?(Determining relevant cash? flows)??Landcruisers Plus? (LP) has operated an online retail store selling? off-road truck parts. As the name? implies, the firm specializes in parts for the venerable Toyota FJ40 that is known throughout the world for its durability and offroad prowess. The fact that Toyota stopped building and exporting the FJ40 to the U.S. market in 1982 meant that FJ40 owners depended more and more on? re-manufactured parts to keep their beloved? off-road vehicles running. More and more FJ40 owners are replacing the original inline? six-cylinder engines with a modern? American-built engine. The engine replacement requires mating the new engine with the Toyota drive train. ?LP's owners had been offering engine adaptor kits for some time but have recently decided to begin building their own units. To make the adaptor kits the firm would need to invest in a variety of machine tools costing a total of ?$850,000. ?LP's management estimates that they will be able to borrow ?$340,000 from the? firm's bank and pay 8 percent interest. The remaining funds would have to be supplied by? LP's owners. The firm estimates that they will be able to sell? 1,000 units a year for ?$1,450 each. The units would cost ?$1,000 each in cash expenses to produce? (this does not include depreciation expense of ?$85,000 per year or interest expense of ?$27,200?).After all? expenses, the firm expects earnings before interest and taxes of ?$365,000. The firm pays taxes equal to 31 ?percent, which results in net income of ?$224,650 per year over the 10?-year expected life of the equipment.

a.??What is the annual free cash flow LP should expect to receive from the investment in year 1 assuming that it does not require any other investments in either capital equipment or working capital and the equipment is depreciated over a 10?-year life to a zero salvage and book? value? How should the financing cost associated with the ?$340,000 loan be incorporated into the analysis of cash? flow?

b.??If the? firm's required rate of return for its investments is13 percent and the investment has a 10?-year expected? life, what is the anticipated NPV of the?investment?

?(Determining relevant cash? flows)??Landcruisers Plus? (LP) has operated an online retail store selling? off-road truck parts. As the name? implies, the firm specializes in parts for the venerable Toyota FJ40 that is known throughout the world for its durability and offroad prowess. The fact that Toyota stopped building and exporting the FJ40 to the U.S. market in 1982 meant that FJ40 owners depended more and more on? re-manufactured parts to keep their beloved? off-road vehicles running. More and more FJ40 owners are replacing the original inline? six-cylinder engines with a modern? American-built engine. The engine replacement requires mating the new engine with the Toyota drive train. ?LP's owners had been offering engine adaptor kits for some time but have recently decided to begin building their own units. To make the adaptor kits the firm would need to invest in a variety of machine tools costing a total of ?$600,000. ?LP's management estimates that they will be able to borrow ?$360,000 from the? firm's bank and pay 8 percent interest. The remaining funds would have to be supplied by? LP's owners. The firm estimates that they will be able to sell? 1,000 units a year for ?$1,350 each. The units would cost ?$1,000 each in cash expenses to produce? (this does not include depreciation expense of ?$60,000 per year or interest expense of ?$28,800?). After all? expenses, the firm expects earnings before interest and taxes of ?$290,000. The firm pays taxes equal to 31 ?percent, which results in net income of ?$171,300 per year over the 10?-year expected life of the equipment.

a.??What is the annual free cash flow LP should expect to receive from the investment in year 1 assuming that it does not require any other investments in either capital equipment or working capital and the equipment is depreciated over a 10-year life to a zero salvage and book? value? How should the financing cost associated with the ?$360,000 loan be incorporated into the analysis of cash? flow?

b. If the? firm's required rate of return for its investments is 11 percent and the investment has a 10?-year expected? life, what is the anticipated NPV of the?investment?

