machine has been designed to basically eliminate all errors and defects in the widget-making production process. The new machine will cost $150,000, and have a salvage value of $70,000 at the end of its seven-year useful life. Riordan has determined that cash inflows for years 1 through 7 will be as follows: $32,000; $57,000; $15,000; $28,000; $16,000; $10,000, and $15,000, respectively. Maintenance will be required in years 3 and 6 at $10,000 and $7,000 respectively. Riordan uses a discount rate of 11 percent and wants projects to have a payback period of no longer than five years.

Present value tables or a financial calculator are required.

a. Compute the net present value of the new machine.
b. Compute the firm's profitability index.
c. Compute the payback period.
d. Evaluate this investment proposal for XYZ Co.

TUTORIAL PREVIEW

a. Compute the net present value of the new machine.

Using the financial calculator Net present value is calculated as follows:

Year	Cash flow
0	-150,000
1	32,000

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10-22 Estimating a cost function, high-low method. Reisen Travel offers helicopter service from suburban towns to John F. Kennedy International Airport in New York City.

10-22 Estimating a cost function, high-low method. Reisen Travel offers helicopter service from suburban towns to John F. Kennedy International Airport in New York City. Each of its 10 helicopters makes between 1,000 and 2,000 round-trips per year. The records indicate that a helicopter that has made 1,000 round-trips in the year incurs an average operating cost of $300 per round-trip, and one that has made 2,000 round-trips in the year incurs an average operating cost of $250 per round-trip.

1. Using the high-low method, estimate the linear relationship y = a + bX, where y is the total annual operating cost of a helicopter and X is the number of round-trips it makes to JFK airport during the year.

2. Give examples of costs that would be included in a and in b.

3. If Reisen Travel expects each helicopter to make, on average, 1,200 round-trips in the coming year, what should its estimated operating budget for the helicopter fleet be?
                                                                                                            CLICK HERE FOR THE SOLUTION

A food processing company is considering adopting a new seafood processing system. The system will cost $750,000 plus $23,000 for shipping and installation.

A food processing company is considering adopting a new seafood processing system.  The system will cost $750,000 plus $23,000 for shipping and installation.  It will result in an increase of $5,000 in the net working capital at the beginning.  No further change in the net working capital is expected after the system is put into operation.

The expected economic life of the unit is five years.  It will be depreciated under the 5-year class of MACRS for the tax purpose. At the end of five years, the machine will be expected to sell for $80,000 and the accumulated change in the net working capital will be fully recovered.

After the firm adopts the new system, its annual revenues will be expected to increase by $80,000 and its annual operating costs will be expected to decrease by $25,000.

The company’s tax rate is 40%.  The 3-month T-bill yield is 5%, the market return is 15% and the project’s beta is 0.7.  Should the company take the project?  Why?  (20 points)
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1. Consider a call option for the Intel stock with the exercise price of $20. Today is the expiration date. If the stock price is $21.50 today, what is the current value of the option?

2. Consider a put option for the Intel stock. The exercise price of the option is $20. If the stock price is $21.50 today, the expiration date, what is the current value of the option?

                                                                                                                                          SOLUTION

3. Suppose that you bought the Intel stock at $21.50 per share, and that you paid $2 to buy its put option with the strike price of $20. It the stock price is $30 on the expiration date, what is the total profit per share from the investment?

4. ABC Company recently issued two types of bonds. The first issue consisted of 20-year straight debt with an 8 percent annual coupon. The second issue consisted of 20-year bonds with a 6 percent annual coupon and attached warrants. Both issues sold at their $1,000 par values. What is the implied value of the warrants attached to each bond?

5. Consider a company’s 15 year, 9% coupon convertible bond with a $1,000 par value and the conversion ratio of 40. Its current price is $950, and its equivalent regular coupon bond yields 12%. These bonds are annual bonds. What is the value of the call option embedded in the convertible bond?

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1. Consider a call option for the Intel stock with the exercise price of $20. Today is the expiration date. If the stock price is $21.50 today, what is the current value of the option?

1) What differentiates "discretionary financing needs" from "external financing needs?"

1) What differentiates "discretionary financing needs" from "external financing needs?" A) assets
B) retained earnings
C) spontaneous liabilities
D) sales

2) The quick ratio of a firm would be unaffected by which of the following?
A) land held for investment is sold for cash
B) inventories are sold on a short-term credit basis
C) equipment is purchased, financed by a long-term debt issue
D) inventories are sold for cash                                                                                 SOLUTION

3) The current ratio of a firm would be decreased by which of the following? A) Land held for investment is sold for cash.
B) Inventories are sold on a long-term credit basis.
C) Equipment is purchased, financed by a long-term debt issue.
D) Inventories are sold for cash.

4) Strategies to counter exchange rate risk include all of the following except
A) spot-market hedges.
B) forward-market hedges.
C) futures contracts.
D) money-market hedges.

