Following the outbreak of the Novel Coronavirus (COVID 19), CPCa pharmaceutical company is considering introducing a new vaccine unto the market to help fight the virus. This will require the injection of huge capital to the tune of GH¢40,000,000 for the purchase of the equipment for production. It will cost CPC an additional GH¢5,500,000 to set up the production facility and install that equipment for production. Mr. Smart, the CEO of CPC believes that the vaccine could be manufactured in a building owned by the firm and located in East Legon. This vacant building and the land can be sold for GH¢ 1,500,000 after taxes. CPC will finance the production of the vaccine (including initial working capital investment) by issuing 2000,000 new common stocks at GH¢ 20 per share from its existing shareholders. A total of GH¢ 15,000,000 is expected to be raised from the rights issue. It expects to finance the remaining from the issue of a 5-year bond with a before-tax yield to maturity (YTM) of 12%. Mr. Qwesi, the Finance Director has estimated the beta of the project to be 2.5 and the average return for stocks traded on the Ghana Stock Exchange to be 10% while the rate on Government of Ghana traded Treasury bills is 5%. The successful production of the vaccine will generate additional cash flows for CPC. The Production and Marketing department has presented the information in the table below:

Again the following information should be taken note of:

·Feasibility studies cost the company GH¢2,000,000

·Test marketing expenses amounts to GH¢1,000,000

·The research into the discovery of the vaccine costs GH¢5,000,000

·Variable cost will increase by 5% per annum

·Selling price will increase by 10% per annum

·Marketing expense will be 5% of sales revenue per year

·Overhead cost will be fixed at GH¢6000,000 per year

·The project will last for five (5) years (2021-2025)

Charge depreciation using the straight-line method

·Salvage value for equipment is GH¢2,000,000

·CPC falls within the 25% tax bracket

·An initial working capital investment of GH¢10,000,000will be made. Subsequently, net working capital at the end of each year will be equal to 10 percent of sales for that year. In the final year of the project, net working capital will decline to zero as the project is wound down. In other words, the investment in working capital is to be completely recovered by the end of the project’s life

·The introduction of this new vaccine is expected to lead to 10,000units per annum drop in sales of vaccines for other types of corona virus by. The selling price per unit of existing products is GH¢100while the variable cost is GH¢70.This has no tax implications for the new vaccine.

·The project will be financed with debt and equity

Required

a.Evaluate the project using the NPV and Profitability index and recommend whether CPC should go ahead with the production of the vaccine.

b.Discuss three(3) qualitative factors that the Management of CPC might have to consider and how these factors are expected to influence the decision of Management with regards to the production of the vaccine. (6 marks )

c.Under what circumstances will you prefer profitability index to NPV as project evaluation techniques. (2marks )

d.Explain why sunk costs should not be included in a capital budgeting analysis, but opportunity costs and externalities should be included. (2 marks )

Following the outbreak of the Novel Coronavirus (COVID 19), CPCa pharmaceutical company is considering introducing a new vaccine unto the market to help fight the virus. This will require the injection of huge capital to the tune of GH¢40,000,000 for the purchase of the equipment for production. It will cost CPC an additional GH¢5,500,000 to set up the production facility and install that equipment for production. Mr. Smart, the CEO of CPC believes that the vaccine could be manufactured in a building owned by the firm and located in East Legon. This vacant building and the land can be sold for GH¢ 1,500,000 after taxes. CPC will finance the production of the vaccine (including initial working capital investment) by issuing 2000,000 new common stocks at GH¢ 20 per share from its existing shareholders. A total of GH¢ 15,000,000 is expected to be raised from the rights issue. It expects to finance the remaining from the issue of a 5-year bond with a before-tax yield to maturity (YTM) of 12%. Mr. Qwesi, the Finance Director has estimated the beta of the project to be 2.5 and the average return for stocks traded on the Ghana Stock Exchange to be 10% while the rate on Government of Ghana traded Treasury bills is 5%. The successful production of the vaccine will generate additional cash flows for CPC. The Production and Marketing department has presented the information in the table below:

Again the following information should be taken note of:

·Feasibility studies cost the company GH¢2,000,000

·Test marketing expenses amounts to GH¢1,000,000

·The research into the discovery of the vaccine costs GH¢5,000,000

·Variable cost will increase by 5% per annum

·Selling price will increase by 10% per annum

·Marketing expense will be 5% of sales revenue per year

·Overhead cost will be fixed at GH¢6000,000 per year

·The project will last for five (5) years (2021-2025)

Charge depreciation using the straight-line method

·Salvage value for equipment is GH¢2,000,000

·CPC falls within the 25% tax bracket

·An initial working capital investment of GH¢10,000,000will be made. Subsequently, net working capital at the end of each year will be equal to 10 percent of sales for that year. In the final year of the project, net working capital will decline to zero as the project is wound down. In other words, the investment in working capital is to be completely recovered by the end of the project’s life

·The introduction of this new vaccine is expected to lead to 10,000units per annum drop in sales of vaccines for other types of corona virus by. The selling price per unit of existing products is GH¢100while the variable cost is GH¢70.This has no tax implications for the new vaccine.

