Mystic Beverage Company is considering purchasing a new bottling machine. The new machine costs $230,000, plus installation fees of $10,000 and will generate earning before interest and taxes of $60,000 per year over its 6-year life. The machine will be depreciated on a straight-line basis over its 6-year life to an estimated salvage value of 0. Mystic's marginal tax rate is 40%. Mystic will require $50,000 in NWC if the machine is purchased.
(a) determine the initial outlay
(b) determine the annual cash flows in years 1-6
(c) assume the discount rate is 7%, what is the NPV of this
project?
(d) What is the IRR of this project
€ should the project be accepted or rejected?
In: Finance
S11 Managing New Product Development
Please answer questions in a paragraph, thank you!
In: Operations Management
8. Suppose New York wants to build a new facility to replace Madison Square Garden. Assume that the cost of building a new arena in midtown Manhattan is $2.5 billion and that all the costs occur right away. Also assume that New York will receive annual benefits of $110 million for the next 25 years, after which the new arena becomes worthless. Does it make financial sense to build the new facility if interest rates are 6 percent? At what interest rate will we be indifferent between accepting and rejecting this project?
In: Finance
Gun Murders - Texas vs New York - Significance
Test
In 2011, New York had much stricter gun laws than Texas. For that
year, the proportion of gun murders in Texas was greater than in
New York. Here we test whether or not the proportion was
significantly greater in Texas. The table below
gives relevant information. Here, the p̂'s are population
proportions but you should treat them as sample proportions. The
standard error (SE) is given to save calculation time if
you are not using software.
Data Summary
| number of | total number | Proportion | |
| State | gun murders (x) | of murders (n) | p̂ = (x/n) |
| Texas | 689 | 1079 | 0.63855 |
| New York | 455 | 784 | 0.58036 |
Standard Error (SE) = 0.02285
The Test: Test the claim that the proportion of gun murders was significantly greater in Texas than New York in 2011. Use a 0.01 significance level.
(a) Letting p̂1 be the proportion of gun murders in Texas and p̂2 be the proportion from New York, calculate the test statistic using software or the formulaz =
| (p̂1 − p̂2) − δp |
| SE |
where δp is the hypothesized
difference in proportions from the null hypothesis and the standard
error (SE) is given with the data. Round your
answer to 2 decimal places.
z =
To account for hand calculations -vs- software, your answer
must be within 0.01 of the true answer.
(b) Use software or the z-table to get the P-value of the test
statistic. Round to 4 decimal places.
P-value =
(c) What is the conclusion regarding the null hypothesis?
reject H0
fail to reject H0
(d) Choose the appropriate concluding statement.
The data supports the claim that the proportion of gun murders was significantly greater in Texas than New York.
While the proportion of gun murders in Texas was greater than New York, the difference was not great enough to be considered significant.
We have proven that the stricter gun laws in New York actually decreased the proportion of gun murders below the rate in Texas.
We have proven there was no difference in the proportion of gun murders between Texas and New York.