Homework LP10 #2

Landcruisers Plus​ (LP) has operated an online retail store selling​ off-road truck parts. As the name​ implies, the firm specializes in parts for the venerable Toyota FJ40 that is known throughout the world for its durability and offroad prowess. The fact that Toyota stopped building and exporting the FJ40 to the U.S. market in 1982 meant that FJ40 owners depended more and more on​ re-manufactured parts to keep their beloved​ off-road vehicles running. More and more FJ40 owners are replacing the original inline​ six-cylinder engines with a modern​ American-built engine. The engine replacement requires mating the new engine with the Toyota drive train. ​LP's owners had been offering engine adaptor kits for some time but have recently decided to begin building their own units. To make the adaptor kits the firm would need to invest in a variety of machine tools costing a total of ​$ 750,000. ​LP's management estimates that they will be able to borrow 300,000 from the​ firm's bank and pay 8 percent interest. The remaining funds would have to be supplied by​ LP's owners. The firm estimates that they will be able to sell​ 1,000 units a year for ​$ 1,400 each. The units would cost ​$ 1,000 each in cash expenses to produce​ (this does not include depreciation expense of ​$ 75,000 per year or interest expense of ​$ 24,000​). After all​ expenses, the firm expects earnings before interest and taxes of ​$ 325,000. The firm pays taxes equal to 31 ​percent, which results in net income of ​$ 200,250 per year over the 10​-year expected life of the equipment. a. What is the annual free cash flow LP should expect to receive from the investment in year 1 assuming that it does not require any other investments in either capital equipment or working capital and the equipment is depreciated over a 10​-year life to a zero salvage and book​ value? How should the financing cost associated with the ​$ 300,000 loan be incorporated into the analysis of cash​ flow? b. If the​ firm's required rate of return for its investments is 7 percent and the investment has a 10​-year expected​ life, what is the anticipated NPV of the​ investment?

I.
Juarez Inc. has been operating for three years. At December 31, 2017 the accounting records reflected the following:

During the year 2018, the company had the following summarized activities:
a. Purchased short term investment for 18,000 cash.
b. Lent 14,000 to a supplier who signed a 2 years note.
c. Purchased equipment that cost 36,000; paid 12,000 cash and signed a one year not for the balance.
d. Hired a new president at the end of the year. The contract was for 170,000 per year.
e. Issued an additional 2,000 shares of capital stock for 24,000 cash.
f. Borrowed 27,000 cash from a local bank. Payable in 3 Months.
g. Purchased a patent for 6,000 cash.
h. Built an addition to the factory for 50,000; paid 18,000 cash and singed a 3 years note for the rest.
i. Returned defective equipment to the manufacturer and received a cash refund of 2,000.

Instructions:
1. Record the above transactions in the GJ and post them to the GL.
2. Prepare the balance sheet at 31 December, 2018.

II.
The trial balance of JAS manufacturing company shows the following assets at the end of December 2018:
• Cash: $380,000
• Prepaid insurance: $82,000
• Raw materials: $670,000
• Equipment: $2,200,000
• Accounts receivable: $800,000
• Work-in-process (WIP): $400,000
• Finished goods: $150,000
• Patents: $220,000

Instructions:
Prepare current assets section of the balance sheet of JAS Company.

III.

Larson’s Accounting Company has the following account balances: Cash, $10,000; Accounts Receivable, $2,000; Prepaid Rent $1,500; Supplies, $850; Equipment, $6,000; Trucks, $15,000; Accounts Payable, $2,500; Notes payable, $5,000; Common Stock, $20,000; Retained Earnings $7,850. Business transactions during December are presented as follows:
Larson paid the suppliers $500,
Supplies were purchased on account, $650
Larson purchased short term investment for $2,000.
Sold an old computed (listed under equipment’s) for $100 cash.
Sold 4,000 additional shares of stock for 20,000 cash.
Purchased new computers that cost 9,000 for 4,000 cash and the rest on account.

Instructions:
1. Record the above transactions in the GJ and post them to the GL.
2. Prepare the balance sheet.

[Type in your solutions after each question, on this document]

Tahlia fashions specialises in clothing alterations and repairs. With a slogan of ‘You ask, we sew’, they pride themselves in the fact that they deliver quick, quality work, and that no request is too big or too small for them. They have built up quite a strong reputation in the community where they are located, and are looking to expand their reach to customers outside of the traditional borders of their business.

