he following information is available for Sage Hill, Inc. for the year 2017.

Common shares outstanding for 2017 total 23,000 (000 omitted).

Prepare an income statement for Sage Hill Inc. for the year 2017 using the multiple-step form. (Round earnings per share to 2 decimal places, e.g. 1.48.)

Jack wants to go into partnership with you by opening a franchise and asked you for help in performing an analysis.
The opportunity involves a coffee shop franchise. Which will require a $650,000 buy in. Typical annual operating costs will be $200,000 (cash) and that the forecasted revenues will be $310,000 per year. The Franchisor demands a payment of 12% of Revenues for trademark and business model. You would like to earn at least 8% on this investment and will need to borrow the entire buy-in amount at an interest rate cost of 4%. You plan to conduct your analysis over a 15 year period and will not consider taxes at this time.

Required
1. Find the NPV and IRR of this investment, given the information above.

2. You are skeptical of jack's revenue forecast of $310,000 per year. He did take Math in school and achieved a grade of 95%, however he never attended any classes and was only able to achieve this remarkable grade by plagiarizing from a classmate. You believe that a more realistic revenue forecast will be lower. Conduct a sensitivity analysis by finding the NPV and IRR (similar to Part 1 above) of this investment using $280,000 and $260,000 as the revenue forecast.

3. You believe that you can negotiate a lower payment to the franchisor and also think that if revenues are lower than $310,000 costs will decrease by $20,000. Repeat the same analysis as you did in Part 2 above (using $280,000 and $260,000 forecasted revenue) with annual operating costs of $180,000 and Franchise fee of 9% of revenues

4. Discuss how the sensitivity analysis will affect your decision to buy the franchise. Why don’t you have to recalculate the IRR if you change the desired (discount) interest rate?

During January, Luxury Cruise Lines incurs employee salaries of $2.2 million. Withholdings in January are $168,300 for the employee portion of FICA, $330,000 for federal income tax, $137,500 for state income tax, and $22,000 for the employee portion of health insurance (payable to Blue Cross Blue Shield). The company incurs an additional $136,400 for federal and state unemployment tax and $66,000 for the employer portion of health insurance.

Record the necessary entries in the Journal Entry Worksheet below. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field. Enter your answers in dollars, not in millions (i.e. 5 should be entered as 5,000,000).)

a. Record the employee salary expense, withholdings, and salaries payable.

options for general journal - No Journal Entry Required, Accounts Payable, Accounts Receivable, Advertising Expense, Allowance for Uncollectible Accounts, Bad Debt Expense, Cash, Common Stock, Contingent Liability, Deferred Revenue, Delivery Expense, FICA Tax Payable, Fringe Benefits Payable, Gain, Income Tax Expense, Income Tax Payable, Insurance Expense, Interest Expense, Interest Payable, Interest Receivable, Interest Revenue, Loss, Notes Payable, Notes Receivable, Payroll Tax Expense, Property Tax Expense, Rent Expense, Repairs and Maintenance Expense, Retained Earnings, Salaries Expense, Salaries Payable, Sales Revenue, Sales Tax Payable, Service Fee Expense, Service Revenue, Supplies, Supplies Expense, Unemployment Tax Payable, Utilities Expense, Utilities Payable, Warranty Expense, Warranty Liability

b. Record the employer-provided fringe benefits.

c. Record the employer payroll taxes.

13. Mr. Rogers sells colored pencils. The colored-pencil industry is competitive. Mr. Rogers hires a business consultant to analyze his company’s financial records. The consultant recommends that Mr. Rogers increase his production. The consultant must have concluded that Mr. Roger’s a. total revenues equal his total economic costs. b. marginal revenue exceeds his total cost. c. marginal revenue exceeds his marginal cost. d. marginal cost exceeds his marginal revenue.

14. Robin owns a horse stables and riding academy and gives riding lessons for children at “pony camp.” Her business operates in a competitive industry. Robin gives riding lessons to 20 children per month. Her monthly total revenue is $4,000. The marginal cost of pony camp is $100 per child. In order to maximize profits, Robin should a. give riding lessons to more than 20 children per month. b. give riding lessons to fewer than 20 children per month. c. continue to give riding lessons to 20 children per month. d. We do not have enough information to answer the question.

15. A competitive firm has been selling its output for $20 per unit and has been maximizing its profit, which is positive. Then, the price falls to $18, and the firm makes whatever adjustments are necessary to maximize its profit at the now-lower price. Once the firm has adjusted, its a. quantity of output is lower than it was previously. b. average total cost is lower than it was previously. c. marginal cost is higher than it was previously. d. All of the above are correct.

7. The short-run supply curve for a firm in a perfectly competitive market
(x) is determined, in part, by the comparison of marginal costs and marginal revenue for the firm.
(y) is reflected in that part of the marginal cost curve that lies above the average variable cost curve.
(z) will be influenced by fixed costs.
A. (x), (y) and (z)
B. (x) and (y) only
C. (x) and (z) only
D. (y) and (z) only
E. (x) only

8. At the current level of output, a profit-maximizing firm in a competitive market earns average revenue of $48, and has an average total cost of $43. If the firm's marginal cost curve is equal to its average total cost curve at an output level of 40,000 units, then the firm would earn a profit of _________ at its current level of output.
A. exactly $200,000
B. less than $200,000
C. more than $200,000
D. Any of the above
E. None of the above

9. A competitive firm (price-taker) is able to sell its output for $10 per unit. The 1,000th unit of output that the firm produces has a marginal cost of $12. It follows that the production and sale of the 1,000th unit of output
(x) increases the firm’s total revenue by $10, but increases the firm’s total cost by $12.
(y) decreases the firm’s profit by $2 since price is less than marginal cost by $2.
(z) indicates that the firm should necessarily shut down in the short run since marginal cost exceeds marginal revenue at the output amount of 1,000 units.
A. (x), (y) and (z)
B. (x) and (y) only
C. (x) and (z) only
D. (y) and (z) only
E. (x) only

Suppose a company provides services to customers in the current period but does not collect cash from those customers. How will the basic accounting equation be affected in the current year?