In: Math
|
“We really need to get this new material-handling equipment in operation just after the new year begins. I hope we can finance it largely with cash and marketable securities, but if necessary we can get a short-term loan down at MetroBank.” This statement by Beth Davies-Lowry, president of Global Electronics Company, concluded a meeting she had called with the firm’s top management. Global is a small, rapidly growing wholesaler of consumer electronic products. The firm’s main product lines are small kitchen appliances and power tools. Marcia Wilcox, Global Electronics’ general manager of marketing, has recently completed a sales forecast. She believes the company’s sales during the first quarter of 20x1 will increase by 10 percent each month over the previous month’s sales. Then Wilcox expects sales to remain constant for several months. Global’s projected balance sheet as of December 31, 20x0 is as follows: |
| Cash | $ | 50,000 | |
| Accounts receivable | 324,000 | ||
| Marketable securities | 15,000 | ||
| Inventory | 198,000 | ||
| Buildings and equipment (net of accumulated depreciation) | 633,000 | ||
| Total assets | $ | 1,220,000 | |
| Accounts payable | $ | 283,500 | |
| Bond interest payable | 12,500 | ||
| Property taxes payable | 6,000 | ||
| Bonds payable (10%; due in 20x6) | 300,000 | ||
| Common stock | 500,000 | ||
| Retained earnings | 118,000 | ||
| Total liabilities and stockholders’ equity | $ | 1,220,000 | |
| Jack Hanson, the assistant controller, is now preparing a monthly budget for the first quarter of 20x1. In the process, the following information has been accumulated: |
| 1. |
Projected sales for December of 20x0 are $450,000. Credit sales typically are 80 percent of total sales. Global’s credit experience indicates that 10 percent of the credit sales are collected during the month of sale, and the remainder are collected during the following month. |
| 2. |
Global Electronics’ cost of goods sold generally runs at 80 percent of sales. Inventory is purchased on account, and 25 percent of each month’s purchases are paid during the month of purchase. The remainder is paid during the following month. In order to have adequate stocks of inventory on hand, the firm attempts to have inventory at the end of each month equal to half of the next month’s projected cost of goods sold. |
| 3. | Hanson has estimated that Global’s other monthly expenses will be as follows: |
| Sales Salaries | 10,000 | |
| Advertising & Promotion | 5,000 | |
| Administrative Salaries | 10,000 | |
| Depreciation | 30,000 | |
| Interest on bonds | 2,500 | |
| Property taxes | 1,500 | |
| In addition, sales commissions run at the rate of 1 percent of sales. |
| 4. |
Global Electronics’ president, Davies-Lowry, has indicated that the firm should invest $125,000 in an automated inventory-handling system to control the movement of inventory in the firm’s warehouse just after the new year begins. These equipment purchases will be financed primarily from the firm’s cash and marketable securities. However, Davies-Lowry believes that the company needs to keep a minimum cash balance of $25,000. If necessary, the remainder of the equipment purchases will be financed using short-term credit from a local bank. The minimum period for such a loan is three months. Hanson believes short-term interest rates will be 10 percent per year at the time of the equipment purchases. If a loan is necessary, Davies-Lowry has decided it should be paid off by the end of the first quarter if possible. |
| 5. |
Global Electronics’ board of directors has indicated an intention to declare and pay dividends of $50,000 on the last day of each quarter. |
| 6. |
The interest on any short-term borrowing will be paid when the loan is repaid. Interest on Global Electronics’ bonds is paid semiannually on January 31 and July 31 for the preceding six-month period. |
| 7. | Property taxes are paid semiannually on February 28 and August 31 for the preceding six-month period. |
| Required: | |
|
Prepare Global Electronics Company’s master budget for the first quarter of 20x1 by completing the following schedules and statements. |
| 5. | Complete the first three lines of the summary cash budget. Then do the analysis of short-term financing needs in requirement (6). Then finish requirement (5). |
| 6. |
Calculation of required short-term borrowing. |
| 7. |
Prepare Global Electronics’ budgeted income statement for the first quarter of 20x1. (Ignore income taxes.) |
| 8. | Prepare Global Electronics’ budgeted statement of retained earnings for the first quarter of 20x1. |
| 9. |
Prepare Global Electronics’ budgeted balance sheet as of March 31, 20x1. (Hint: On March 31, 20x1, Bond Interest Payable is $5,000 and Property Taxes Payable is $1,500.) |
In: Accounting
