Jazmin a college graduate has in saving account $6,974 by the end of her first year of work.
Using an interest rate of 5%, calculate:
Draw the cash flow diagram and calculate.
In: Economics
1A) Your firm is evaluating a capital budgeting project. The
estimated cash flows appear below. The board of directors wants to
know the expected impact on shareholder wealth. Knowing that the
estimated impact on shareholder wealth equates to net present value
(NPV), you use your handy calculator to compute the value. What is
the project's NPV? Assume that the cash flows occur at the end of
each year. The discount rate (i.e., required rate of return, hurdle
rate) is 14.5%. (Round to nearest penny)
| Year 0 cash flow | -122,000 |
| Year 1 cash flow | 59,000 |
| Year 2 cash flow | 43,000 |
| Year 3 cash flow | 44,000 |
| Year 4 cash flow | 43,000 |
| Year 5 cash flow | 34,000 |
1B) What is the discount rate at which the following cash flows
have a NPV of $0? Answer in %, rounding to 2 decimals.
Year 0 cash flow = -145,000
Year 1 cash flow = 35,000
Year 2 cash flow = 42,000
Year 3 cash flow = 43,000
Year 4 cash flow = 30,000
Year 5 cash flow = 41,000
Year 6 cash flow = 42,000
ANSWER
In: Finance
You working as a fund manager and trying to value the stock of MELUR Berhad. Company has 10 million shares outstanding. All the answer must be calculated in Microsoft Excel. Below are the projections for the next four years based on the following assumptions:
MELUR Berhad
-Sales will be RM 600 million in year 1
-Sales will grow at 20% in year 2 and 3 while at year 4 is 15%
-Interest expenses will be RM30 million per year
-Depreciation expenses will be RM 10 million per year
-Marketing expenses will be 20 % of sales in each year
-Income tax rate is 40%
-Earnings retention ratio will be fixed at 0.60
-Per share dividend will grow at 4% indefinitely from year 5 and thereafter
-You estimated that required rate of return will be at 18%.
Questions:
(10 Marks
In: Finance
pseudocode please!
Assignment 5B: Moneyball: Part 2. Similar to the previous assignment, you’re going to read in the number of years the player played and the starting year of that player – followed by the statistics for those years. This time, however, you’re going to print out the years from worst to best in sorted order. Hint: this will require a second array to store years. If you can sort one array, can you sort both?
Sample Output #1: Enter the number of years: 5 Enter the starting year: 2003 Enter stat for year 2003: 5 Enter stat for year 2004: 4 Enter stat for year 2005: 7 Enter stat for year 2006: 1 Enter stat for year 2007: 3 2006|2007|2004|2003|2005| Sample Output #2: Enter the number of years: 6 Enter the starting year: 1879 Enter stat for year 1879: 70 Enter stat for year 1880: 89 Enter stat for year 1881: 111 Enter stat for year 1882: 65 Enter stat for year 1883: 105 Enter stat for year 1884: 98 1882|1879|1880|1884|1883|1881|
In: Computer Science
You are a manager at a manufacturing company. Today (year 0), you are considering buying a new product line that produces ventilators. Here are the details of this project:
• At year 0, you will purchase the manufacturing equipment needed for $5,000,000. The equipment can be depreciated to zero using straight line depreciation over five years (year 1-5). At the end of year 5, the book value of the equipment becomes $0, and you will sell it for $500,000.
• You anticipate selling 1,024 ventilators in year 1 and year 2. Starting from year 3, the number of ventilators you sell will decrease by 25% every year through the fifth year of sales year 5. After year 5, the product will be obsolete and sales will be 0 beginning in year 6.
• Each ventilator sells for $25,000 in year 1. The sales price will increase by 5% each subsequent year.
• The cost making each ventilator is $20,000 in year 1, but the cost per unit will increase by 5% each subsequent year. • From year 1 to 5, you also incur some general and administrative expenses that are 5% of the annual total sales.
• You offer your alumni the opportunity to pay for their ventilators one year after purchase. You anticipate that 10% of your customers are alumni and will take advantage of this offer. • 20% of next-year’s costs of goods sold will be held as inventory.
• Your tax rate is 40%.
• The appropriate nominal (after-tax) discount rate for this project is 15%.
Assume all cash flows are nominal. Expand your cell to show 4 decimal places (e.g., $12.4567). What is the net present value of this project?
