The projected annual sales of an LED keychain are projected to be 25,000 the first year and increase by 10,000 per year until 55,000 are sold during the fourth year. Sales are then predicted to decrease by 5,000 per year in the fifth year and each year therafter until 25,000 are sold in the tenth year.

Proposal A is to purchase manufacturing equipment costing $100,000 with an estimated salvage value of $20,000 at the end of 10 years.

Proposal B is to purchase manufacturing equipment costing $245,000 with an estimated salvage value of $50,000 at the end of 10 years. The variable manufacturing cost per unit under proposal A is estimated to be $0.80, but only $0.25 under proposal B.

1. If the interest rate is 9% what is the Present Equilavent cost of each proposal for a 10-year production period?

2. Which proposal should be accepted for a 10-year production period?

Income Statement

For the Year Ended December 31, 2018

Sales                                                               $8,500,000

Manufacturing Expenses

Variable                                $3,250,000

Fixed overhead                       640,000       3,890,000

Gross Margin                                                  $4,610,000

Selling and administrative expenses

Commissions                           $580,000

Fixed marketing expenses       300,000

Fixed admin expenses               450,000      1,330,000

Net Operating Income                                     $3,280,000

Fixed Interest expenses                                       230,000    

Income before Taxes                                      $3,050,000     

Income Taxes (21%)                                            640,500

Net Income                                                     $2,409,500

Your company is considering out-sourcing the sales and marketing to an agency specializing in these types of sales. The outsourcing would remove the commissions, reduce the marketing by $270,000, and reduce the fixed administrative expenses by $35,000. The out-sourcing firm, Jangler Marketing, will charge a fee of 14% of sales. Jangler requires a 3-year contract. Jangler believes that it can increase sales by 10% for 2019 and 13% each year after (2020 and 2021). The company believes that with its current sales and marketing staff, sales will increase by 8% for 2019 and 9% in each year after (2020 and 2021).

1.Prepare contribution format projected income statements for 2019, 2020 & 202a assuming the company hires Jangler Marketing.

2.Prepare contribution format projected income statements assuming the outsourcing is rejected.

(Please show how you got each answer)

At the end of the current year, Accounts Receivable has a balance of $98,880; Allowance for Doubtful Accounts has a debit balance of $3,556; and sales for the year total $1,108,000. Bad debt expense is estimated at 1/2 of 1% of sales.

a. Determine the amount of the adjusting entry for bad debt expense.
$

b. Determine the adjusted balances of Accounts Receivable, Allowance for Doubtful Accounts, and Bad Debt Expense.

Adjusted Balance

Accounts Receivable$

Allowance for Doubtful Accounts

Bad Debt Expense

c. Determine the net realizable value of accounts receivable.
$

Multiple Choice

1. During the year, if a trust distributes corpus (principal), it is classified as a
   1. Grantor Trust
   2. Simple Trust
   3. Complex Trust
   4. Complicated Trust
2. Which of the following rights, if retained by the grantor, will cause the trust to be included in their estate?
   1. Right to receive income from the trust
   2. Right to amend the trust
   3. Reversionary interest in excess of 5%
   4. All of the above will cause inclusion in the gross estate
3. Which of the following trust is typically created through a decedent’s Will?
   1. Inter Vivos Trust
   2. Grantor Trust
   3. Credit Shelter Trust
   4. All of the above
   5. None of the above

A 15 year old girl in a coma was brought to the emergency room by her parents. She has been an insulin dependent diabetic for 7 years. Her parents stated that there have been several episodes of hypoglycemia and ketoacidosis in the past, and that their daughter has often been “too busy” to take her insulin injections. The laboratory results obtained on admission are shown in Case study Table 14-5.1

1. Calculate the osmolal gap.

2. What method was used to measure Na+?

3. Are these results valid? Explain why?

Venous Blood                   Result                                   Reference Range

Sodium                                 145 mmol/L                        136-145 mmol/L

Potassium                           5.8 mmol/L                         3.4-5.0 mmol/L

Chloride                               87 mmol/L                           98-107 mmol/L

Bicarbonate                        8 mmol/L                             22-29 mmol/L

Glucose                                1,050 mg/dL                       70-110 mg/dL

Urea nitrogen                    35 mg/dL                             7-18 mg/dL

Creatinine                           1.3 mg/dL                            0.5-1.3 mg/dL

Lactate                                 5 mmol/L                             0.5-2.2 mmol/L

Osmolality                           385 mOsmol/kg                275-295 mOsmol/kg

A young engineer is evaluating a 5-year investment, by looking at the cash flows at the end of each year. The capital cost of the project is considered as occurring at the end of a hypothetical year, 0. The project has no start-up revenue, but requires a start-up capital cost of $50,000. The project promises revenues of $0, $20,000; $30,000; $40,000; $50,000, and $100,000; at the end of years 0, 1, 2, 3, 4, and 5, respectively. In addition to the $50,000 start-up cost at the end of year, 0; the project has operating costs of $24,000 at the end of each year 1, 2, 3, 4, and 5.

The engineer needs to know the net present value of this investment at a given annual interest rate. This can be done by finding the present value of each yearly revenue, B_n, and each yearly Cost, C_n, at the given rate of interest, i. In this case, n, is the number of the year from 0 to 5.

The present value of a cash flow, P_n is given by the formula:

P_o = P_n (1 + i)^-n, where;

P_o is the present value of a cash flow, such as B_n or C_n

P_n is the cash flow item in year, n.

n, is the year; 0,1, 2, 3, 4, 5

i, is the annual interest rate expressed as a decimal.

1. Please construct an excel spreadsheet to display this information clearly. Be sure to show; each year n; from 0 to 5, each revenue amount, B_n, each Cost amount, C_n. Also show the calculated present value of each B_n term, the calculated present value of each C_n term, the net present value of each year’s cash flow, and at the end, the total net present value of the investment. Assume an annual interest rate of 5% (0.05). -

2. Use your spreadsheet to find the total net present value of the investment at an annual interest rate of 10%.   

For each of the following transactions that occurred during the year, indicate the dollar amount to be reported as a current liability as of December 31, 2020. (Enter 0 for amounts if no current liability is to be reported. Do not leave any answer field blank.)

a. Suppose the management fee of $350,000 does not get collected this year but instead the contract just gets extended one year so that no money comes in to the city this year, but next year the team pays $350,000 and $350,000 for each year until the end of the contract. (The article doesn’t say how long the contracted management fee of $350,000 is in place or if the dollar value of the fee increases over time. For the purpose of answering this question consider a multi-year contract of “x” years so now it would be “x+1” years and that instead of the payments starting today in year 0, the payments start one year from now in year 1.) Does the delay in payment make any difference since the city will still collect the $350,000 just at a later date? Explain.

b. The city anticipated collecting just over $470,000 in an added city sales tax at the stadium and the surrounding business. Suppose the city thought now thinks there is a 40% chance that the sales tax would bring $260,000 and a 60% chance that it might bring in $150,000 depending on when the limitations in business/crowds due to the virus subsides. Calculate the new expected value of the sales tax.

You are analyzing a project with a thirty-year lifetime, with the following characteristics: • The project will require an initial investment of $20 million and additional investments of $5 million in year 10 and $5 million in year 20. • The project will generate earnings before interest and taxes of $3 million each year. (The tax rate is 40%.) • The depreciation will amount to $500,000 each year, and the salvage value of the equipment will be equal to the remaining book value at the end of year 30. • The cost of capital is 12.5%.

a. Estimate the NPV of this project.

b. Estimate the IRR on this project. What might be some of the problems in estimating the IRR for this project?