FIN515 week7Assignment - 26-4 Working Capital and Cash Conversion - 26-5 Cost of Trade Credit - 26-6 Cost of Trade Credit -

FIN515 week7Assignment


Complete the following graded homework assignment in a Word document named FIN515_Homework7_yourname. Show the details of your calculation and work in your answer to the problems.


Problems (pp. 903–905)
26-4 Working Capital and Cash Conversion 
26-5 Cost of Trade Credit
26-6 Cost of Trade Credit
26-10 Receivable Management
26-14 Payables Management
26-17 Cash Management


26-4 The Greek Connection had sales of $32 million in 2012, and a cost of goods sold of $20 million. A simplified balance sheet for the firm appears below:

THE GREEK CONNECTION

Balance Sheet

As of December 31, 2012 (in $ thousand)

Assets		Liabilities and Equity
Cash Accounts receivable Inventory	$ 2,000   3,950   1,300	Accounts payable Notes payable Accruals	$ 1,500   1,000   1,220
Total current assets	$  7,250	Total current liabilities Long-term debt	$  3,720   3,000
Net plant, property, and equipment	$  8,500	Total liabilities Common equity	$  6,720   9,030
Total assets	$ 15,750	Total liabilities and equity	$ 15,750

a. Calculate The Greek Connection’s net working capital in 2012.
b. Calculate the cash conversion cycle of The Greek Connection in 2012.
c. The industry average accounts receivable days is 30 days. What would the cash conversion cycle for The Greek Connection have been in 2012 had it matched the industry average for accounts receivable days?


Trade Credit
26-5 Assume the credit terms offered to your firm by your suppliers are 3/5, Net 30. Calculate the cost of the trade credit if your firm does not take the discount and pays on day 30.


26-6 Your supplier offers terms of 1/10, Net 45. What is the effective annual cost of trade credit if you choose to forgo the discount and pay on day 45?


26-10 The Manana Corporation had sales of $60 million this year. Its accounts receivable balance averaged $2 million. How long, on average, does it take the firm to collect on its sales?


26-14 Your firm purchases goods from its supplier on terms of 3/15, Net 40.
a. What is the effective annual cost to your firm if it chooses not to take the discount and makes its payment on day 40?
b. What is the effective annual cost to your firm if it chooses not to take the discount and makes its payment on day 50?


Cash Management
26-17 Which of the following short-term securities would you expect to offer the highest before-tax return: Treasury bills, certificates of deposit, short-term tax exempts, or commercial paper? Why?


TUTORIAL PREVIEW
26-17 Which of the following short-term securities would you expect to offer the highest before-tax return: Treasury bills, certificates of deposit, short-term tax exempts, or commercial paper? Why?


Commercial paper offers highest return. Return is associated with the risk involved in the security. Treasury bills and certificates of deposit are considered to be free of…………….

………………..and so on…

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ACCT 221 Assignment Quiz -

ACCT221 Assignment Quiz

 

1 The statement of cash flows should help investors and creditors assess each of the following except the
1. reasons for the difference between net income and net cash provided by operating activities. 2.  cash investing and financing transactions during the period. 3. entity's ability to generate future income. 4.  entity's ability to pay dividends

 

2  Cash receipts from interest and dividends are classified as

1. either financing or investing activities.  2. financing activities.  3. investing activities.  4. operating activities.

 

3  Significant noncash transactions would not include

1. exchange of plant assets.  2. conversion of bonds into common stock. 3.  treasury stock acquisition. 4. asset acquisition through bond issuance

 

4  Jean’s Vegetable Market had the following transactions during 2014:

1. Issued $50,000 of par value common stock for cash.

2. Repaid a 6 year note payable in the amount of $22,000.

3. Acquired land by issuing common stock of par value $50,000.

4. Declared and paid a cash dividend of $7,000.

5. Sold a long-term investment (cost $3,000) for cash of $6,000.

6. Acquired an investment in IBM stock for cash of $10,000.

What is the net cash provided by financing activities?