In: Finance
Cornerstone Exercise 8.11 (Algorithmic)
Cash Receipts Budget and Accounts Receivable Aging Schedule
Shalimar Company manufactures and sells industrial products. For next year, Shalimar has budgeted the following sales:
Quarter 1 $4,670,000
Quarter 2 5,230,000
Quarter 3 2,850,000
Quarter 4 7,970,000
In Shalimar’s experience, 10 percent of sales are paid in cash. Of the sales on account, 65 percent are collected in the quarter of sale, 25 percent are collected in the quarter following the sale, and 7 percent are collected in the second quarter after the sale. The remaining 3 percent are never collected. Total sales for the third quarter of the current year are $5,000,000 and for the fourth quarter of the current year are $6,950,000.
Required:
1. Calculate cash sales and credit sales expected in the last two quarters of the current year, and in each quarter of next year.
Quarter Cash Sales Credit Sales
3, current year $
$
4, current year
1, next year
2, next year
3, next year
4, next year
Hide
2. Construct a cash receipts budget for Shalimar Company for each quarter of the next year, showing the cash sales and the cash collections from credit sales. If an amount is zero, enter "0".
Shalimar Company
Cash Receipts Budget
For the Coming Year
Quarter 1
Quarter 2
Quarter 3
Quarter 4
Cash sales
$
$
$
$
Received on account from:
Quarter 3, current year
Quarter 4, current year
Quarter 1, next year
Quarter 2, next year
Quarter 3, next year
Quarter 4, next year
Total cash receipts
$
$
$
$
Hide
3. What if the recession led Shalimar’s top management to assume that in the next year 10 percent of credit sales would never be collected? The expected payment percentages in the quarter of sale and the quarter after sale are assumed to be the same. How would that affect cash received in each quarter? Construct a revised cash budget using the new assumption.
Shalimar Company
Cash Receipts Budget
For the Coming Year
Quarter 1
Quarter 2
Quarter 3
Quarter 4
Cash sales
$
$
$
$
Received on account from:
Quarter 4, current year
Quarter 1, next year
Quarter 2, next year
Quarter 3, next year
Quarter 4, next year
Total cash receipts
$
$
$
$
Check My Work
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Previous Question 3 of 3001_Cornerstone Exercise 08.11 Algorithmic
In: Finance
Please describe the circumstances of the following
case study and recommend a course of action. Explain your approach
to the problem, perform relevant calculations and analysis, and
formulate a recommendation. Ensure your work and recommendation are
thoroughly supported.
Case Study:
A manufacturing company is evaluating two options for new equipment
to introduce a new product to its suite of goods. The details for
each option are provided below:
Option 1
$65,000 for equipment with useful life of 7 years and no salvage
value.
Maintenance costs are expected to be $2,700 per year and increase
by 3% in Year 6 and remain at that rate.
Materials in Year 1 are estimated to be $15,000 but remain constant
at $10,000 per year for the remaining years.
Labor is estimated to start at $70,000 in Year 1, increasing by 3%
each year after.
Revenues are estimated to be:
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
-
75,000
100,000
125,000
150,000
150,000
150,000
Option 2
$85,000 for equipment with useful life of 7 years and
a $13,000 salvage value
Maintenance costs are expected to be $3,500 per year and increase
by 3% in Year 6 and remain at that rate.
Materials in Year 1 are estimated to be $20,000 but remain constant
at $15,000 per year for the remaining years.
Labor is estimated to start at $60,000 in Year 1, increasing by 3%
each year after.
Revenues are estimated to be:
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
-
80,000
95,000
130,000
140,000
150,000
160,000
The company’s required rate of return and cost of
capital is 8%.
Management has turned to its finance and accounting department to
perform analyses and make a recommendation on which option to
choose. They have requested that the three main capital budgeting
calculations be done: NPV, IRR, and Payback Period for each
option.
For this assignment, compute all required amounts and explain how
the computations were performed. Evaluate the results for each
option and explain what the results mean. Based on your analysis,
recommend which option the company should pursue.
Superior papers will:
Perform all calculations correctly.
Articulate how the calculations were performed, including from
where values used in the calculations were obtained.
Evaluate the results computed and explain the meaning of the
results, including why certain measurements are more accurate than
others.
Recommend which option to pursue, supported by well-thought-out
rationale, and considering any other factors that could impact the
recommendation.
