Bansal Real Estate Company was founded 25 years ago by the current CEO, RanjitBansal.
The company purchases real estate, including land and buildings, and rents the property to
tenants. The company has shown a profit every year for the past 18 years, and the stock
holders are satisfied with the company’s management. Prior to BansalReal Estate Mr.
Bansal was CEO and founder of agro firm which was bankrupt because of debt financing.
So Mr. Bansal was against debt financing and therefore the Bansal Real Estate Company is
100% equity financed with 15 million shares outstanding and the stock currently trades at
Rs. 300 per share.
Bansal is evaluating a plan to purchase a huge tract of land near Kathmandu for Rs 900
million. The land will generate huge revenue so the pretax income will increase by Rs. 220
million in perpetuity. The new CFO Mr. Supreme has determined the current cost of capital
of the company is 12.5%. He feels that the company would be more valuable if it included
debt in its capital structure, so he is evaluating whether the company should issue debt to
entirely finance the new project. He thinks that the bond can be issued at par with coupon
rate of 8%. Based on some conversations with investment bank, he thinks that the 70%
equity and remaining debt would be optimal capital structure. He also thinks that higher
debt would be lowering the rating and cost would increase. The corporate tax rate is 40%.
a. If the Bansal wishes to maximize its total market value, would you recommend that it
issues debt or equity to finance land purchase? Explain
b. If the company issue debt then what would be the impact in price per share? If the
company issue equity rather thandebt, what would be the impact in price per share?

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 $1,300 per month plus $0.07 per car washed. The company expects to wash 8,500 cars in August and to collect an average of $6.40 per car washed.

The actual operating results for August appear below.

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.)

Comprehensive Master (Operating) Budget

Bee Gee Distributors, a wholesale company, is considering whether to open a new distribution center near Bowling Green, Ohio. The center would open January 1, 2020. The economic outlook is reasonable, but extensive advance planning is required if such a commitment is to be made. As a part of the planning process, The Board of Directors requires a Master (i.e. Operating) Budgetfor the center’s first quarter of operations(i.e. January, February & March of 2020).  In order to prepare anybudget, management must make reasonable assumptions about expected sales, inventory levels and cash flows.  

Required:  Your help is needed to construct the entire first quarter Master Budget based upon the following two pages of management assumptions:

SALES BUDGET: “What is the Profit Plan?”

        ** It all starts with a sales forecast **

a.     January sales are estimated to be $400,000 of which $100,000 (25%) will be cash and $300,000 will be on credit.  Management expects the above sales pattern to continue with an overall grow rate of 10% per month.  Prepare a sales budget.

b.     The company expects to collect 100% of the accounts receivable in the month following the month of the sale.  Prepare a schedule of expected cash receipts.

c.     Use the information developed above in requirements a and bto determine the amount of accounts receivable on the March 31 pro forma balance sheet and the amount of sales on the first quarter pro forma income statement.

_____________________________________________________________________

PURCHASES BUDGET: “What are our total needs, less what do we have”?

d.     Cost of goods sold will be 60% of sales.  Company policy is to budget an ending inventory balance equal to 25% of the next month’s projected cost of goods sold.  Prepare an inventory purchases budget.

Note: For March analysis needs, Aprilcost of goods sold is expected to be $314,000.

Suppose you are a capital budgeting expert in a consulting company. Your potential client,the Sun Devil Cookie Company, is considering the construction of a bakery to produce a newtype of chocolate chip cookie that is free of both cholesterol and saturated fat and has 2 caloriesper cookie. The bakery is expected to last for 25 years. Its initial cost is $80 million. This costcan be depreciated over 15 years in nominal terms using straight line depreciation to a valueof zero. After 15 years the bakery needs to be renovated. The cost of renovation will be $20million in real terms and can be depreciated (again using straight line depreciation to a valueof zero) over the remaining 10 years of the bakery’s life. The salvage value of the equipment atthe end of the project will be $1 million in real terms. The land the bakery is built on couldbe rented out for $1.25 million a year in real terms for 25 years with the rent collected at thebeginning of each year.The bakery will be able to produce 25 million packets of cookies per year. The price of apacket of cookies is currently $2.75. It is expected to grow at a rate of 5% per year in realterms for the first 2 years, then at 2% per year in real terms for 4 years, and finally at 0% peryear thereafter for the remainder of the bakery’s life. The basic ingredients for a package ofcookies currently cost $0.75. These costs are expected to grow by 1% in real terms through thelifetime of the project. The labor required to operate the bakery is expected to cost a total of$11 million dollars in nominal terms during the first year and this is expected to increase at 4%in real terms thereafter. The level of working capital for the project is $18 million at year 0 andthis is expected to increase at 3% in real terms per year. At the end of the project (year 25),the working capital can be fully recovered.The rate of inflation is expected to be 2% per year for the bakery’s life. The firm’s total taxrate including local taxes is 35%. Its opportunity cost of capital for projects of this type is 12%in nominal terms.Prepare an analysis of this capital budgeting problem, in which you compute the Net PresentValue using nominal terms. Pay special attention when converting real terms to nominal terms.Present your answer in a brief memo outlining your valuation. Make sure you state whether thefirm should build the bakery. The technical appendix should include a copy of your spreadsheet and explanations of the formulas you used in your computations.

