A famous analyst once said it is not important what financial statement shows us- it’s what they hide that counts. What does the analyst mean by this statement? How would a company hide information inside financial statements? What is a pro forma financial statement and how is this used in the financial markets?
In: Accounting
Thomas Railroad Company organizes its three divisions, the North (N), South (S), and West (W) regions, as profit centers. The chief executive officer (CEO) evaluates divisional performance, using operating income as a percent of revenues. The following quarterly income and expense accounts were provided from the trial balance as of December 31:
| Revenues—N Region | $1,013,100 |
| Revenues—S Region | 1,210,800 |
| Revenues—W Region | 2,084,700 |
| Operating Expenses—N Region | 642,000 |
| Operating Expenses—S Region | 720,600 |
| Operating Expenses—W Region | 1,260,700 |
| Corporate Expenses—Dispatching | 456,000 |
| Corporate Expenses—Equipment Management | 285,200 |
| Corporate Expenses—Treasurer’s | 154,100 |
| General Corporate Officers’ Salaries | 340,300 |
The company operates three support departments: the Dispatching Department, the Equipment Management Department, and the Treasurer’s Department. The Dispatching Department manages the scheduling and releasing of completed trains. The Equipment Management Department manages the railroad cars inventories. It makes sure the right freight cars are at the right place at the right time. The Treasurer’s Department conducts a variety of services for the company as a whole. The following additional information has been gathered:
| North | South | West | ||||
| Number of scheduled trains | 5,700 | 6,800 | 10,300 | |||
| Number of railroad cars in inventory | 1,200 | 1,800 | 1,600 |
Required:
1. Prepare quarterly income statements showing operating income for the three regions. Use three column headings: North, South, and West. Do not round your interim calculations.
| Thomas Railroad Company | |||
| Divisional Income Statements | |||
| For the Quarter Ended December 31 | |||
| North | South | West | |
| Revenues | $ | $ | $ |
| Operating expenses | |||
| Operating income before support department allocations | $ | $ | $ |
| Support department allocations: | |||
| Dispatching | $ | $ | $ |
| Equipment Management | |||
| Total support department allocations | $ | $ | $ |
| Operating income | $ | $ | $ |
2. What is the profit margin of each region? Round to one decimal place.
| Region | Profit Margin |
| North Region | % |
| South Region | % |
| West Region | % |
Identify the most successful region according to the profit
margin.
3. What would you include in a recommendation to the CEO for a better method for evaluating the performance of the regions?
In: Accounting
Santana Rey, owner of Business Solutions, decides to prepare a
statement of cash flows for her business using the following
financial data.
| BUSINESS SOLUTIONS | ||||||
| Income Statement | ||||||
| For Three Months Ended March 31, 2020 | ||||||
| Computer services revenue | $ | 25,107 | ||||
| Net sales | 17,793 | |||||
| Total revenue | 42,900 | |||||
| Cost of goods sold | $ | 14,152 | ||||
| Depreciation expense—Office equipment | 330 | |||||
| Depreciation expense—Computer equipment | 1,240 | |||||
| Wages expense | 2,450 | |||||
| Insurance expense | 525 | |||||
| Rent expense | 2,275 | |||||
| Computer supplies expense | 1,235 | |||||
| Advertising expense | 520 | |||||
| Mileage expense | 270 | |||||
| Repairs expense—Computer | 950 | |||||
| Total expenses | 23,947 | |||||
| Net income | $ | 18,953 | ||||
| BUSINESS SOLUTIONS | |||||||||||
| Comparative Balance Sheets | |||||||||||
| December 31, 2019, and March 31, 2020 | |||||||||||
| Mar. 31, 2020 | Dec. 31, 2019 | ||||||||||
| Assets | |||||||||||
| Cash | $ | 71,257 | $ | 51,752 | |||||||
| Accounts receivable | 24,067 | 4,868 | |||||||||
| Inventory | 664 | 0 | |||||||||
| Computer supplies | 2,025 | 510 | |||||||||
| Prepaid insurance | 1,110 | 1,615 | |||||||||
| Prepaid rent | 805 | 805 | |||||||||
| Total current assets | 99,928 | 59,550 | |||||||||
| Office equipment | 7,300 | 7,300 | |||||||||
| Accumulated depreciation—Office equipment | (660 | ) | (330 | ) | |||||||
| Computer equipment | 19,300 | 19,300 | |||||||||
| Accumulated depreciation—Computer equipment | (2,480 | ) | (1,240 | ) | |||||||
| Total assets | $ | 123,388 | $ | 84,580 | |||||||
| Liabilities and Equity | |||||||||||
| Accounts payable | $ | 0 | $ | 1,160 | |||||||
| Wages payable | 975 | 560 | |||||||||
| Unearned computer service revenue | 0 | 1,500 | |||||||||
| Total current liabilities | 975 | 3,220 | |||||||||
| Equity | |||||||||||
| Common stock | 99,000 | 73,000 | |||||||||
| Retained earnings | 23,413 | 8,360 | |||||||||
| Total liabilities and equity | $ | 123,388 | $ | 84,580 | |||||||
Required:
Prepare a statement of cash flows for Business Solutions using the
indirect method for the three months ended March 31, 2020.
Owner Santana Rey contributed $26,000 to the business in exchange
for additional stock in the first quarter of 2020 and has received
$3,900 in cash dividends. (Amounts to be deducted should be
indicated with a minus sign.)
|
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In: Accounting
Suppose the initial Brazilian real to US dollar exchange rate is 4 reals (or “reais”) to 1 US dollar. The cost to buy a specified market basket of same quality products is $500,000 in the U.S. and R$1,400,000 in Brazil. Valued in U.S. dollar terms, the market basket in Brazil costs $350,000. (This market basket cost represents the combined price of thousands of products, and so also indicates an average price for those products.)