$21,000 $67,000 $28,000 $0

   

 

5 Kanet Company issued common stock for proceeds of $386,000 during 2014. The company paid dividends of $80,000 and issued a long-term note payable for $95,000 in exchange for equipment during the year. The company also purchased treasury stock that had a cost of $15,000. The financing section of the statement of cash flows will report net cash inflows of

$291,000. $481,000. $306,000. $371,000.

   

 

6 Wilson Company reported net income of $105,000 for the year ended December 31, 2014. During the year, inventories decreased by $15,000, accounts payable decreased by $20,000, depreciation expense was $18,000 and a gain on disposal of equipment of $9,000 was recorded. Net cash provided by operating activities in 2014 using the indirect method was

$101,000 $120,000 $118,000 $109,000

   

 

7 Which of the following adjustments to convert net income to net cash provided by operating activities is incorrect?

Add to Net Income  Deduct from Net Income

Accounts Receivable decrease increase

Accounts Payable increase decrease

Inventory decrease increase

Prepaid Expenses increase decrease

 

8 During 2014, Harvey Industries reported cash provided by operations of $670,000, cash used in investing of $1,039,000, and cash used in financing of $145,000. In addition, cash spent for fixed assets during the period was $404,000. No dividends were paid. Based on this information, what was Harvey's free cash flow?

$266,000 ($369,000) $1,450,000 ($918,000)

 

9 A stockholder is interested in the ability of a firm to

1. All of these answer choices are correct 2. appreciate in share price 3. survive over a long period 4. pay consistent dividends

 

10 A technique for evaluating financial statements that expresses the relationship among selected items of financial statement data is

1. horizontal analysis 2.  ratio analysis. 3. common size analysis 4. vertical analysis

 

11 Assume the following cost of goods sold data for a company:

2014 $1,704,000

2013 1,400,000

2012 1,200,000

If 2012 is the base year, what is the percentage increase in cost of goods sold from 2012 to 2014?
70.4% 117% 42% 85.7%

 

12 Saira, Inc. has the following income statement (in millions):

SAIRA, INC.

Income Statement

For the Year Ended December 31, 2014

Net Sales $300

Cost of Goods Sold 180

Gross Profit 120

Operating Expenses 45

Net Income $75

Using vertical analysis, what percentage is assigned to Net Income?

1. 25% 2. 40% 3. 625%  4. None of these answer choices are correct

 

13 The current assets of Myers Company are $250,000. The current liabilities are $100,000. The current ratio expressed as a proportion is

2.5 : 1 25 : 1 $250,000 ÷ $100,000 250%

 

14 Nord Company had $375,000 of current assets and $150,000 of current liabilities before borrowing $70,000 from the bank with a 3-month note payable. What effect did the borrowing transaction have on Nord Company's current ratio?

1. The change in the current ratio cannot be determined  2. The ratio decreased 3. The ratio remained unchanged 4. The ratio increased

 

15. Net sales are $8,000,000, beginning total assets are $2,500,000, and the asset turnover is 4.0 times. What is the ending total asset balance?

$2,000,000 $2,500,000 $2,500,000 $1,500,000

 

16 Blitzen Corporation had net income of $200,000 and paid dividends to common stockholders of $50,000 in 2014. The weighted average number of shares outstanding in 2014 was 40,000 shares. Blitzen Corporation's common stock is selling for $35 per share on the New York Stock Exchange. Blitzen Corporation's price-earnings ratio is

1. 5 times 2. 9.3 times 3. 5.6 times 4. 7 times

 

17 The major reporting standard for presenting managerial accounting information is

1. relevance  the current tax law  2. the cost principle  3. generally accepted 4. accounting principles

 

18 What activities and responsibilities are not associated with management's functions?

1. Controlling  2. Planning 3. Directing 4. Accountability

 

19 Which one of the following is not a direct material?

1. Lubricant for a ball-bearing joint for a large crane  2. A tire used for a lawn mower  3. Plastic used in the covered case for a home PC  4. Steel used in the manufacturing of steel-radial tires