·The project will be financed with debt and equity

Required

a.Evaluate the project using the NPV and Profitability index and recommend whether CPC should go ahead with the production of the vaccine.

b.Discuss three(3) qualitative factors that the Management of CPC might have to consider and how these factors are expected to influence the decision of Management with regards to the production of the vaccine. (6 marks )

c.Under what circumstances will you prefer profitability index to NPV as project evaluation techniques. (2marks )

d.Explain why sunk costs should not be included in a capital budgeting analysis, but opportunity costs and externalities should be included. (2 marks )

Following the outbreak of the Novel Coronavirus (COVID 19), CPCa pharmaceutical company is considering introducing a new vaccine unto the market to help fight the virus. This will require the injection of huge capital to the tune of GH¢40,000,000 for the purchase of the equipment for production. It will cost CPC an additional GH¢5,500,000 to set up the production facility and install that equipment for production. Mr. Smart, the CEO of CPC believes that the vaccine could be manufactured in a building owned by the firm and located in East Legon. This vacant building and the land can be sold for GH¢ 1,500,000 after taxes. CPC will finance the production of the vaccine (including initial working capital investment) by issuing 2000,000 new common stocks at GH¢ 20 per share from its existing shareholders. A total of GH¢ 15,000,000 is expected to be raised from the rights issue. It expects to finance the remaining from the issue of a 5-year bond with a before-tax yield to maturity (YTM) of 12%. Mr. Qwesi, the Finance Director has estimated the beta of the project to be 2.5 and the average return for stocks traded on the Ghana Stock Exchange to be 10% while the rate on Government of Ghana traded Treasury bills is 5%. The successful production of the vaccine will generate additional cash flows for CPC. The Production and Marketing department has presented the information in the table below:

Again the following information should be taken note of:

·Feasibility studies cost the company GH¢2,000,000

·Test marketing expenses amounts to GH¢1,000,000

·The research into the discovery of the vaccine costs GH¢5,000,000

·Variable cost will increase by 5% per annum

·Selling price will increase by 10% per annum

·Marketing expense will be 5% of sales revenue per year

·Overhead cost will be fixed at GH¢6000,000 per year

·The project will last for five (5) years (2021-2025)

Charge depreciation using the straight-line method

·Salvage value for equipment is GH¢2,000,000

·CPC falls within the 25% tax bracket

·An initial working capital investment of GH¢10,000,000will be made. Subsequently, net working capital at the end of each year will be equal to 10 percent of sales for that year. In the final year of the project, net working capital will decline to zero as the project is wound down. In other words, the investment in working capital is to be completely recovered by the end of the project’s life

·The introduction of this new vaccine is expected to lead to 10,000units per annum drop in sales of vaccines for other types of corona virus by. The selling price per unit of existing products is GH¢100while the variable cost is GH¢70.This has no tax implications for the new vaccine.

·The project will be financed with debt and equity

Required

a.Evaluate the project using the NPV and Profitability index and recommend whether CPC should go ahead with the production of the vaccine.

b.Discuss three(3) qualitative factors that the Management of CPC might have to consider and how these factors are expected to influence the decision of Management with regards to the production of the vaccine. (6 marks )

c.Under what circumstances will you prefer profitability index to NPV as project evaluation techniques. (2marks )

d.Explain why sunk costs should not be included in a capital budgeting analysis, but opportunity costs and externalities should be included. (2 marks )

Once a pinnacle of luxury clothing found only in high-end fashion stores, by 2006 cashmere sweaters, which typically sold for hundreds of dollars, could be found in big box stores for as little as $20. The reason for this substantial price drop: increased production and competition from China. The cashmere industry has been around for centuries. Historically, however, Chinese and Mongolian herders exported the raw fiber to Europe, where it was spun and converted into clothing. Beginning in the 1980’s, China made a charge toward industrialization and the market economy. One area of rapid growth was the textile industry.

To increase production of cashmere wool, the number of wool-producing goats in Inner Mongolia, home to a vast grassland that the animals can graze on, increased tenfold, from 2.4 million in 1949 to 25.8 million in 2004. This dramatically increased the production of cashmere in China, but not without its consequences. One of the biggest problems, however, is that goats are devastating to the topsoil. The combination of pointy hooves and a voracious appetite leads to a rise in desertification. That is, turning grassland to desert. Over a 5-year period, “the Gobi Desert expanded in size by an area larger than the Netherlands.”