Each year, Worrix Corporation manufactures and sells 3,300 premium-quality multimedia projectors at $12,300 per unit. At the current production level, the firm’s manufacturing costs include variable costs of $2,800 per unit and annual fixed costs of $6,300,000. Selling, administrative, and other expenses (not including 15% sales commissions) are $10,300,000 per year. The new model, introduced a year ago, has experienced a flickering problem. On average, the firm reworks 40% of the completed units and still has to repair under warranty 15% of the units shipped. The additional work required for rework and repair caused the firm to add additional capacity with annual fixed costs of $2,100,000. The variable costs per unit are $2,300 for rework and $2,800, including transportation cost, for repair. The chief engineer, Patti Mehandra, has proposed a modified manufacturing process that will almost entirely eliminate the flickering problem. The new process will require $12,300,000 for new equipment (including installation cost) and $3,300,000 for training. The firm currently inspects all units before shipment. Patti believes that current appraisal costs of $600,300 per year and $53 per unit can be eliminated within 1 year after the installation of the new process. Furthermore, if the new investment is made, warranty repair cost per unit are estimated to be only $1,300, for no more than 5% of the units shipped. Worrix believes that none of the fixed costs of rework or repair can be saved and that a new model will be introduced in 3 years. This new technology would most likely render obsolete the equipment the company purchased a year ago. The accountant estimates that warranty repairs now cause the firm to lose 20% of its potential business.

Required: 1. What is the total required initial investment cost (cash outlay) associated with the new manufacturing process?

2. What is the total expected change (i.e., increase or decrease) in cost of quality over the next 3 years from using the new manufacturing process being proposed?

3. Based solely on financial considerations, should Worrix invest in the new process? Specifically: (a) What is the cumulative (i.e., 3-year) estimated change in pretax cash flow assuming the new system is implemented? (b) What is the estimated payback period for the proposed investment? (c) What is the estimated pretax internal rate of return (IRR) for the proposed investment? (Use the built-in IRR function in Excel to answer this question.) (Round your "IRR" answer to 2 decimal places.)

INTRODUCTIONThe vice president at your company, Columbia Holdings, has given you a new assignment: “Recently I asked the folks at Patterson Manufacturing to develop a strategy for improving their profitability. They have responded with a proposal. I want you to evaluate the proposal: Is it viable? Is it sustainable? Visit their operations and bring back a recommendation.”As you travel to the site you review a brief history of the firm. Patterson Manufacturing was founded in a small northeastern city more than a century ago. Wesley Patterson started the firm alongside a fast-moving stream that provided mechanical power to drive cutting tools, grinders, lathes, and polishers. These tools were used to produce precision parts other manufacturers needed. The firm quickly established a reputation for producing high-quality products to exacting tolerances. The firm prospered.Wesley studied the industries he served to develop new products that could fill his customers’ emerging needs. He often met with customers to design unique products for them. He referred to his approach as providing “customer-driven creative solutions.” He also kept abreast of new manufacturing materials and technology to ensure his products were of the highest quality.The firm grew steadily and, by 1925, was (and still is) the community’s largest employer. Wesley donated the land that is now the city’s central park. He also paid for constructing the first municipal buildings. More recently, the company was the primary donor for the construction of the municipal library and the local hospital. And the taxes paid by the firm and its employees are responsible for an excellent array of community services, including the Patterson Sports Complex and Patterson Community Center. The Great Depression in the 1930s brought hard times to the company, yet none of its employees were discharged. Instead, the firm and its employees cooperated to spread the available work among its employees by reducing each individual’s working hours (and wages). During that time, the firm also suspended paying dividends to its owners. After the company returned to prosperity in the 1940s, it continued to emphasize customer-driven creative solutions, and its loyal workforce enthusiastically overcame product design challenges. Wesley passed leadership of his business to his son, who later passed it down to Wesley’s grandson, and then to Wesley’s great granddaughter, Jessica Patterson. But five years ago, when Jessica wanted to retire, there was no heir willing to take over the business. Consequently, the plant was sold to your employer, Columbia Holdings.BACKGROUNDColumbia invests in family-owned businesses with a strong presence in niche markets. Columbia retains existing management and local business practices but provides centralized services, such as finance, accounting, insurance, IMA EDUCATIONAL CASE JOURNAL VOL. 6, NO. 4, ART. 1, DECEMBER 20131ISSN 1940-204XPatterson ManufacturingShane MoriarityUniversity of Oklahoma and Unitec New ZealandAndrew Slessor Unitec New Zealand