(a) Product prices in the U.S. and Brazil have changed. Using the prices in domestic currencies
for the two countries, does the ratio of move toward or away from the initial nominal exchange rate?
· For (e and j), use the (Brazilian price/US price) ratio so as to match the (Brazilian reals/US dollar) ratio.
(b) There has been a change in the amount of imports that Brazilian firms (wholesalers, retailers etc.) buy. With this change in the buying of foreign products, what happens to the supply of Brazilian reals in foreign exchange markets? (Compared to the previous period, for example.)
(c) What happens to the price (strength, value) of the Brazilian real?
(d) There has been a change in the amount of imports that American firms (wholesalers, retailers etc.) buy. With this change in the buying of foreign products, what happens to the supply of American dollars in foreign exchange markets? (Compared to the previous period, for example.)
(e) What happens to the price (strength, value) of the US dollar?
(f) Does the nominal exchange rate move toward or away from the initial ratio for,
?
In: Economics
In: Economics
What is the main method of biodiesel production, from what biomass material, and what is its current contribution to US fuel supplies? Please cite your sources.
In: Chemistry
Sophocles once said that Euripides depicts people as they are rather than as they ought to be. Do you agree? Can this play still speak to us from across the centuries?
In: Psychology
What trends can explain the differences in poverty rates from the 2000s to recent years in light of changes in economic conditions in the overall US economy during this period?
In: Economics
Following the outbreak of the Novel Coronavirus (COVID
19), CPC a pharmaceutical company is considering introducing a new
vaccine unto the market to help fight the virus. This will require
the injection of huge capital to the tune of GH¢40,000,000 for the
purchase of the equipment for production. It will cost CPC an
additional GH¢ 5,500,000 to set up the production facility and
install that equipment for production. Mr. Smart, the CEO of CPC
believes that the vaccine could be manufactured in a building owned
by the firm and located in East Legon. This vacant building and the
land can be sold for GH¢ 1,500,000 after taxes. CPC will finance
the production of the vaccine (including initial working capital
investment) by issuing 2000,000 new common stocks at GH¢ 20 per
share from its existing shareholders. A total of GH¢ 40,000,000 is
expected to be raised from the rights issue. It expects to finance
the remaining investment including initial working capital
investment from the issue of a 5-year bond with a before-tax yield
to maturity (YTM) of 12%. Mr. Qwesi, the Finance Director has
estimated the beta of the project to be 2.5 and the average return
for stocks traded on the Ghana Stock Exchange to be 10% while the
rate on Government of Ghana traded Treasury bills is 5%. The
successful production of the vaccine will generate additional cash
flows for CPC. The Production and Marketing department has
presented the information in the table below:
2020
Variable cost per unit of the product GH¢150
Selling price per unit GH¢350
Quantity 400,000units per annum
Again the following information should be taken note of:
• Feasibility studies cost the company GH¢2,000,000
• Test marketing expenses amounts to GH¢1,000,000
• The research into the discovery of the vaccine costs
GH¢5,000,000
• Variable cost will increase by 5% per annum
• Selling price will increase by 10% per annum
• Marketing expense will be 5% of sales revenue per year
• Overhead cost will be fixed at GH¢6000,000 per year
• The project will last for five (5) years (2021-2025)
• Charge depreciation using the straight-line method
• Salvage value for equipment is GH¢2,000,000
• CPC falls within the 25% tax bracket
• An initial working capital investment of GH¢10,000,000 will be
made. Subsequently, net working capital at the end of each year
will be equal to 10 percent of sales for that year. In the final
year of the project, net working capital will decline to zero as
the project is wound down. In other words, the investment in
working capital is to be completely recovered by the end of the
project’s life
• The introduction of this new vaccine is expected to lead to
10,000 units per annum drop in sales of vaccines for other types of
corona virus by. The selling price per unit of existing products is
GH¢100 while the variable cost is GH¢70. This has no tax
implications for the new vaccine.
• The project will be financed with debt and equity
Required:
a. Evaluate the project using the NPV and Profitability index and
recommend whether CPC should go ahead with the production of the
vaccine.
In: Finance
V. Rahr and Sons is a Fort Worth brewery founded by Fritz Rahr, a Neeley undergraduate and MBA. Currently the company makes Rahr Blonde Lager, Rahr’s Red, and Ugly Pug brews. They are considering a new beer, Frog Princess, with which to celebrate their ties to TCU. The project includes an initial outlay of $750,000 for the purchase of capital equipment that will be depreciated straight line to zero over six years.
Sales are expected to be $400,000 in years 1-3 and $600,000 in years 4-6. Production costs during years 1-6 are as follows: fixed costs (not including depreciation) are expected to be $150,000 per year; variable costs per year will be 40% of sales. The project will require an initial investment in NWC of 200,000 in year 0.
Beyond year six, the company expects that sales and unlevered net income in year seven will be 4% higher than that in year 6, and will continue growing at 4% per year infinitely. Additionally, in year 7 and beyond, new capital expenditures net of depreciation, and increases in NWC, combined, will be 6% of sales. Assume the marginal tax rate is 21%. The appropriate discount rate is 8%.
What is the NPV of the project? What is the IRR? Should the project be undertaken?
I've asked this question three times now and gotten three different answers so I want to see if this will confirm the right one. Thanks
In: Finance