A consequence of this desertification is an increase in dust storms. Over the last several decades, the number and size of dust storms originating in China has grown dramatically. These storms impose a tremendous external cost on the regions through which they travel. One storm, “forced 1.8 million South Koreans to seek medical help and cost the country $7.8 billion in damage to industries such as airlines and semiconductors.” Another storm was so large it traveled around the entire world, causing damage in the US, Europe, and Africa.

1. There are several methods for reducing the costs of negative externalities. Why might some of these be difficult to implement at the global level? and what policies could the Chinese government implement to prevent the Tragedy of the Commons outcome of desertification?

Suppose for your company, the probability an individual customer purchases something in-store is 0.74. The probability he or she purchases something online is 0.81. We have described a set of Bernoulli trials with this scenario:

            (a) There are two outcomes – purchase (a “success”) or no purchase,

            (b) The probability of a success is constant across trials, and

(c) Trials are independent of each other, assuming customers are not related or shopping together.

(1) What is the expected number of customers until the first one purchases something in-store?

(2) What is the expected number of customers until the first one purchases something online?

(3) What is the probability that the third customer is the first to purchase something in-store?

(4) What is the probability that the fifth customer is the first to purchase something online?

(5) What is the probability of exactly 7 of the next 12 customers purchasing something in-store?

(6) What is the probability that exactly 7 of the next 12 customers will purchase something online?

(7) What is the probability that no more than 6 of the next 9 customers will purchase something in-store?

(8) What is the probability that at least 8 of the next 11 customers will purchase something online?

Now we want to look at purchasing a specific item. Suppose the probability customers purchase that item in-store is 0.60, while the probability they purchase it online is 0.79.

(9) What is the probability exactly 4 out of the next 7 in-store customers will purchase that item?

(10) What is the probability at least 5 of the next 8 online customers will purchase that item?

(11) What is the probability the 4^th in-store customer will be the first to purchase that item?

(12) What is the probability no more than 5 of the next 11 online customers will purchase that item?

(13) What is the probability that at least 8 of the next 12 in-store customers will purchase that item?

(14) What is the probability the first online customer to purchase that item will be before the 5^th?

Suppose for your store, the mean number of customers at any time of the day is 4.8 (this would be λ). Determine the following probabilities. NOTE these are not based on Bernoulli trials.

(15) What is the probability of having no customers in the store at some point during the day?

(16) What is the probability of having at least 6 customers in the store at any given point?

(17) What is the probability of having no more than three customers in the store at any given point?

(18) What is the probability of having exactly 5 customers in the store at any given point?

(19) If I wanted to know the number of customers before the first one bought something, which model would I use?

            GEOMETRIC            BINOMIAL                POISSON            (circle one)

(20) If I wanted to know how many customers out of a certain number will buy something, which model would I use?

            GEOMETRIC            BINOMIAL                POISSON            (circle one)

Kingbird Hardware takes pride as the “shop around the corner” that can compete with the big-box home improvement stores by providing good service from knowledgeable sales associates (many of whom are retired local handymen). Kingbird has developed the following two revenue arrangements to enhance its relationships with customers and increase its bottom line.

1. Kingbird sells a specialty portable winch that is popular with many of the local customers for use at their lake homes (putting docks in and out, launching boats, etc.). The Kingbird winch is a standard manufacture winch that Kingbird modifies so the winch can be used for a variety of tasks. Kingbird sold 60 of these winches during 2017 at a total price of $19,200, with a warranty guarantee that the product was free of any defects. The cost of winches sold is $17,200. The assurance warranties extend for a 3-year period with an estimated cost of $1,800. In addition, Kingbird sold extended warranties related to 20 Kingbird winches for 2 years beyond the 3-year period for $430 each.

2. To bolster its already strong customer base, Kingbird implemented a customer loyalty program that rewards a customer with 1 loyalty point for every $10 of purchases on a select group of Kingbird products. Each point is redeemable for a $1 discount on any purchases of Kingbird merchandise in the following 2 years. During 2017, customers purchased select group products for $91,000 (all products are sold to provide a 45% gross profit) and earned 9,100 points redeemable for future purchases. The standalone selling price of the purchased products is $91,000. Based on prior experience with incentives programs like this, Kingbird expects 8,500 points to be redeemed related to these sales (Kingbird appropriately uses this experience to estimate the value of future consideration related to bonus points).

Prepare the journal entries for Kingbird related to the sales of Kingbird winches with warranties.

(Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Do not round intermediate calculations. Round final answers to 0 decimal places.)