5) Firms generally do not hedge against which type of exposure?
A) economic
B) transaction
C) financial
D) translation

6) Which of the following is the initial and most important step in the preparation of pro forma financial statements?
A) Estimate the levels of investment in current and fixed assets.
B) Approximate the cost of raw materials.
C) Project the firm's sales revenues for the planning period.
D) Determine the rate of interest that will be required for borrowed funds.


7) Assume that a firm has determined that its investment in accounts receivable is getting too large relative to its sales volume. Which of the following courses of action would be best for it to take in order to improve the collection of accounts receivable in future periods?
A) sell more products
B) change the color of the firm's invoices
C) allow customers more time to pay for products
D) raise the firm's credit standards
E) reduce product quality control requirements

8) Capital market instruments include
A) commercial paper.
B) Treasury bills.
C) corporate equities.
D) negotiable certificates of deposit.

9) Activities of the investment banker include
A) providing advice to firms issuing securities.
B) selling new securities to the ultimate investors.
C) assuming the risk of selling a security issue.
D) All of the above

10) Financial intermediaries
A) include the national and regional stock exchange.
B) offer indirect securities.
C) constitute the various secondary markets.
D) usually are underwriting syndicates.


11) An example of a primary market transaction involving a money market security is A) a new issue of a security with a very short maturity.
B) the transfer of a previously issued security with a very long maturity.
C) a new issue of a security with a very long maturity.
D) the transfer of a previously issued security with a very short maturity.

12) Which of the following refers to all institutions and procedures that provide for transactions in short-term debt instruments generally issued by borrowers with very high credit ratings?
A) stock market
B) commercial banks
C) capital market
D) money market

13) Why is the quick ratio a more refined liquidity measure than the current ratio? A) Inventories are generally the least liquid of the firm's current assets.
B) Inventories are generally among the most liquid of the firm's current assets.
C) It measures how "quickly" cash and other liquid assets flow through the company.
D) Cash is the most liquid current asset.

14) Which of the following ratios would be the poorest indicator of how rapidly the firm's credit accounts are being collected?
A) accounts receivable turnover ratio
B) cash conversion cycle
C) inventory turnover
D) average collection period

15) A firm that wants to know if it has enough cash to meet its bills would be most likely to use which kind of ratio?
A) leverage
B) efficiency
C) liquidity
D) profitability

16) Which of the following ratios would you rely upon the most in order to determine a corporation's ability to meet its required interest payments?
A) total asset turnover
B) times interest earned
C) debt ratio
D) net profit margin
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CLARK Paints, Inc. The production department has been investigating possible ways to trim total

Clark Paints, Inc. Project Part B Capital Budgeting Decision Clark

CLARK Paints, Inc. The production department has been investigating possible ways to trim total production costs. One possibility currently being examined is to make the paint cans instead of purchasing them. The equipment needed would cost $150,000 with a disposal value of $40,000 and would be able to produce 5,000,000 cans over the life of the machinery. The production department estimates that approximately 1,000,000 cans would be needed for each of the next five years.
 

In addition to the purchase cost of the equipment, $12,000 would be needed to train three new employees in the production process. These three individuals would be full-time employees working 2,000 hours per year and earning $10.00 per hour. They would also receive the same benefits as other production employees, 18% of wages in addition to $2,200 of health benefits.

It is estimated that the raw materials will cost 30¢ per can and that other variable costs would be 4¢ per can. Since there is currently unused space in the factory, no additional fixed costs would be incurred if this proposal is accepted.

It is expected that cans would cost 50¢ per can if purchased from the current supplier. The company's minimum rate of return (hurdle rate) has been determined to be 12% for all new projects, and the current tax rate of 35% is anticipated to remain unchanged. The pricing for a gallon of paint as well as number of units sold will not be affected by this decision. The unit-of-production depreciation method would be used if the new equipment is purchased.

Required:

1. Based on the above information and using Excel, calculate the following items for this proposed equipment purchase:

o Annual cash flows over the expected life of the equipment            

o Payback period

o Annual rate of return

o Net present value

o Internal rate of return

2. Would you recommend the acceptance of this proposal? Why or why not. Prepare a short double spaced Word paper elaborating and supporting your answer.

SOLUTION PREVIEW

			Cost if machinery is purchased cans are manufactured
Year	Cost if purchased (@50c)	Investment cost	Training cost	Depreciation	Salary and other benefits	Raw material (@30c)	Other variable costs(@4c)	Total costs	Savings in costs	Savings in costs after tax	Salvage value after tax
0		150,000	12,000					162,000	-162,000
1	500,000			22,000	25,800	300,000	40,000	387,800	112,200	72,930
2	500,000			22,000	25,800	300,000	40,000	387,800	112,200	72,930

 

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