Choosing a Source of Credit: The Costs of Credit Alternatives Jamie Lee Jackson, age 27, full-time student and part-time bakery employee, is busy setting up her new home. Her budget is a little tight now as she made the decision to move in to a place of her own, which gives her privacy and independence, but all of the expenses are now her responsibility. Jamie Lee applied for three store credit cards when she was shopping for her furnishings. The excitement of making selections and the attractiveness of percentages off her purchases made the credit card offers too good to pass up. It was all too easy to select the new furnishings when the cash was not immediately coming from her pocket. “The payments will not be due for at least 45 days from now, by the time all the accounts are opened and the grace periods are factored in. I am sure I will have enough to cover the balances by then,” Jamie Lee convinced herself. Jamie Lee’s new furnishings have been delivered, and she is quite happy with her choices. The bungalow is comfortable, and Jamie is now getting into a routine balancing the new move with work and school obligations. Unfortunately, the bills have begun to arrive in Jamie Lee’s mailbox; payments are soon due for all the new furniture and appliances. The corresponding annual interest rates on the credit card purchases were not something Jamie Lee factored in when she applied for the store credit cards. “Wow, 18.5 percent on one, and the other two have interest rates of 19 percent per year. Those interest fees can really add up quickly. The disclosure said that by making the minimum payments, I could be paid off in 14 years! I am not sure my appliances will still be working at that time, nor will the furniture still be in style 14 years from now.” Jamie Lee was starting to feel the consequences of overspending and knew she must develop a plan to pay off the purchases quickly! Assets: Checking account: $1,800 Savings account: $7,200 Emergency fund savings account: $2,700 IRA balance: $410 Car: $2,800 Liabilities: Student loan balance: $10,800(Jamie is still a full-time student, so no payments are required on the loan until after graduation) Credit card balance: $4,250(total of the three store credit cards) Income: Gross Monthly salary from the bakery: $2,750(Net Income: $2,175) Monthly Expenses: Rent: $350 Utilities: $70 Food: $125 Gas/maintenance: $130 Credit card payment: $0
Questions 1. Jamie Lee received an offer to transfer the balance of all her store credit cards to her bank credit card in the mail. It offered zero percent finance charges/interest for the first three months(90 days), and 18.5 percent interest rate thereafter until the balance is paid in full. Upon reading the fine print, there was a $50 transaction fee and interest accrued from the day the balance transfer was made if the balance is paid in full within the first 90 days. How could Jamie Lee use this balance transfer offer to her advantage? How is this offer a major disadvantage to Jamie Lee?
2. Based on Jamie Lee's current financial situation, could she possibly transfer option work?
3. What solution would you recommend for Jamie Lee to get her credit cards paid off as soon as possible? What are the advantages of your choices? What are the disadvantages of your choices?
In: Finance
Flatbread goes round the world Gruma S.A.B. de C.V is
located near Monterrey, Mexico, and produces corn flour and other
flour products, which it processes into tortillas and related
snacks for markets worldwide. Its brand names include Maseca,
Mission, and Guerrero. Its customers include supermarkets, mass
merchandisers, smaller independent stores, restaurant chains, food
service distributors and schools. The company began operations in
1949. In the early 1970s, Gruma launched its product on the Central
American markets, specifically in Costa Rica. In 1976 it expanded
to the United States and in 1987 it began expanding its operations
across the globe, opening plants in Honduras, El Salvador,
Guatemala and Venezuela. It now has plants in Europe and most
recently China. The Asian market presents a very exciting
development for Gruma. The company established their presence on
continental China in the first instance and then gradually expanded
their penetration of markets across Asia to the Middle East. It has
already established distributorships in Japan, Korea, Singapore,
Hong Kong, Thailand, the Philippines, Taiwan and India. How has a
Mexican company with a niche food product like corn flour succeeded
so well in international markets? According to Martinez and
Haddock, the answer lies in the fact that many of the markets they
have focused on are emerging markets which tend to follow the same
path of development. These emerging markets exhibit a natural life
cycle – a predictable pattern of consumer demand that is evident in
steel, wheat, consumer products, and every other major economic
sector. What Gruma are following in their international expansion
is the tried and tested method of leveraging the similarities
across from market to market and growing their company accordingly.
The root of the success of Gruma has been their ability to observe
the life cycle of emerging markets around the world and expertly
time their entry into these markets. However, the other key factor
has been their ability to adapt their products to local market
tastes. Their key competitive advantage in international markets is
based not on their product but the ability to roll any kind of
flour, from corn to wheat to rice, into saleable flatbread. Most
people from India do not eat corn tortillas, but they do eat a
flatbread called naan, made from wheat, which Gruma sells in the
United Kingdom and plans to sell in India. The Chinese don’t eat
many corn tortillas, but they buy wraps made by Gruma for Peking
duck. Gruma also follow a policy of deploying a senior ‘beachhead’
team to enter the new market in which they are building a presence.
In China, the beachhead team had skills honed through many years of
experience in Latin America and was already primed to develop the
necessary market insights to feed into their marketing campaign.