Account Titles and Explanation

Debit Credit

(To record sales)

(To record cost of goods sold)

Prepare the journal entries for the bonus point sales for Kingbird in 2017.

(Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Do not round intermediate calculations. Round final answers to 0 decimal places.)

Account Titles and Explanation Debit Credit

(To record sales)

(To record cost of goods sold)

How much additional sales revenue is recognized by Kingbird in 2018, assuming 3,900 bonus points are redeemed? (Do not round intermediate calculations. Round final answers to 0 decimal places.)

Additional Sales Revenue $

Part 1.

About 24% of flights departing from New York's John F. Kennedy International Airport were delayed in 2009. Assuming that the chance of a flight being delayed has stayed constant at 24%, we are interested in finding the probability of 10 out of the next 100 departing flights being delayed. Noting that if one flight is delayed, the next flight is more likely to be delayed, which of the following statements is correct?

• We can use the geometric distribution with n = 100, k = 10, and p = 0.24 to calculate this probability.
• We cannot calculate this probability using the binomial distribution since whether or not one flight is delayed is not independent of another.
• We can use the binomial distribution with n = 100, k = 10, and p = 0.24 to calculate this probability.
• We can use the binomial distribution with n = 10, k = 100, and p = 0.24 to calculate this probability.

Part 2.

A July 2011 Pew Research survey suggests that 27% of adults say they regularly get news through Facebook, Twitter or other social networking sites. What's the probability that in a random sample of 10 people at most 1 of them get their news through social networking sites?

A July 2011 Pew Research survey suggests that 27% of adults say they regularly get news through Facebook, Twitter or other social networking sites. What's the probability that in a random sample of 10 people at most 1 of them get their news through social networking sites?

• 0.20
• 0.96
• 0.16
• 0.04
• 0.06

Part 3.

3.32 Arachnophobia: A 2005 Gallup Poll found that 7% of teenagers (ages 13 to 17) suffer from arachnophobia and are extremely afraid of spiders. At a summer camp there are 10 teenagers sleeping in each tent. Assume that these 10 teenagers are independent of each other.


(a) Calculate the probability that at least one of them suffers from arachnophobia.
(please round to four decimal places)
(b) Calculate the probability that exactly 2 of them suffer from arachnophobia?
(please round to four decimal places)
(c) Calculate the probability that at most 1 of them suffers from arachnophobia?
(please round to four decimal places)

Prepare journal entries to record the December transactions in the General Journal Tab in the excel template file "Accounting Cycle Excel Template.xlsx". Use the following accounts as appropriate: Cash, Accounts Receivable, Supplies, Prepaid Insurance, Equipment, Accumulated Depreciation, Accounts Payable, Wages Payable, Common Stock, Retained Earnings, Dividends, Service Revenue, Depreciation Expense, Wages Expense, Supplies Expense, Rent Expense, and Insurance Expense. 1-Dec Began business by depositing $6500 in a bank account in the name of the company in exchange for 650 shares of $10 per share common stock. 1-Dec Paid the rent for the current month, $550 . 1-Dec Paid the premium on a one-year insurance policy, $600 . 1-Dec Purchased Equipment for $4200 cash. 5-Dec Purchased office supplies from XYZ Company on account, $300 . 15-Dec Provided services to customers for $5600 cash. 16-Dec Provided service to customers ABC Inc. on account, $2800 . 21-Dec Received $1600 cash from ABC Inc., customer on account. 23-Dec Paid $170 to XYZ company for supplies purchased on account on December 5 . 28-Dec Paid wages for the period December 1 through December 28, $4480 . 30-Dec Declared and paid dividend to stockholders $200 . #2. Post all of the December transactions from the “General Journal” tab to the T-accounts under the “T-Accounts” tab in the excel template file "Accounting Cycle Excel Template.xlsx". Assume there are no beginning balances in any of the accounts. #3. Compute the balance for each T-account after all of the entries have been posted. These are the unadjusted balance as of December 31. #4. Prepare the unadjusted trial balance under the “Unadjusted Trial Balance” tab in the excel template file "Accounting Cycle Excel Template.xlsx" . Provide the total of the credit column from the Unadjusted Trial Balance 15,030 #5. Record the following four transactions as adjusting entries under the “General Journal” tab. 31-Dec One month’s insurance has been used by the company $50. 31-Dec The remaining inventory of unused office supplies is $90. 31-Dec The estimated depreciation on equipment is $70. 31-Dec Wages incurred from December 29 to December 31 but not yet paid or recorded total $480.

you have calculated the following , fixed cost = $6000/month , variable cost = $3/unit, revenue = $8/ unit. 1. what is the break even point of the process. 2. quantity to produce for profit of $2000 per year