 

20 Which one of the following is not considered as material costs?

1. Lumber used to build tables 2. Rivets for the wings of a new commercial jet aircraft 3.Bolts used in manufacturing the compressor of an engine  4. Partially completed motor engines for a motorcycle plant

 

21 For the work of factory employees to be considered as direct labor, the work must be conveniently and
1. periodically associated with raw materials conversion 2. promptly associated with raw materials conversion 3. physically associated with raw materials conversion 4. materially associated with raw materials conversion

 

22 For inventoriable costs to become expenses under the expense recognition principle, all accounts

1. payable must be settled 2. the product to which they attach must be sold 3. the product must be finished and in stock 4. the product must be expensed based on its percentage-of-completion

 

23 Gruffin Manufacturing Company reported the following year-end information:

Beginning work in process inventory $1,420,000

Beginning raw materials inventory 400,000

Ending work in process inventory 1,200,000

Ending raw materials inventory 640,000

Raw materials purchased 1,250,000

Direct labor 1,300,000

Manufacturing overhead 960,000

Gruffin Manufacturing Company's cost of goods manufactured for the year is

1. $4,690,000 2. $2,900,000  3. $3,270,000 4. $3,490,000

 

24 Sandor Manufacturing Inc.'s accounting records reflect the following inventories:

Dec. 31, 2013 Dec. 31, 2014

Raw materials inventory $110,000 $ 90,000

Work in process inventory 156,000 174,000

Finished goods inventory 138,000 150,000

 

During 2014, Sandor purchased $1,440,000 of raw materials, incurred direct labor costs of $300,000, and incurred manufacturing overhead totaling $84,000.

 

 

Assume Sandor Manufacturing’s cost of goods manufactured for 2014 amounted to $1,740,000. How much would it report as cost of goods sold for the year?

1. $1,878,000    2. $1,878,000    3. $1,728,000   4. $1,752,000

 

25 Which of the following would be accounted for using a job order cost system?

1. The refining of petroleum  2. The production of automobiles  3. The construction of a new campus building  4. The production of personal computers

 

26 As of December 31, 2014, Walking Tall Industries had $3,500 of raw materials inventory. At the beginning of 2014, there was $2,000 of materials on hand. During the year, the company purchased $314,500 of materials; however, it paid for only $302,500. How much inventory was requisitioned for use on jobs during 2014?

1. $316,000   2. $304,000  3. $313,000  4. $301,000

 

27 Lincoln Manufacturing has the following labor costs:

Factory—Gross wages $450,000

Factory—Net wages 420,000

Employer Payroll Taxes Payable 40,000

The entry to record the cost of factory labor and the associated payroll tax expense will include a debit to Factory Labor for

1. $420,000  2. $450,000 3. $490,000  4. $460,000

 

28 Alpine Inc. uses job order costing for its brand new line of sewing machines. The cost incurred for production during 2014 totaled $20,000 of materials, $8,000 of direct labor costs, and $8,000 of manufacturing overhead applied. The company ships all goods as soon as they are completed which results in no finished goods inventory on hand at the end of any year. Beginning work in process totaled $9,000, and the ending balance is $15,000. During the year, the company completed 20 machines. How much is the cost per machine?

1. $1,880  2. $1,760  3. $1,500 4. $1,320

 

29 Viking Company manufactures customized desks. The following pertains to Job No. 935:

Direct materials used $14,300

Direct labor hours worked 500

Direct labor rate per hour $14.00

Machine hours used 350

Applied factory overhead rate per machine hour $25.00

 

 

What is the total manufacturing cost for Job No. 935?