and corporate-level management. Patterson has remained profitable since the acquisition, but its return on investment has been declining. Your first stop at the Patterson complex is a meeting with the controller. He provides some additional background: “Jessica, like her predecessors, spent most of her time with customers developing new products to meet customer needs. She didn’t concern herself with costs. Customers were willing to pay for products that solved problems. Upon Jessica’s retirement, Columbia appointed Paul, our former production manager, to CEO. Paul has done wonders in rationalizing and standardizing our product lines. He substantially reduced manufacturing costs, which led to record profits in the two years following the sale of the company. Those early results have apparently set high expectations for our continuing performance. Our proposal will help move us toward meeting those expectations,” he said.“Our proposal is to stop manufacturing our largest-selling product, the Gudgeon EH40, and instead acquire it from an overseas supplier,” continued the controller. “This product currently represents 30% of our total sales revenue and production volume. But sales have been declining because competitors are offering a similar product at lower prices. We think that by reducing our price by 5% we can increase our unit sales volume by 15%. The increased volume coupled with a lower product cost from the offshore supplier should nearly double our firm-wide profit.”The controller also provided some supporting documents. Exhibit 1 summarizes operations for the five years since Patterson Manufacturing was sold to Columbia Holdings. Year 1 represents the first full year after Jessica retired, and Year 5 is the year that just past. Exhibits 2, 3, and 4 provide an income statement for Year 5, the current employee staffing levels by job title, and a detailed price proposal from the overseas supplier.The controller continued: “The analysis is pretty straightforward. Sales of the Gudgeon EH40 were $27 million last year. The direct material costs came to $14.3 million, while overhead costs of $4.2 million were allocated to the product. But only $2.9 million of the overhead will be avoided if we stop manufacturing the Gudgeon EH40. The remaining overhead costs are nearly all fixed and not subject to reduction in the near future. Our direct selling costs consist mostly of an 8% commission paid to sales representatives. In addition, there’s a $2 million advertising allowance devoted to promoting the Gudgeon EH40 in trade magazines.”He also said, “By outsourcing the Gudgeon EH40, we can release three administrative managers, eight administrative support staff, 128 general production personnel, and 10 supervisors.The firm will incur a one-time charge of $1 million for severance pay and pension contributions for dismissed employees. We’ll also need to spend $200,000 for the construction of receiving facilities for the outsourced product.”The controller continued: “The supplier’s cost quotation (Exhibit 4) needs to be adjusted for the expected 15% increase in volume. The cost for materials and labor will increase proportionately, but the overhead and ‘other’ costs are unlikely to be affected. The supplier’s mark-up will be 10% of the new total cost. In addition to the product cost, Patterson will incur transportation costs to get the product from the manufacturer to our warehouse. The transportation costs are variable and would have been $0.6 million for the volume of product in Year 5.”THE TASKAfter his brief overview, the controller hands you the exhibits and says, “You should go through the numbers yourself to ensure that my projection for the increase in profit is correct.” As you make your way to an empty office to review the numbers, the marketing manager approaches you. She pleads, “Don’t let them do this. The proposed action will deal a devastating financial blow to our community. Wesley Patterson would have never approved such a move. He loved this town.

Exhibit 1:
Patterson Manufacturing Five-Year Summary of Operations

Total Revenues

Net Income

Domestic Sales

International Sales

Sales of Established Products*

Sales of New Products*

Research and Development

Return on Assets

Number of Employees

Year 5

$90.2

$3.1

$74.7

$15.5

$73.9

$16.3

$0.9

2.0%

480

Year 4

$94.9

$3.8

$76.9

$18.0

$75.1

$19.8

$1.1

2.3%

485

Year 3

$99.1

$4.4

$79.3

$19.8

$74.4

$24.7

$1.5

2.7%

502

Year 2

$106.2

$7.3

$85.0

$21.2

$76.3

$29.9

$1.2

4.1%

492

Year 1

$111.4

$7.5

$88.1

$23.3

$76.6

$34.8

$1.3

4.2%

510

Note: Dollar figures are in millions.
*Established products are those that have been marketed for five years or more. New products have been marketed for less than five years.