On May 1, 2016, a company paid $9,000 for insurance to cover the next 12 months. On December 31, 2016, what adjusting entry does the company need to make for its year-end financial statements?

On July 16, a company received cash from a customer for services that were provided in June. Which of the following should be recorded on July 16?

The ending balance of retained earnings represents:

A regional airline transfers passengers from small airports to a larger regional hub airport. The airline data analyst was assigned to estimate the revenue ( in thousands of dollars) generated by each of the 22 small airports based on two variables: the distance from each airport ( in miles) to the hub and the population ( in hundreds) of the cities in which each of the 22 airports is located. The data is given in the following table.

Airport revenue         distance         population

1          233                 233                 56

2          272                 209                 74

3          253                 206                 74

4          296                 232                 78

5          268                 125                 73

6          296                 245                 54

7          276                 213                 100

8          235                 134                 98

9          253                 140                 95       

10        233                 165                 81

11        240                 234                 52

12        267                 205                 96

13        338                 214                 96       

14        243                 183                 73

15        252                 230                 55

16        269                 238                 91

17        242                 144                 64

18        233                 220                 60

19        234                 170                 60

20        450                 170                 240    

21        340                 290                 70

22        200                 340                 75                   

1. Using PROC CORR in SAS, create a matrix of scatter plots for revenue, population, and distance. Include this graph in your LATEX document.
2. From your scatter plots in part (a), is there a data point that you think may be an “issue” for analysis?
   
3. Construct and report a multiple regression model relating :
             revenue (y)
            distance (x1)
            population (x2)
             using SAS.
   
4. Construct the 95% confidence interval for β1 by hand. (Use βˆ1 and the standard error calculated by SAS.)

The table below depicts the cost and demand structure a natural monopoly faces.

a. Calculate total revenue, total profit, LR average cost, marginal cost, marginal revenue at each output level (complete the table).

b. If this firm is allowed to operate as a monopolist, what will be the quantity produced and the price charged by the firm? [Hint: identified the total profit at the point where MR=MC]

c. If regulators require the firm to practice marginal cost pricing (price cannot be higher than marginal cost). What is the firm’s profit (loss) under this regulatory framework? [Hint: identified the total profit at the point where price = marginal cost]

d. If regulators require the firm to practice average cost pricing, what is the firm’s profit under this regulatory framework? [Hint: identified the total profit at the point where price = average cost]

e. Based on your analysis, what should regulators due? (i.e., what practice should regulators allow? Let the firm operate as a monopolist? Require the firm to practice marginal cost pricing? Require the firm to practice average cost pricing?). Please explain. [Hint: See textbook, page 604 - 605]

Multiple-Product Break-Even, Break-Even Sales Revenue

Switzer Company produces and sells yoga-training products: how-to DVDs and a basic equipment set (blocks, strap, and small pillows). Last year, Switzer sold 10,000 DVDs and 5,000 equipment sets. Information on the two products is as follows:

Total fixed costs are $70,000.

Suppose that in the coming year, Switzer plans to produce an extra-thick yoga mat for sale to health clubs. The company estimates that 20,000 mats can be sold at a price of $18 and a variable cost per unit of $13. Fixed costs must be increased by $48,350 (making total fixed costs of $118,350). Assume that anticipated sales of the other products, as well as their prices and variable costs, remain the same.

Required:

1. What is the sales mix of DVDs, equipment sets, and yoga mats?
2:1:4

2. Compute the break-even quantity of each product.

3. Prepare an income statement for Switzer for the coming year.

What is the overall contribution margin ratio? The overall break-even sales revenue? (Round the contribution margin ratio to the nearest whole percent; round the break-even sales revenue to the nearest dollar.)

4. Compute the margin of safety for the coming year in sales dollars.
$

Hawk Homes, Inc., makes one type of birdhouse that it sells for $29.80 each. Its variable cost is $14.30 per house, and its fixed costs total $13,376.50 per year. Hawk currently has the capacity to produce up to 2,900 birdhouses per year, so its relevant range is 0 to 2,900 houses.

Required:
1. Prepare a contribution margin income statement for Hawk assuming it sells 1,180 birdhouses this year. (Enter your answers rounded to 2 decimal places.)

2. Without any calculations, determine Hawk’s total contribution margin if the company breaks even. (Enter your answers rounded to 2 decimal places.)

3. Calculate Hawk’s contribution margin per unit and its contribution margin ratio. (Round your answers to 2 decimal places. (i.e. .1234 should be entered as 12.34%.))

4. Calculate Hawk’s break-even point in number of units and in sales revenue. (Round your "Sales Revenue" answer to 2 decimal places and "Unit" answer to the nearest whole number.)

5. Suppose Hawk wants to earn $29,000 this year. Determine how many birdhouses it must sell to generate this amount of profit. (Round up to the next whole number.)