      As part of their expansion plan, they are looking to replace some of their outdated sewing machines with state-of-the-art, heavy-duty, industrial sewing machines. The new machinery costs R150 000 and with installation cost of R10 000. Tahlia can sell their old machines for a total of R40 000, but must deliver them to the buyer at a cost of R2 500. Tahlia originally bought the machines 4 years ago for a total of R80 000, and was depreciated on a straight-line basis over a period of 5 years. The firm is subject to a 28% tax rate. The capital expenditure results in an increase in net working capital of R18 000.

a)Determine the initial investment of Tahlia’s capital expenditure or initial investment.

b)Assume that this new investment made by Tahlia can be depreciated on a straight-line basis over a 5 year period. The firm has made the following projections of the expected incremental increases in net operating profit after taxes (NOPAT) for the 5-year life of the investment:

      Determine the expected operating cash inflows for Tahlia’s firm for each of the 5 years.

      (use table below), or create your own table.

c)Assume it is 4 years after Tahlia the purchased the new machine, she sells it to a competitor for R48 000. The net working capital of R18 000 is recovered and the firm is still subject to a 28% tax rate. Calculate the terminal cash flow of this investment as well as the net cash flow for Tahlia for Year 4.

​(Determining relevant cash​ flows) Landcruisers Plus​ (LP) has operated an online retail store selling​ off-road truck parts. As the name​ implies, the firm specializes in parts for the venerable Toyota FJ40 that is known throughout the world for its durability and offroad prowess. The fact that Toyota stopped building and exporting the FJ40 to the U.S. market in 1982 meant that FJ40 owners depended more and more on​ re-manufactured parts to keep their beloved​ off-road vehicles running. More and more FJ40 owners are replacing the original inline​ six-cylinder engines with a modern​ American-built engine. The engine replacement requires mating the new engine with the Toyota drive train.

​LP's owners had been offering engine adaptor kits for some time but have recently decided to begin building their own units. To make the adaptor kits the firm would need to invest in a variety of machine tools costing a total of ​$550,000. ​LP's management estimates that they will be able to borrow $360,000 from the​ firm's bank and pay 8 percent interest. The remaining funds would have to be supplied by​ LP's owners. The firm estimates that they will be able to sell​ 1,000 units a year for ​$1,400 each. The units would cost $1,000 each in cash expenses to produce​ (this does not include depreciation expense of $55,000 per year or interest expense of $28,800​). After all​ expenses, the firm expects earnings before interest and taxes of $345,000. The firm pays taxes equal to 38 ​percent, which results in net income of $185,100 per year over the 10​-year expected life of the equipment.

a.) What is the annual free cash flow LP should expect to receive from the investment in year 1 assuming that it does not require any other investments in either capital equipment or working capital and the equipment is depreciated over a 10​-year life to a zero salvage and book​ value? How should the financing cost associated with the $360,000 loan be incorporated into the analysis of cash​ flow? (drop down menu asks if it SHOULD or SHOULD NOT be incorporated)

b.) If the​ firm's required rate of return for its investments is 11 percent and the investment has a 10​-year expected​ life, what is the anticipated NPV of the​ investment?

Benefit-Cost Analysis

Given Parameters:

Scenario One Benefit-Cost Ratio: 1.11

Scenario Two Benefit-Cost Ratio: 0.52

1. Did your benefit-cost analysis reach the same or different conclusions in the two scenarios analyzed? If different conclusions, why?
2. Assume that the proposal in fact “passed” the analysis with a benefit-cost ratio greater than 1. Does this imply that the proposed project is the optimal or best use for the $8.55 million to be invested in resource conservation? Explain.
3. In conducting benefit-cost analyses, do you think nonuse values should be considered? Why or why not?
4. Current models of climate change and cost-benefit analysis can rely heavily on the inclusion of extremely low probability but very high cost (catastrophic and irrevocable ecosystem changes, for example) events. Do inclusion of these events increase the validity of the analysis or do they bias the results?

