The Olney Company purchased a machine 3 years ago at a cost of $150,000. It had an expected life of 10 years at the time of purchase and an expected salvage value of $5,000.    The existing machine costs $54,000 year to run and generates $1,000,000 a year in revenue with a gross profit margin of 20%.   The old machine can be sold today for $55,000 and the expectation is that it can be sold for $7,500 in 7 years.

A new machine with a 7 year life can be purchased for $225,000. Cash operating expenses will be $65,000 per year. The new machine will boost revenue to $1,075,000 in the first three years of operation and then revenue of the new machine will increase to $1,090,000 per annum for the balance of machine’s life. The machine has a gross profit margin of 23% due to fewer defects. At the end of its useful life, the machine will have no value. The firm's tax rate is 34 percent. Straight-line depreciation is used for all assets. The firm’s WACC is 12 percent. The firm has an ACP of 63 days and pays its bills after 25 days.

Calculate project’s NPV and IRR.

The firm reduces its ACP to 55 days and starts to pay its bills after 30 days. What will be the project’s NPV ?

Problem 5-10 Long-term contract; revenue recognition over time [LO5-8, 5-9]

[The following information applies to the questions displayed below.]
  
In 2018, the Westgate Construction Company entered into a contract to construct a road for Santa Clara County for $10,000,000. The road was completed in 2020. Information related to the contract is as follows:

Westgate recognizes revenue over time according to percentage of completion.

rev: 09_15_2017_QC_CS-99734

Problem 5-10 Part 5

5. Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years assuming the following costs incurred and costs to complete information. (Do not round intermediate calculations and round your final answers to the nearest whole dollar amount. Loss amounts should be indicated with a minus sign.)

Cash Budget
Wilson's Retail Company is planning a cash budget for the next three months. Estimated sales revenue is as follows:

All sales are on credit; 60 percent is collected during the month of sale, and 40 percent is collected during the next month. Cost of goods sold is 70 percent of sales. Payments for merchandise sold are made in the month following the month of sale. Operating expenses total $44,000 per month and are paid during the month incurred. The cash balance on February 1 is estimated to be $40,000.

Prepare monthly cash budgets for February, March, and April.

Use negative signs only with beginning and ending cash balances, when appropriate. Do not use negative signs with disbursement answers.

Cash Budget
Wilson's Retail Company is planning a cash budget for the next three months. Estimated sales revenue is as follows:

All sales are on credit; 60 percent is collected during the month of sale, and 40 percent is collected during the next month. Cost of goods sold is 70 percent of sales. Payments for merchandise sold are made in the month following the month of sale. Operating expenses total $44,000 per month and are paid during the month incurred. The cash balance on February 1 is estimated to be $40,000.

Prepare monthly cash budgets for February, March, and April.

Use negative signs only with beginning and ending cash balances, when appropriate. Do not use negative signs with disbursement answers.

Cash Budget
Wilson's Retail Company is planning a cash budget for the next three months. Estimated sales revenue is as follows:

All sales are on credit; 60 percent is collected during the month of sale, and 40 percent is collected during the next month. Cost of goods sold is 70 percent of sales. Payments for merchandise sold are made in the month following the month of sale. Operating expenses total $40,000 per month and are paid during the month incurred. The cash balance on February 1 is estimated to be $30,000.

Prepare monthly cash budgets for February, March, and April.

Use negative signs only with beginning and ending cash balances, when appropriate. Do not use negative signs with disbursement answers.

Cash Budget
Wilson's Retail Company is planning a cash budget for the next three months. Estimated sales revenue is as follows:

All sales are on credit; 60 percent is collected during the month of sale, and 40 percent is collected during the next month. Cost of goods sold is 70 percent of sales. Payments for merchandise sold are made in the month following the month of sale. Operating expenses total $41,000 per month and are paid during the month incurred. The cash balance on February 1 is estimated to be $20,000.

Prepare monthly cash budgets for February, March, and April.

Use negative signs only with beginning and ending cash balances, when appropriate. Do not use negative signs with disbursement answers.

