Sales Budget

FlashKick Company manufactures and sells soccer balls for teams of children in elementary and high school. FlashKick’s best-selling lines are the practice ball line (durable soccer balls for training and practice) and the match ball line (high-performance soccer balls used in games). In the first four months of next year, FlashKick expects to sell the following:

Required:

1. Construct a sales budget for FlashKick for the first three months of the coming year. Show total sales for each product line by month and in total for the first quarter. If required, round your answers to the nearest cent.

2. What if FlashKick added a third line—tournament quality soccer balls that were expected to take 40 percent of the units sold of the match balls and would have a selling price of $42 each in January and February, and $45 each in March? Prepare a sales budget for FlashKick for the first three months of the coming year. Show total sales for each product line by month and in total for the first quarter. If required, round your answers to the nearest cent.

Common stock is considered to be one of the most popular investment vehicles for long-term wealth building. Investors earn income from common stock in the form of dividends and/or capital gains. As an investor it is important to understand the implications of investing in stocks from a tax perspective.

Two years ago, David purchased 100 shares of a particular company's stock as a price of $107.69 per share. Last year, David received an annual dividend of $1.50 per share, and at the end of the year, a share of stock was trading at $113.03 per share. This year, David received an annual dividend of $1.65 per share and afterward sold all 100 shares at a price of $123.24 per share.

In the first column of the following table, enter the total annual dividends David received each year, as well as the total capital gains at the end of each year.

Suppose David is in the 28% tax bracket. Compute the taxes David pays each year on dividends and capital gains from this investment by completing the second column in the table.

Calculating taxes owed on David's Investment

The total amount of investment income (pre taxes) that David earned on this investment over the course of 2 years is ___________.

The total amount that David pays in taxes on income from this investment income is ________

What It Means to Invest in Stocks?

Common stock is considered to be one of the most popular investment vehicles for long-term wealth building. Investors earn income from common stock in the form of dividends and/or capital gains. As an investor it is important to understand the implications of investing in stocks from a tax perspective.

Two years ago, Clancy purchased 100 shares of a particular company’s stock at a price of $136.55 per share. Last year, Clancy received an annual dividend of $1.75 per share, and at the end of the year, a share of stock was trading at $140.76 per share. This year, Clancy received an annual dividend of $1.93 per share and afterward sold all 100 shares at a price of $150.97 per share.

In the first column of the following table, enter the total annual dividends Clancy received each year, as well as the total capital gains at the end of each year.

Suppose Clancy is in the 35% tax bracket. Compute the taxes Clancy pays each year on dividends and capital gains from this investment by completing the second column in the table.

4. Paying taxes on stocks

What It Means to Invest in Stocks?

Common stock is considered to be one of the most popular investment vehicles for long-term wealth building. Investors earn income from common stock in the form of dividends and/or capital gains. As an investor it is important to understand the implications of investing in stocks from a tax perspective.

Two years ago, Akshay purchased 100 shares of a particular company’s stock at a price of $107.57 per share. Last year, Akshay received an annual dividend of $1.55 per share, and at the end of the year, a share of stock was trading at $115.32 per share. This year, Akshay received an annual dividend of $1.71 per share and afterward sold all 100 shares at a price of $125.53 per share.

In the first column of the following table, enter the total annual dividends Akshay received each year, as well as the total capital gains at the end of each year.

Suppose Akshay is in the 28% tax bracket. Compute the taxes Akshay pays each year on dividends and capital gains from this investment by completing the second column in the table.

Calculating Taxes Owed on Akshay’s Investment

The total amount of investment income (pre taxes) that Akshay earned on this investment over the course of 2 years is

.The total amount that Akshay pays in taxes on income from this investment income is

.

An oil company is developing a discovery with 100 million barrels of reserves located on lands leased from the government. The initial production rate would be 8 million barrels during the first year (about 20,000 barrels per day). Capital costs are $250 million, the wellhead price of oil -- the price after deducting costs of transportation to the market -- is expected to be $50 per barrel, and operating costs are $30 per barrel. The company uses a 10 percent annual discount rate. Assume that production declines at a rate equal to the ratio of initial production to reserves (in this case 8/100 = 8% per year). If production keeps declining at the same rate, and ignoring the last few barrels that stay in the ground after the field shuts down, the discounted annual stream of revenues declines over time at a constant rate, equal to the sum of the discount rate and the decline rate.