You have been asked to present in front of investors who are interested in putting large amounts of money into this company. Your goal is to use the data of these financial statements to convince them to do so.   Please provide an analysis on the company’s assets, liabilities, cash, and profit. show any calculations, having a difficult time with this.

Background

• The relationship between cost of goods sold and sales revenue Is expected to continue in the near term and no inflation is expected.
• Operating expenses include $200,000 in depreciation (fixed expense), the remainder is variable costs tied to sales revenue.
• Fixed assets are adequate to support sales growth for the next two years and long=term debt will decline $200,000 per year.
• Dividend policy calls for 40% of net profits after taxes to be paid before yearend.
• Interest is 10% of long-term debt and notes payable
• Inventory needs to grow at half the rate of sales growth and accounts receivable maintains the same relationship to sales as was the case on December 31, 2019 for 2019 sales. Accounts payable maintains the same relationship to cost of good sold as of December 31, 2019 for 2019 sales.
• Any cash over $500,000 is put in marketable securities, Interest income is negligible
• Other current liabilities are stable.
• Taxes payable are equal to one-half of the current year’s taxes
• Assume sales will increase 10% per year for each of the next two years.

  Techno Corp

  Income Statement

  Actual results 2019 for 12 months ending December 31, 2019

  Sales revenue (10,000 units at $250 each)	$2,500,000
  Cost of goods sold ($100 per unit)	($1,000,000)
  Gross profit	$1,500,000
  Operating expenses	($500,000)
  Operating profit	$1,000,000
  Interest expense	($200,000)
  Net profits before taxes	$800,000
  Taxes (30%)	($240,000)
  Net profits after tax	$560,000
  Dividends on common stock	$224,000

  Techno Corp

  Balance Sheet

  December 31, 2019

  ASSETS
  Cash	$500,000
  Marketable securities	$300,000
  Accounts receivable	$500.000
  Inventory	$400,000
  Total current assets	$1,700,000
  Net fixed assets	$2,000,000
  Total assets	$3,700,000
  LIABILITIES AND STOCKHOLDER’S EQUITY
  Accounts payable	$150,000
  Taxes payable	$120,000
  Notes payable (long-term debt due within one year)	$200,000
  Other current liabilities	$200,000
  Total current liabilities	$670,000
  Long-term debt	$1,800,000
  Total liabilities	$2,470,000
  Common stock	$500,000
  Retained earnings	$730,000
  Total liabilities and stockholder’s equity	$3,700,000

Assignment

You are a consultant, external to this firm. Create two years (2020 and 2021) of pro forma income statements and balance sheets and the statement of cash flows, including operating, investing and financing sections for 2020 only.

Techno Corporation

Techno Corp

Income Statement

Actual results 2019 for 12 months ending December 31, 2019

Techno Corp

Balance Sheet

December 31, 2019

Techno Corporation Paper

Techno Corporation is developing its pro forma financial statement forecasts for 2020 and 2021. Its actual results for 2019 are shown in the income statement and balance sheet.

Background

• The relationship between cost of goods sold and sales revenue Is expected to continue in the near term and no inflation is expected.
• Operating expenses include $200,000 in depreciation (fixed expense), the remainder is variable costs tied to sales revenue.
• Fixed assets are adequate to support sales growth for the next two years and long=term debt will decline $200,000 per year.
• Dividend policy calls for 40% of net profits after taxes to be paid before yearend.
• Interest is 10% of long-term debt and notes payable
• Inventory needs to grow at half the rate of sales growth and accounts receivable maintains the same relationship to sales as was the case on December 31, 2019 for 2019 sales. Accounts payable maintains the same relationship to cost of good sold as of December 31, 2019 for 2019 sales.
• Any cash over $500,000 is put in marketable securities, Interest income is negligible
• Other current liabilities are stable.
• Taxes payable are equal to one-half of the current year’s taxes.
• Assume sales will increase 10% per year for each of the next two years.