FIN 3113 Food Truck Project Cash Flow Mini Case

Recently, Austin Hansen was laid off from his job of 25 years. He and his wife, Anne, decided

to purchase and operate a food truck, serving burgers, fries, and soft drinks near OSU campus.

They decided the call their food truck, Hungry Hansen Hamburgers!

The Hansens were able to find a truck that costs $60,000. However, the truck will require an

additional $20,000 for the wrap and equipment. The truck has an expected life of six years and

will be depreciated using a five-year MACRS life. The expected salvage value for the truck at

the end of its useful life is $20,000. Additionally, the Hansens will need to make an initial

investment of $2,000 for product inventory (e.g., meat, hamburger buns, etc.), which will be

recovered at the end of the life of the project.

During the first year of operation, revenues are expected to be $60,000, increasing to $120,000

per year for years 2-6. Permits and licenses are expected to be $500 per year. Fuel and power

are expected to be $300 per month and the cost of materials is expected to be 40% of revenue.

The tax rate is 25% and the cost of capital (discount rate) is 15%.

Calculate the project’s annual free cash flows over the expected life of the equipment.

An online retailer of small gifts orders products from a number of suppliers, stores them, packs them to customers’ orders, and then dispatches them using a distribution company. Although broadly successful, the business is very keen to reduce its operating costs. A number of suggestions have been made to do this. There are as follows:

 Quality: Make each packer responsible for his or her own quality. This could potentially reduce the percentage of mis-packed items from 0.5% to near zero. Repacking an item that has been mis-packed costs RM1 per item.

 Speed: Negotiate with suppliers to ensure that they respond to delivery requests faster. It is estimated that this would cut the value of inventories held by the retailer by RM200,000.

 Dependability: Institute a simple control system that would give early warning if the total number of orders that should be dispatched by the end of the day actually is dispatched in time. Currently 2% of orders is not packed by the end of the day and therefore has to be sent by express courier the following day. This costs an extra RM1 per item.

If the online retailer dispatches two million items every year and if the cost of holding inventory is 9% of its value, how much cost will each suggestion save the company? State the total savings

Exercise 9-13 Revenue and Spending Variances [LO9-3]

Lavage Rapide is a Canadian company that owns and operates a large automatic car wash facility near Montreal. The following table provides data concerning the company’s costs:

For example, electricity costs are $1,000 per month plus $0.09 per car washed. The company expects to wash 8,500 cars in August and to collect an average of $6.10 per car washed.

The actual operating results for August are as follows:

Required:

Calculate the company's revenue and spending variances for August. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Lavage Rapide is a Canadian company that owns and operates a large automatic car wash facility near Montreal. The following table provides data concerning the company’s costs: Fixed Cost per Month Cost per Car Washed Cleaning supplies $ 0.50 Electricity $ 1,300 $ 0.05 Maintenance $ 0.10 Wages and salaries $ 4,400 $ 0.20 Depreciation $ 8,000 Rent $ 2,000 Administrative expenses $ 1,500 $ 0.05 For example, electricity costs are $1,300 per month plus $0.05 per car washed. The company expects to wash 8,100 cars in August and to collect an average of $6.30 per car washed. The actual operating results for August appear below.

Lavage Rapide Income Statement For the Month Ended August 31 Actual cars washed 8,200 Revenue $ 53,130 Expenses: Cleaning supplies 4,550 Electricity 1,675 Maintenance 1,050 Wages and salaries 6,380 Depreciation 8,000 Rent 2,200 Administrative expenses 1,805 Total expense 25,660 Net operating income $ 27,470 Required: Prepare a flexible budget performance report that shows the company’s revenue and spending variances and activity variances for August. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

An investor is reviewing two proposals, assuming similar risk profiles and a 14% required return, which one should the investor buy? Why?

Lee Vista:

Purchase Price: $464,000

Cash flows from operations:

Year 1 $48,000

Year 2 $49,440

Year 3 $50,923

Year 4 $52,451

Year 5 $54,025

Cash flow from sale on year 5 $560,000

Colony Park:

Purchase Price: $500,000

Cash flows from operations:

Year 1 $56,000

Year 2 $57,400

Year 3 $58,835

Year 4 $60,306

Year 5 $61,814

Cash flow from sale on year 5 $597,000

Where are the deer? Random samples of square-kilometer plots were taken in different ecological locations of a national park. The deer counts per square kilometer were recorded and are shown in the following table.

A)  Find SS_TOT, SS_BET, and SS_W and check that SS_TOT = SS_BET + SS_W. (Use 3 decimal places.)

B) Find d.f._BET, d.f._W, MS_BET, and MS_W. (Use 4 decimal places for MS_BET, and MS_W.)

C) Find the value of the sample F statistic. (Use 2 decimal places.)

Margot is walking in a straight line from a point 40 feet due east of a statue in a park toward a point 34 feet due north of the statue. She walks at a constant speed of 4 feet per second.

(a) Write parametric equations for Margot's position t seconds after she starts walking. (Round your coefficients to four decimal places as needed.)

(b) Write an expression for the distance from Margot's position to the statue at time t. (Round your coefficients to four decimal places as needed.)

(c) Find the times when Margot is 36 feet from the statue. (Round your answers to two decimal places)