In: Accounting
Question 1/ Firm A has just paid a dividend of $1.5 per share. The dividends are expected to grow during year 1 by 14.5% and during year 2 by 11.9% and during year 3 by 8.5% and during year 4 by 6.5%. Starting from year 4 the dividends are expected to grow constantly by 4.5% forever. The required rate of return on the stocks is 12%.
a/ Compute the intrinsic value of the stock now? (Show your
steps)
b/ Compute the intrinsic value of the stock by the end of year 3?
(Show your steps) c/ Compute the intrinsic value of the stock by
the end of year 10? (Show your steps)
Question 2/ Firm B next dividend will be $2.5 per share. The dividends are expected to grow during year 1 by 21.5% and during year 2 by 18.5%. From year 2 to year 6 they are expected to grow by 12%. From year 6 to year 12 there is no growth of the dividends. From year 12 there will be a constant growth rate of 8% forever. The required rate of return on the stocks is 11.5%.
a/ Compute the intrinsic value of the stock now? (Show your
steps)
b/ Compute the intrinsic value of the stock at the end of year 2?
(Show your steps) c/ Compute the intrinsic value of the stock at
the end of year 8? (Show your steps) d/ Compute the intrinsic value
of the stock at the end of year 22? (Show your steps)
1
Investment/ homework 2/Spring 2020/Dr. Boukhris, CFA
Question 3/ Firm C is planning its first dividend in 4 years from now. Firm C retention ratio is 65%. Firm C current net income is $2millions with 500,000 shares outstanding. The net income is expected to grow by 1% during the next 4 years. The dividends are expected to grow during year 5 by 11.5% and during year 6 by 9.5%. From year 6 to year 14 they is no expected growth in dividends. However starting from year 15 there will be a constant dividend growth rate of 5% forever. The required rate of return on the stocks is 8%.
a/ Compute the intrinsic value of the stock now? (Show your
steps)
b/ Compute the intrinsic value of the stock at the end of year 2?
(Show your steps) c/ Compute the intrinsic value of the stock at
the end of year 8? (Show your steps) d/ Compute the intrinsic value
of the stock at the end of year 14? (Show your steps)
Question 4/ Firm D is planning its first dividend in 3 years from now. The dividend per share by the end of year 3 is $1.4. Firm C has an equity Beta of 1.2. The T-bill rate is 2.5% and the return on the equity market index is 7.5%. The dividends are expected to grow from year 3 to years 6 by 13.5% and during year 6 by 9.5%. From year 6 to year 11 they are expected to grow by 10%. However starting from year 11 there will be no growth of dividends forever.
a/ Compute the intrinsic value of the stock now? (Show your
steps)
b/ Compute the intrinsic value of the stock at the end of year 2?
(Show your steps) c/ Compute the intrinsic value of the stock at
the end of year 8? (Show your steps) d/ Compute the intrinsic value
of the stock at the end of year 50? (Show your steps)
In: Finance
Biotech Limited
Financial year end 30 June 2020
You are an auditor in Smit & Chandra, a mid-tier audit firm. Your firm is the incumbent auditor on Biotech Ltd, a pharmaceutical company. Since the previous audit, the company has listed on the Australian Securities Exchange which means the company has to meet additional reporting regulations. Due to rapid growth, Biotech Ltd is financially stretched and its accounting systems are struggling to cope with the growth in the business. You recently read an article in the Australian Financial Review, which stated that Biotech Ltd is currently under investigation by the Australian Taxation Office (ATO) for alleged failure to pay the appropriate amount of Pay As You Go (PAYG) tax on their payroll.
Biotech Ltd is a pharmaceutical company, developing drugs to be licensed for use around the world. Products include medicines such as tablets, medical gels and creams. The market is very competitive, encouraging rapid product innovation. New products are continually in development and improvements are made to existing formulations. Drugs must meet very stringent regulatory requirements prior to being licensed for production and sale. You are aware that during the 2020 financial year, Biotech Ltd lost several customer contracts to overseas competitors.
Biotech Ltd approached its bank during the year to extend its borrowing facilities. An extension of $20 million was sought to its existing loan to support the on-going development of new drugs. The long-term borrowings are subject to debt covenants in which the company must maintain a current ratio of 3.5:1.
In addition, the company asked the bank to make cash of $5 million available if an existing court case against the company is successful. The court case is being brought by an individual who suffered severe side effects when participating in a clinical trial in 2016.
On 8 June 2020, the Company announced to the market it had been the victim of a cyber-security incident that resulted in supplier and customer details being disclosed on the dark web. The Company is assessing the costs of the incident and the subsequent reduction in revenue. The Company expects this to have a material impact on future earnings.