1. The government is considering imposing three different kinds of taxes:
   a. A 33 percent tax on cash flow (an income tax with capital and operating costs deducted from income in the year they are incurred);
   b. a 10 percent production tax (levied as a percentage of gross wellhead revenues);
   c. a property tax with a present value equal to 20 percent of capital costs.
    d. All three of these taxes imposed at the same time.
What are the present discounted values of government revenues and after-tax profits for the company under each tax regime?

You are investigating the expansion of your business and have sought out two avenues for the sourcing of funds for the expansion.

The first (Plan A) is an all-ordinary-share capital structure. $10 million would be raised by selling 100,000 shares at $100 each.

Plan B would involve the use of financial leverage. $1 million would be raised issuing bonds with an effective interest rate of 10% (per annum). Under this second plan, the remaining $9 million would be raised by selling 90,000 shares at $100 price per share. The use of financial leverage is considered to be a permanent part of the firm’s capitalisation, so no fixed maturity date is needed for the analysis.

A 25% tax rate is appropriate for the analysis.

REQUIRED:

1. Find the EBIT indifference level associated with the two financing plans using an EBIT–EPS graph. Provide a check of your calculation to prove the EBIT indifference level.   
2. A detailed financial analysis of the firm’s prospects suggests that the long-term earnings before interest and taxes (EBIT) will be $1,500,000 annually. Taking this into consideration, which plan will generate the higher earnings per share (EPS)?

Rather than EBIT, you are interested in other measures of risk associated with a project.

The basic values for your company is as follows:

Total Fixed Costs:                                   $500,000

Price per unit:                                           $18

Costs per unit:                                          $14

What is the accounting break-even point? What does this number represent?         

You are investigating the expansion of your business and have sought out two avenues for the sourcing of funds for the expansion.

The first (Plan A) is an all-ordinary-share capital structure. $10 million would be raised by selling 100,000 shares at $100 each.

Plan B would involve the use of financial leverage. $1 million would be raised issuing bonds with an effective interest rate of 10% (per annum). Under this second plan, the remaining $9 million would be raised by selling 90,000 shares at $100 price per share. The use of financial leverage is considered to be a permanent part of the firm’s capitalisation, so no fixed maturity date is needed for the analysis.

A 25% tax rate is appropriate for the analysis.

REQUIRED:

1. Find the EBIT indifference level associated with the two financing plans using an EBIT–EPS graph. Provide a check of your calculation to prove the EBIT indifference level.
2. A detailed financial analysis of the firm’s prospects suggests that the long-term earnings before interest and taxes (EBIT) will be $1,500,000 annually. Taking this into consideration, which plan will generate the higher earnings per share (EPS)?

Rather than EBIT, you are interested in other measures of risk associated with a project.

The basic values for your company is as follows:

Total Fixed Costs: $500,000

Price per unit: $18

Costs per unit: $14

3. What is the accounting break-even point? What does this number represent?

15.

Kevin company manufactures and sells one product. The following information pertains to the company's first year of operations:

(Q.) What is net operating income under variable costing in the first year?

16.

The following data are average times per order over the last month for Gamora Corp.

(Q.) What is Manufacturing Cycle Efficiency (MCE)? Use two decimal places in the answer (for example, if the answer is 44%, key in "0.44").

15. Kevin company manufactures and sells one product. The following information pertains to the company's first year of operations:

(Q.) What is net operating income under variable costing in the first year?

(A.) $ ?

16.

The following data are average times per order over the last month for Gamora Corp.

(Q.) What is Manufacturing Cycle Efficiency (MCE)? Use two decimal places in the answer (for example, if the answer is 44%, key in "0.44").

(A.) ?

The U.S. Census Bureau announced that the median sales price of new house sold in December of 2018 $322,800, and the mean sales price was $376,000 (https://www.census.gov/construction /nrs/pdf/uspricemon.pdf). Assume that the standard deviation of the prices is $90,000.

a. If you select a random sample of n = 100, what is the probability that the sample mean will be less than $300,000?

b. If you select a random sample of n = 100, what is the probability that the sample mean will be between $275,000 and $290,000