Thus, observed trends in China such as a decrease in home cooking
among dual-career professionals, increasing penetration of fast
food chains, an increase in cold storage in supermarkets and rapid
improvements in the logistics and distribution channels were all
utilized in thinking through the Gruma market-building strategy in
China.
In connection with the given case study, develop a list of
environmental factors which can be monitored to help decision
makers recognize when it is the optimum time to enter a
market.
In: Economics
Seaside Village is a retirement community, and many residents work together on a local charitable auction to raise money to support community endeavors. Basically, volunteers solicit residents and local merchants to donate items for the auction. The night of the auction, volunteers bring their donated items for display on tables placed around the floor of the town's school gymnasium. Virtually the whole town turns out to bid on items that are up for sale. The lucky purchaser makes payment at a collection booth that is staffed by two of the volunteers. At the end of the evening, the buyers collect their items. A volunteer takes the money home to count. The money is deposited to the charity's bank account on the following day. Following last year's auction, many complaints were heard. One merchant complained that he had donated an expensive LCD television, but it was not offered for sale at the auction. One of the buyers complained that the item she paid for was not to be found at the end of the evening. Another donor complained that he needed a receipt for tax purposes, and another person complained that some people were making up receipts for donations that were never made. The charity's board is considering expanded controls for next year's event, and is considering ten specific proposals received from various volunteers. Which five of these proposals are the most valid strengthening of the control structure? Donors will be sent a thank you letter, which will include a paragraph asking them to confirm that their donated item was present at the auction. Proceeds should be counted and recorded by two or more people immediately fol- lowing the auction, and taken directly to the bank for deposit in the night depository. The person taking the money to the bank will be required to perform a bank reconcili- ation at the end of the month to verify the deposit's posting. All volunteers should be emailed a blank receipt form. Volunteers are encouraged to reprint a generous supply and be sure to issue one to each donor. Prenumbered receipt books (with carbon copy film) should be used for donated items, and a log should be maintained of who received a receipt book. The receipts should be reconciled to donated items. A paid receipt prepared by collection booth volunteers must be presented by a pur- chaser before being allowed to leave the gym with an item of merchandise. An advertisement will be run in the local paper asking for support of the upcoming auction. The advertisement will include instructions to donors reminding them to always ask for a receipt for their gift, and encouraging them to call in to a special phone number to register to be eligible for a special prize drawing for donors! Only one person at a time will be allowed in the collection booth. Each collection booth volunteer will be limited to a one-hour shift. No volunteer is to remove funds from the booth. The charity's president will be required to perform an audit of the books and records related to the annual event. The president must issue a written audit report. Donated items must be taken to a local storage facility upon receipt. A warehouse custodian volunteer will log the items, and another volunteer will be authorized to lock and unlock the warehouse.
A). The strengths are as follows:
B). Use this problem as an opportunity to generally consider the benefits of limited access to assets, separation of duties, authorization, use of prenumbered documents, and proper independent verification/audit. Consider how the "other five" suggestions might be ineffective or harmful to the control environment. Be prepared to discuss other ideas (there are many -- e.g., logging the bid price and matching with payments, etc.) for improving controls at the auction
In: Accounting
A FRIEND FOR LIFE
The Glades Company is a small manufacturer. It has produced and marketed a number of different toys and appliances that have done very well in the marketplace. Late last year, the product designer at the company, Tom Berringer, told the president, Paula Glades, that he had invented a small, cuddly, talking bear that might have a great deal of appeal. The bear is made of fluffy brown material that simulates fur, and it has a tape inside that contains 50 messages.
The Glades Company decided to find out exactly how much market appeal the bear would have. Fifty of the bears were produced and placed in kindergartens and nurseries around town. The results were better than the firm had hoped. One of the nurseries reported: “The bear was so popular that most of the children wanted to take it home for an evening.” Another said the bear was the most popular toy in the school.
Based on these data, the company decided to manufacture and market 1,000 of the bears. At the same time, a catchy marketing slogan was formulated: “A Friend for Life.” The bear was marketed as a product a child could play with for years and years. The first batch of 1,000 bears sold out within a week. The company then scheduled another production run, this time for 25,000 bears. Last week, in the middle of the production run, a problem was uncovered. The process of making the bear fur was much more expensive than anticipated. The company is now faced with two options: It can absorb the extra cost and have the simulated fur produced, or it can use a substitute fur that will not last as long. Specifically, the original simulated fur will last for up to seven years of normal use; the less-expensive simulated fur will last for only eight months.