In December 2019, the internal audit department of Biotech Ltd performed a review of the operation of controls over processing of overtime payments in the Payroll department. It was found that the company’s specified internal control procedures in relation to the processing of overtime payments were not followed.
Below are some results of the analytical review procedures performed by the Senior Auditor (David) during the planning stage:
Sales 12.5% decrease since prior year
Net profit after tax 20% decrease since prior year
Accounts payable 15% decrease since prior year
Cash at Bank 16% increase since prior year
Accounts receivable 18% increase since prior year
Inventories 6% increase since prior year
Current ratio: 3.6:1
Debt to Equity ratio: 0.6
Minutes from the Audit Planning meeting with Simon Jones (Finance Director of Biotech Ltd) held on 30th April 2020:
Due to the current government restrictions, the planning meeting with Simon Jones was held via Zoom. In attendance at the meeting was the Audit Partner (Michael), the Audit Manager (Amanda) and the Audit Senior (David).
The following key items were discussed during the meeting:
The Audit Team
The audit team consists of 4 people. The partner is Michael. He has been the audit partner on the Biotech Ltd audit for 6 years. The audit manager is Amanda. This is Amanda’s first time on the Biotech Ltd audit. David is the audit senior and is responsible for the initial audit planning. David has recently completed the Graduate Diploma of Chartered Accounting. David has just been offered a well-paying accountant position at Biotech but he has not yet decided whether to accept the position. The graduate on the audit is Audrey. Audrey’s friend is the receptionist at Biotech Ltd. The receptionist has no accounting knowledge and has no involvement with the recording or processing of accounting transactions.
Accounts Receivable / Sales Accounting Cycle and Internal Control System
At the end of each month, the sales manager determines the amount of products required to meet sales demand for the following month based on sales orders received. He reviews the sales orders received from customers and then prepares the pre-numbered inventory requisition forms, which he then sends to the warehouse managers so that they can prepare the goods for delivery. One copy of the sales order and inventory requisition form is sent to the warehouse, one copy is sent to the accounts receivable department and one copy is filed in the sales department.
The warehouse prepares the goods for delivery to the customers and generates the delivery document. When the goods have been delivered, the signed delivery document, which includes the delivery details, is forwarded to the accounts receivable department. The other copy is filed in the warehouse. The accounts receivable clerk matches the signed delivery document with the sales order and inventory requisition form. Once satisfied that all of the details agree, the clerk generates the sales invoice. Once generated, the clerk does another check to ensure that all details per the sales invoice agrees to the delivery document and sales order. Once satisfied, she writes “checked” on the sales invoice and sends it to the customer. At the end of every week, a different clerk in the Accounts Receivable team reviews the bank statements for receipt of payments from customers and performs a reconciliation against the sales invoices. Once a customer has paid the sales invoice, the clerk stamps “received” on the sales invoice and files that along with all the other documents in date order.
The walk-through of the accounts receivable/sales cycle confirmed that the accounting and internal control system was working as documented above.
Test of control:
As part of the audit, Audrey tested the controls over the accounts receivable system. She selected a sample of twenty sales transactions and tested the control that all details had been checked. Out of the 20 sales transactions that were selected for testing, 5 sales invoices in the sample did not have the word “checked” written on them. When documenting the results of the test performed, Audrey concluded that the internal control did not operate effectively and consistently throughout the year but that no further audit work is required.
Substantive test
In order to test the occurrence of the sales transactions, Audrey selected a sample of sales invoices and traced them to the General Ledger to test that they were properly recorded.
Subsequent events not previously mentioned
What is the independence of the audit team?
In: Accounting
Biotech Limited
Financial year end 30 June 2020
You are an auditor in Smit & Chandra, a mid-tier audit firm. Your firm is the incumbent auditor on Biotech Ltd, a pharmaceutical company. Since the previous audit, the company has listed on the Australian Securities Exchange which means the company has to meet additional reporting regulations. Due to rapid growth, Biotech Ltd is financially stretched and its accounting systems are struggling to cope with the growth in the business. You recently read an article in the Australian Financial Review, which stated that Biotech Ltd is currently under investigation by the Australian Taxation Office (ATO) for alleged failure to pay the appropriate amount of Pay As You Go (PAYG) tax on their payroll.
Biotech Ltd is a pharmaceutical company, developing drugs to be licensed for use around the world. Products include medicines such as tablets, medical gels and creams. The market is very competitive, encouraging rapid product innovation. New products are continually in development and improvements are made to existing formulations. Drugs must meet very stringent regulatory requirements prior to being licensed for production and sale. You are aware that during the 2020 financial year, Biotech Ltd lost several customer contracts to overseas competitors.