AP2-5

Larry has been the chief financial officer (CFO) of Maxima Auto Service for the past 10 years. The company has reported profits each year it's been in business. However, this year has been a tough one. Increased competition and the rising costs of labor have reduced the company's profits. On December 30, Larry informs Robert, the company's president and Larry's closest friend for the past 10 years, that it looks like the company will report a net loss (total expenses will be greater than total revenues) of about $50,000 this year.

The next day, December 31, while Larry is preparing the year-end reports, Robert stops by Larry's office to tell him that an additional $75,000 of revenues needs to be reported and that the company can now report a profit. When Larry asks about the source of the $75,000, Robert tells lam, "Earlier in the month some customers paid for auto services with cash, and with this cash I bought additional assets for the company. That's why the $75,000 never showed up in the bank statement. I just forgot to tell you about this earlier." When Larry asks for more specifics about these transactions, Robert mumbles, "I can't recall where I placed the customer sales invoices or the purchase receipts for the assets, but don't worry; I know they're here somewhere. We've been friends for a lot of years and you can trust me. Now, let's hurry and finish those reports and I'll treat you to dinner tonight at the restaurant of your choice."

Required

1. Understand the reporting effect: What effect does reporting additional revenue have on reported profit?

2. Specify the options: If the additional revenue is not reported, do both Robert and Larry potentially lose benefits?

3. Identify the impact: Does reporting the additional revenue strengthen the company's financial appearance to those outside the company?

4. Make a decision: Should Larry report the additional revenue without source documents?

King Kanuta, the ruler of Nutting Atoll, does not particular care for OSPs. However, he and his subjects love coconuts. The Nutters’ demand for coconuts is ? ? = 1200 − 100 × ?, while the supply of coconuts in Nutting Atoll is ? ? = 100 × ?.

a. What is the equilibrium price and quantity in this competitive market? What is the consumer and the producer surplus?

b. One day, King Kanuta decides to tax his subjects in order to collect coconuts for the Royal Larder. The King requires that for each coconut that every subject consumes, the subject must first buy a voucher from the palace at price £2. Write down the wedge that this tax introduces between consumer and producer prices. What is the effective price that consumers pay per coconut that they consume, and how many coconuts do they consume? What is the consumer and producer surplus under the coconut tax? How much revenue does this tax raise and how is the tax burden distributed?

c. King Kanuta’s subjects resent paying the taxes to the King and there are alarming signs of revolution among the Nutters. As a reaction, the King changes the tax. Now, the shopkeepers who sell the coconuts are responsible for paying the tax. That is, for each coconut they sell they must buy a license at a price of £2. Write down the new wedge that this tax introduces between consumer and producer prices. How many coconuts are consumed by the Nutters after this change in tax structure, what is the new price they pay? How much revenue does this tax raise and how is the tax burden now distributed?

d. There has been a rat invasion in the Royal Larder and all of King Kanuta’s reserves are now lost. In desperation, he decides to increase taxes in order to replenish his beloved Larder. In particular, he now wants to require each transaction of coconuts to be taxed at a price of £4. What would be the new quantity of coconuts transacted? What would be the new tax revenue? Calculate the deadweight loss of this tax.

e. King Kanuta’s Grand-Vizier thinks that a tax of £4 will not be enough. He is instead advocating a tax of £8. What would be the tax revenue at a tax of £8? Calculate the deadweight loss of this tax. Compare your answers to part d. Is there anything surprising here?

f. Finally, Lafferiku (King Kanuta’s Royal cook), is pushing for an even bigger tax of £10 per coconut. In terms of revenue collected and deadweight loss, how would you argue against such a tax?

Please write in BOLD Thanks :)

In Lesson Eight you've learned how to construct confidence intervals for population parameters and proportions, based on data from samples.

1. In a short paragraph, distinguish between Sampling Error and the Margin of Error. Explain what each represents and the relationship between them.
2. In a short paragraph, distinguish between a Point Estimate and an Interval Estimate. Explain what each represents and the relationship between them.
3. In a short paragraph, distinguish between a Confidence Interval and the Level of Confidence. Explain what each represents and the relationship between them.
4. Identify the three components of a Confidence Interval. Explain what each represents and the relationship between them.
5. Describe a potential issue with public opinion polls that report interval estimates, but not confidence intervals. Discuss this in a short paragraph.