Exhibit 2:
Summary Income Statement for Patterson Manufacturing

Sales

Cost of Goods Sold (COGS)

Gross Margin

Administrative Costs

Selling Costs

Operating Income

Year 5

$90.2

74.3

15.9

1.6

11.2

$ 3.1

Note: Dollar figures are in millions. Interest expense and income taxes are only shown on Columbia’s consolidated financial statements.

Exhibit 3:
Distribution of Current Patterson Employees by Job Title

Job Title

Administrative Manager

Administrative Staff

Production Supervisor

General Production Personnel

Number of Employees

10

24

29

417

Average Salary Per Employee

$45,000

32,000

50,000

37,000

Exhibit 4:
Off-Shore Supplier’s Price Proposal for the Volume of Product in Year 5

Material Costs $12.7

Labor Costs 1.8

Overhead Costs 2.7

Other 1.5

Total 18.7

Profit Mark-Up (10%) 1.9

Total Price $20.6

Note: Dollar figures are in millions. The total price is quoted for supplying the quantity of product Patterson sold in Year 5. The quoted price is FOB the supplier’s manufacturing plant.

Questions:

1. Using the controller’s projections, prepare an analysis of the expected effect of outsourcing the product on Patterson’s profitability.

2. Would it be a viable alternative to produce the product locally and lower the price to achieve the increase in sales volume?

3. Does the firm have an obligation to maintain employment levels in the town?

4. What risks are associated with the proposal?

5. Make a recommendation to your vice president on whether the proposal should be accepted. Provide your reasoning and any suggestions for additional or alternative actions that Patterson should take.

Java Programming Project 6: File I/O

Purpose: To practice reading from as well as writing to text files with the help of Scanner class methods, and PrintStream class methods. You will also learn to implement some simple Exception Handling.

Carefully examine and follow ALL the program specifications.

Take a look at the PPT slides for Chapter 7 File I/O for examples that will help with this program.

Hotel Expense Recording Keeping:

A hotel bookkeeper enters client hotel expenses in a text file. Each line contains the following, separated by semicolons: client name, service sold (i.e., Dinner, Conference, Lodging, etc.), the sales amount, and the date.

1. Your program should first query the user for the name of the input file and read it in. Display an error if the input file is not found (does not exist).
2. Then the program should read the file (line by line), keep a running tally of the total amount for each kind of service,
3. Finally display the total amount for each service category. In addition to displaying totals on the screen, the totals should also be written to an output file.
4. Additionally your program should include some exception handling. An Exception that should be checked (and handled) would be a FileNotFoundException.

Attached (and below) is an example input file that your program will be tested with, so you will need to make sure that you program will run correctly using this file. Since this may be your first experience reading from an input file, you will likely find it easiest if you store the input file in the same folder with your Java program file so that they can easily communicate with one another. The easiest way to store this file is as a plain text file in Notepad (do not use MS word or any other sophisticated word processor or you will be processing embedded text commands, which is not at all recommended). Here is what the input file looks like:

Jason Inouye;Conference;250.00;11/10/2016

Jason Inouye;Lodging;78.95;11/10/2016

Mary Ryan;Dinner;16.95;11/10/2016

Mark Twain;Dinner;25.50;11/10/2016

Mark Twain;Spa;50.00;11/10/2016

Steven Hawking;Conference;250.00;11/10/2016

Steven Hawking;Room Service;45.00;11/11/2016

Steven Hawking;Lodging;78.95;11/11/2016

Ayrton Senna;Room Service;23.20;11/10/2016

Ayton Senna;Dinner;22.50;11/10/2016

Ayton Senna;Lodging;78.95;11/10/2016

One feature of the input file, is that it uses a semicolon (;) to delimit the tokens on each line of input, rather than whitespace. You will need to use a delimiter statement after you construct your line scanner object.

To see how to construct a line scanner object, go to Chapter 7 PowerPoint slide in the Week 13 folder. So for example, if you create an object called lineScan of type Scanner to process tokens on a given line of input, then you could call the useDelimiter method on your lineScan object, as follows:

lineScan.useDelimiter(";");

This will allow you to tokenize each input line based, not on white space delimiters, but using the semicolon as a delimiter instead.

This is what should be in your Output file after you run your program (this file will most likely be located in the same folder as your Java program).

Dinner expenses : 64.95
Lodging expenses : 236.85
Conference expenses : 500.00
Room Service expenses : 68.20
Spa expenses : 50.00

Submission Requirements:

1. Please be sure to use appropriate prologue comments at the top of your program, Javadoc formatted comments for your methods, as well as inline comments within the body of your code (as needed).