Biotech Ltd approached its bank during the year to extend its borrowing facilities. An extension of $20 million was sought to its existing loan to support the on-going development of new drugs. The long-term borrowings are subject to debt covenants in which the company must maintain a current ratio of 3.5:1.
In addition, the company asked the bank to make cash of $5 million available if an existing court case against the company is successful. The court case is being brought by an individual who suffered severe side effects when participating in a clinical trial in 2016.
On 8 June 2020, the Company announced to the market it had been the victim of a cyber-security incident that resulted in supplier and customer details being disclosed on the dark web. The Company is assessing the costs of the incident and the subsequent reduction in revenue. The Company expects this to have a material impact on future earnings.
In December 2019, the internal audit department of Biotech Ltd performed a review of the operation of controls over processing of overtime payments in the Payroll department. It was found that the company’s specified internal control procedures in relation to the processing of overtime payments were not followed.
Below are some results of the analytical review procedures performed by the Senior Auditor (David) during the planning stage:
Sales 12.5% decrease since prior year
Net profit after tax 20% decrease since prior year
Accounts payable 15% decrease since prior year
Cash at Bank 16% increase since prior year
Accounts receivable 18% increase since prior year
Inventories 6% increase since prior year
Current ratio: 3.6:1
Debt to Equity ratio: 0.6
Minutes from the Audit Planning meeting with Simon Jones (Finance Director of Biotech Ltd) held on 30th April 2020:
Due to the current government restrictions, the planning meeting with Simon Jones was held via Zoom. In attendance at the meeting was the Audit Partner (Michael), the Audit Manager (Amanda) and the Audit Senior (David).
The following key items were discussed during the meeting:
The Audit Team
The audit team consists of 4 people. The partner is Michael. He has been the audit partner on the Biotech Ltd audit for 6 years. The audit manager is Amanda. This is Amanda’s first time on the Biotech Ltd audit. David is the audit senior and is responsible for the initial audit planning. David has recently completed the Graduate Diploma of Chartered Accounting. David has just been offered a well-paying accountant position at Biotech but he has not yet decided whether to accept the position. The graduate on the audit is Audrey. Audrey’s friend is the receptionist at Biotech Ltd. The receptionist has no accounting knowledge and has no involvement with the recording or processing of accounting transactions.
Accounts Receivable / Sales Accounting Cycle and Internal Control System
At the end of each month, the sales manager determines the amount of products required to meet sales demand for the following month based on sales orders received. He reviews the sales orders received from customers and then prepares the pre-numbered inventory requisition forms, which he then sends to the warehouse managers so that they can prepare the goods for delivery. One copy of the sales order and inventory requisition form is sent to the warehouse, one copy is sent to the accounts receivable department and one copy is filed in the sales department.
The warehouse prepares the goods for delivery to the customers and generates the delivery document. When the goods have been delivered, the signed delivery document, which includes the delivery details, is forwarded to the accounts receivable department. The other copy is filed in the warehouse. The accounts receivable clerk matches the signed delivery document with the sales order and inventory requisition form. Once satisfied that all of the details agree, the clerk generates the sales invoice. Once generated, the clerk does another check to ensure that all details per the sales invoice agrees to the delivery document and sales order. Once satisfied, she writes “checked” on the sales invoice and sends it to the customer. At the end of every week, a different clerk in the Accounts Receivable team reviews the bank statements for receipt of payments from customers and performs a reconciliation against the sales invoices. Once a customer has paid the sales invoice, the clerk stamps “received” on the sales invoice and files that along with all the other documents in date order.
The walk-through of the accounts receivable/sales cycle confirmed that the accounting and internal control system was working as documented above.
Test of control:
As part of the audit, Audrey tested the controls over the accounts receivable system. She selected a sample of twenty sales transactions and tested the control that all details had been checked. Out of the 20 sales transactions that were selected for testing, 5 sales invoices in the sample did not have the word “checked” written on them. When documenting the results of the test performed, Audrey concluded that the internal control did not operate effectively and consistently throughout the year but that no further audit work is required.
Substantive test
In order to test the occurrence of the sales transactions, Audrey selected a sample of sales invoices and traced them to the General Ledger to test that they were properly recorded.
Subsequent events not previously mentioned
Identify and Explain the inherent risk and business risk and their types for the above case study?
In: Accounting