Some of the managers at Glades believe that most children are not interested in playing with the same toy for more than eight months; therefore, substituting the less-expensive simulated fur for the more-expensive fur should be no problem. Others believe that the company will damage its reputation if it opts for the substitute fur. “We are going to have complaints within eight months, and we are going to rue the day we agreed to a cheaper substitute,” the production manager argues. The sales manager disagrees, contending that “the market is ready for this product, and we ought to provide it.” In the middle of this crisis, the accounting department issued its cost analysis of the venture. If the company goes with the more-expensive simulated fur, it will lose $5.75 per bear. If it chooses the less-expensive simulated fur, it will make a profit of $14.98 per bear.
The final decision on the matter rests with Paula Glades. People on both sides of the issue have given her their opinion. One of the last to speak was the vice president of manufacturing, who said, “If you opt for the less-expensive fur, think of what this is going to do to your marketing campaign of ‘A Friend for Life.’ Are you going to change this slogan to ‘A Friend for Eight Months’?” But the marketing vice president urged a different course of action: “We have a fortune tied up in this bear. If you stop production now or go to the more-expensive substitute, we’ll lose our shirts. We aren’t doing anything illegal by substituting the fur. The bear looks the same. Who’s to know?”
QUESTIONS
In: Economics
On January 3, 2017, Carl Castro, a construction worker from Phoenix, Arizona, accepted a job in San Diego, California, at a large residential development. He's not sure how long the construction will go on, but it is projected to be at least three years. He gave up his apartment in Arizona and leased a small house in California. He obtained a California driver's license. He plans to drive back to Arizona to visit friends and family for long weekends whenever possible. Is Carl a California resident, nonresident, or part-time resident?
a. Part-time resident, because he plans trips back to Arizona.
b. Resident, because he is in California for other than a temporary or transitory purpose.
c. Nonresident, because he maintains connections in Arizona.
d. Need for information.
Dillan and Denise Dover live and work in Needles, California. Dillan is a high school teacher in California and works every summer in Lake Havasu, Nevada, as a diving instructor. Denise visits Dillan on weekends. Are the Dovers California residents, nonresidents, or part-time residents?
a. Part-time resident, because Dillan works summers in Nevada.
b. Resident, because Dillan’s work in Nevada is temporary.
c. Nonresident, because Dillan maintains connections in Nevada and Denise visits him there.
d. Need for information
Franklin Jones lives in Portland, Oregon, and accepted a temporary six-month assignment in San Francisco, California, from his employer. The project took longer than originally planned, and Franklin stayed for a total of nine months. His wife and children remained in Oregon and Franklin flew home every Thursday night and flew back to California on Monday mornings. Is Franklin a California resident, nonresident, or part-time resident?
a. Part-time resident, because Franklin travels back and forth between the two states
b. Resident, because Franklin’s source of income supports his family.
c. Nonresident, because Franklin’s time in California is temporary and he has maintained all of his life activities in Oregon.
d. Need for information
Airman Cook and his wife, Emma Cook, are stationed at Vandenberg Air Force Base in California. Airman Cook is domiciled in North Carolina (a separate property state) and received $22,000 in military wages. Emma is a California resident and works in the nearby town of Lompoc, where she earned $18,000. They have filed a joint federal tax return. What are their filing options for California?
a. They can file married filing jointly.
b. They must file married filing separately.
c. They can choose between married filing jointly or married filing separately
d. None of the above.
Mary Brown and Zelda Smith each have two children and share a house. They each pay one-half of the rent, utilities, and food. Mary and Zelda each have separate checking accounts and pay all the other expenses for themselves and their children with their own funds. May they each file as head of household?
a. Yes, because they each maintained separate finances and did not contribute to the support of each other’sfamily.
b. No, because only one person in the home may claim the head of household filing status.
c. No, because they should register as registered domesticpartners.
d. Need more information.
In: Accounting