$26,200  $30,050  $31,700  $35,550

 

30 The predetermined overhead rate is based on the relationship between

1. estimated monthly costs and actual monthly activity  2. estimated annual costs and actual activity 3. estimated annual costs and expected annual activity 4. actual monthly costs and actual annual activity

 

31 During 2012, Alvarez Manufacturing expected Job No. 26 to cost $336,000 of overhead, $400,000 of materials, and $240,000 in labor. Alvarez applied overhead based on direct labor cost. Actual production required an overhead cost of $840,000, $825,000 in materials used, and $330,000 in labor. All of the goods were completed. What amount was transferred to Finished Goods?
$1,617,000 $976,000 $1,206,000 $1,500,000

 

32  During 2014, Terra Manufacturing expected Job No. 59 to cost $700,000 of overhead, $1,000,000 of materials, and $500,000 in labor. Terra applied overhead based on direct labor cost. Actual production required an overhead cost of $580,000, $1,200,000 in materials used, and $450,000 in labor. All of the goods were completed. How much is the amount of over- or underapplied overhead?

1. $50,000 underapplied 2. $50,000 overapplied 3. $120,000 underapplied 4. $120,000 overapplied

 

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Please see the attachment for solution.

FIN515 Week5 P8-23 Bauer Industries is an automobile manufacturer. Management is currently evaluating a proposal to build a plant that will manufacture lightweight trucks.

FIN515 Week5 P8-23

Complete Problem 8-23, Choosing Among Alternatives (pp. 266 ), and detail your work in the answer to each question in a Word document and/or Excel spreadsheet.

 

P8-23 Bauer Industries is an automobile manufacturer. Management is currently evaluating a proposal to build a plant that will manufacture lightweight trucks. Bauer plans to use a cost of capital of 12% to evaluate this project. Based on extensive research, it has prepared the following incremental free cash flow projections (in millions of dollars):

	Year 0	Years 1–9	Year 10
Revenues − Manufacturing expenses (other than depreciation) − Marketing expenses − Depreciation		100.0 −35.0 −10.0 −15.0	100.0 −35.0 −10.0 −15.0
= EBIT − Taxes (35%)		40.0 −14.0	40.0 −14.0
= Unlevered net income + Depreciation − Increases in net working capital − Capital expenditures + Continuation value	−150.0	26.0 +15.0  −5.0	26.0 +15.0  −5.0   +12.0
= Free cash flow	−150.0	36.0	48.0

 

a. For this base-case scenario, what is the NPV of the plant to manufacture lightweight trucks?

 

b. Based on input from the marketing department, Bauer is uncertain about its revenue forecast. In particular, management would like to examine the sensitivity of the NPV to the revenue assumptions. What is the NPV of this project if revenues are 10% higher than forecast? What is the NPV if revenues are 10% lower than forecast?

 

c. Rather than assuming that cash flows for this project are constant, management would like to explore the sensitivity of its analysis to possible growth in revenues and operating expenses. Specifically, management would like to assume that revenues, manufacturing expenses, and marketing expenses are as given in the table for year 1 and grow by 2% per year every year starting in year 2. Management also plans to assume that the initial capital expenditures (and therefore depreciation), additions to working capital, and continuation value remain as initially specified in the table. What is the NPV of this project under these alternative assumptions? How does the NPV change if the revenues and operating expenses grow by 5% per year rather than by 2%?

 

d. To examine the sensitivity of this project to the discount rate, management would like to compute the NPV for different discount rates. Create a graph, with the discount rate on the x-axis and the NPV on the y-axis, for discount rates ranging from 5% to 30%. For what ranges of discount rates does the project have a positive NPV?

 

TUTORIAL PREVIEW

a

year	0	1	2	3	4	5	6	7	8	9	10
Free cash flow forecast:
Revenues		$  100.00	$  100.00	$  100.00	$  100.00	$  100.00	$  100.00	$  100.00	$  100.00	$  100.00	$  100.00
− Manufacturing expenses (other than depreciation)		$  (35.00)	$  (35.00)	$  (35.00)	$  (35.00)	$  (35.00)	$  (35.00)	$  (35.00)	$  (35.00)	$  (35.00)	$  (35.00)

Please see the attachment for solution.

 

 

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