Bank of America's Consumer Spending Survey collected data on annual credit card charges in seven different categories of expenditures: transportation, groceries, dining out, household expenses, home furnishings, apparel, and entertainment (U.S. Airways Attache, December 2003). Using data from a sample of 42 credit card accounts, assume that each account was used to identify the annual credit card charges for groceries (population 1) and the annual credit card charges for dining out (population 2). Using the difference data, the sample mean difference was    = $872, and the sample standard deviation was sd = $1,119.

Formulate the null and alternative hypotheses to test for no difference between the population mean credit card charges for groceries and the population mean credit card charges for dining out.
H0:  d Selectgreater than or equal to 0greater than 0less than or equal to 0less than 0equal to 0not equal to 0Item 1  
Ha:  d Selectgreater than or equal to 0greater than 0less than or equal to 0less than 0equal to 0not equal to 0Item 2  

Use a .05 level of significance. What is the p-value?
The p-value is Selectless than .01between .01 and .02between .02 and .05between .05 and .10between .10 and .20between .20 and .40greater than .40Item 3  

Can you conclude that the population means differ?
SelectThere is a difference between the annual mean expendituresCannot conclude there is a difference between the annual mean expendituresItem 4  

Which category, groceries or dining out, has a higher population mean annual credit card charge?
SelectGroceriesDining outItem 5  

What is the point estimate of the difference between the population means?
$   

What is the 95% confidence interval estimate of the difference between the population means (to the nearest whole number)?
(  ,   )

Bank of America's Consumer Spending Survey collected data on annual credit card charges in seven different categories of expenditures: transportation, groceries, dining out, household expenses, home furnishings, apparel, and entertainment (U.S. Airways Attache, December 2003). Using data from a sample of 42 credit card accounts, assume that each account was used to identify the annual credit card charges for groceries (population 1) and the annual credit card charges for dining out (population 2). Using the difference data, the sample mean difference was    = $861, and the sample standard deviation was s_d= $1,114.

1. Formulate the null and alternative hypotheses to test for no difference between the population mean credit card charges for groceries and the population mean credit card charges for dining out.
   H₀:  _d Selectgreater than or equal to 0greater than 0less than or equal to 0less than 0equal to 0not equal to 0Item 1
   H_a:  _d Selectgreater than or equal to 0greater than 0less than or equal to 0less than 0equal to 0not equal to 0Item 2
   
2. Use a .05 level of significance. What is the p-value?
   The p-value is Selectless than .01between .01 and .02between .02 and .05between .05 and .10between .10 and .20between .20 and .40greater than .40Item 3
   
   Can you conclude that the population means differ?
   SelectThere is a difference between the annual mean expendituresCannot conclude there is a difference between the annual mean expendituresItem 4
   
3. Which category, groceries or dining out, has a higher population mean annual credit card charge?
   SelectGroceriesDining outItem 5
   
   What is the point estimate of the difference between the population means?
   $  
   
   What is the 95% confidence interval estimate of the difference between the population means (to the nearest whole number)?
   (  ,  )

Bank of America's Consumer Spending Survey collected data on annual credit card charges in seven different categories of expenditures: transportation, groceries, dining out, household expenses, home furnishings, apparel, and entertainment (U.S. Airways Attache, December 2003). Using data from a sample of 42 credit card accounts, assume that each account was used to identify the annual credit card charges for groceries (population 1) and the annual credit card charges for dining out (population 2). Using the difference data, the sample mean difference was    = $852, and the sample standard deviation was s_d= $1,143.

1. Formulate the null and alternative hypotheses to test for no difference between the population mean credit card charges for groceries and the population mean credit card charges for dining out.
   H₀:  _d Selectgreater than or equal to 0greater than 0less than or equal to 0less than 0equal to 0not equal to 0Item 1
   H_a:  _d Selectgreater than or equal to 0greater than 0less than or equal to 0less than 0equal to 0not equal to 0Item 2
   
2. Use a .05 level of significance. What is the p-value?
   The p-value is Selectless than .01between .01 and .02between .02 and .05between .05 and .10between .10 and .20between .20 and .40greater than .40Item 3
   
   Can you conclude that the population means differ?
   SelectThere is a difference between the annual mean expendituresCannot conclude there is a difference between the annual mean expendituresItem 4
   
3. Which category, groceries or dining out, has a higher population mean annual credit card charge?
   SelectGroceriesDining outItem 5
   
   What is the point estimate of the difference between the population means?
   $  
   
   What is the 95% confidence interval estimate of the difference between the population means (to the nearest whole number)?
   (  ,   )