Questions
Five years ago, a company was considering the purchase of 72 new diesel trucks that were...

Five years ago, a company was considering the purchase of 72 new diesel trucks that were 14.56% more fuel-efficient than the ones the firm is now using. The company uses an average of 10 million gallons of diesel fuel per year at a price of $1.25 per gallon. If the company manages to save on fuel costs, it will save $1.875 million per year (1.5 million gallons at $1.25 per gallon). On this basis, fuel efficiency would save more money as the price of diesel fuel rises (at $1.35 per gallon, the firm would save $2.025 million in total if he buys the new trucks).

Consider two possible forecasts, each of which has an equal chance of being realized. Under assumption #1, diesel prices will stay relatively low; under assumption #2, diesel prices will rise considerably. The 72 new trucks will cost the firm $5 million. Depreciation will be 24.84% in year 1, 38.39% in year 2, and 36.46% in year 3. The firm is in a 40% income tax bracket and uses a 10% cost of capital for cash flow valuation purposes. Interest on debt is ignored. In addition, consider the following forecasts:

Forecast for assumption #1 (low fuel prices):

Price of Diesel Fuel per Gallon

Prob. (same for each year)

Year 1

Year 2

Year 3

0.1

$0.81

$0.89

$1.01

0.2

$1.02

$1.11

$1.11

0.3

$1.11

$1.23

$1.32

0.2

$1.3

$1.48

$1.46

0.2

$1.4

$1.58

$1.61

Forecast for assumption #2 (high fuel prices):

Price of Diesel Fuel per Gallon

Prob. (same for each year)

Year 1

Year 2

Year 3

0.1

$1.22

$1.52

$1.69

0.3

$1.3

$1.7

$2.01

0.4

$1.81

$2.32

$2.52

0.2

$2.21

$2.53

$2.83

Required: Calculate the percentage change on the basis that an increase would take place from the NPV under assumption #1 to the probability-weighted (expected) NPV.

Answer% Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places (for example: 28.31%).

Further Information (solution steps):

  • Step (1): Calculate the annual expected price of diesel per gallon under each assumption, based on the probabilities outlined in the inputs section.
  • Step (2): Using the annual expected fuel prices calculated in step (1), determine the increase in annual savings created by the proposed efficiency for each assumption.
  • Step (3): Find the increased cash flow after taxes (CFAT) for both forecasts, based on the annual increase in fuel savings determined in step (2) as the increase in earnings before depreciation and taxes (EBDT), and the starting point from which profit is calculated for each assumption. As part of this step, you must establish annual depreciation (remember: depreciation is a noncash charge).
  • Step (4): Considering the increased annual CFAT produced in step (3), calculate the NPV of the truck purchases for each assumption, based on the discount rate (cost of capital) indicated in the inputs section
  • Step (5): In view of the outcomes produced in step (4), estimate the combined NPV weighed by the probability of each assumption.
  • Step (6): Finally, calculate the percentage difference hypothesizing that an increase took place starting from the NPV for assumption #1 to the combined NPV worked out in step (5).

In: Finance

Five years ago, a company was considering the purchase of 72 new diesel trucks that were...

Five years ago, a company was considering the purchase of 72 new diesel trucks that were 14.56% more fuel-efficient than the ones the firm is now using. The company uses an average of 10 million gallons of diesel fuel per year at a price of $1.25 per gallon. If the company manages to save on fuel costs, it will save $1.875 million per year (1.5 million gallons at $1.25 per gallon). On this basis, fuel efficiency would save more money as the price of diesel fuel rises (at $1.35 per gallon, the firm would save $2.025 million in total if he buys the new trucks). Consider two possible forecasts, each of which has an equal chance of being realized. Under assumption #1, diesel prices will stay relatively low; under assumption #2, diesel prices will rise considerably. The 72 new trucks will cost the firm $5 million. Depreciation will be 24.84% in year 1, 38.39% in year 2, and 36.46% in year 3. The firm is in a 40% income tax bracket and uses a 10% cost of capital for cash flow valuation purposes. Interest on debt is ignored. In addition, consider the following forecasts: Forecast for assumption #1 (low fuel prices): Price of Diesel Fuel per Gallon Prob. (same for each year) Year 1 Year 2 Year 3 0.1 $0.81 $0.89 $1.01 0.2 $1.02 $1.11 $1.11 0.3 $1.11 $1.23 $1.32 0.2 $1.3 $1.48 $1.46 0.2 $1.4 $1.58 $1.61 Forecast for assumption #2 (high fuel prices): Price of Diesel Fuel per Gallon Prob. (same for each year) Year 1 Year 2 Year 3 0.1 $1.22 $1.52 $1.69 0.3 $1.3 $1.7 $2.01 0.4 $1.81 $2.32 $2.52 0.2 $2.21 $2.53 $2.83 Required: Calculate the percentage change on the basis that an increase would take place from the NPV under assumption #1 to the probability-weighted (expected) NPV. Answer % Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places (for example: 28.31%). Note: The educational purpose of this problem targets the students’ ability to read + follow instructions. Further Information (solution steps): Step (1): Calculate the annual expected price of diesel per gallon under each assumption, based on the probabilities outlined in the inputs section. Step (2): Using the annual expected fuel prices calculated in step (1), determine the increase in annual savings created by the proposed efficiency for each assumption. Step (3): Find the increased cash flow after taxes (CFAT) for both forecasts, based on the annual increase in fuel savings determined in step (2) as the increase in earnings before depreciation and taxes (EBDT), and the starting point from which profit is calculated for each assumption. As part of this step, you must establish annual depreciation (remember: depreciation is a noncash charge). Step (4): Considering the increased annual CFAT produced in step (3), calculate the NPV of the truck purchases for each assumption, based on the discount rate (cost of capital) indicated in the inputs section Step (5): In view of the outcomes produced in step (4), estimate the combined NPV weighed by the probability of each assumption. Step (6): Finally, calculate the percentage difference hypothesizing that an increase took place starting from the NPV for assumption #1 to the combined NPV worked out in step (5).

In: Accounting

Five years ago, a company was considering the purchase of 65 new diesel trucks that were...

Five years ago, a company was considering the purchase of 65 new diesel trucks that were 14.78% more fuel-efficient than the ones the firm is now using. The company uses an average of 10 million gallons of diesel fuel per year at a price of $1.25 per gallon. If the company manages to save on fuel costs, it will save $1.875 million per year (1.5 million gallons at $1.25 per gallon). On this basis, fuel efficiency would save more money as the price of diesel fuel rises (at $1.35 per gallon, the firm would save $2.025 million in total if he buys the new trucks).

Consider two possible forecasts, each of which has an equal chance of being realized. Under assumption #1, diesel prices will stay relatively low; under assumption #2, diesel prices will rise considerably. The 65 new trucks will cost the firm $5 million. Depreciation will be 25.05% in year 1, 38.25% in year 2, and 36.02% in year 3. The firm is in a 40% income tax bracket and uses a 11% cost of capital for cash flow valuation purposes. Interest on debt is ignored. In addition, consider the following forecasts:

Forecast for assumption #1 (low fuel prices):

Price of Diesel Fuel per Gallon

Prob. (same for each year)

Year 1

Year 2

Year 3

0.1

$0.81

$0.9

$1.01

0.2

$1.01

$1.11

$1.11

0.3

$1.09

$1.21

$1.31

0.2

$1.29

$1.44

$1.45

0.2

$1.4

$1.58

$1.62

Forecast for assumption #2 (high fuel prices):

Price of Diesel Fuel per Gallon

Prob. (same for each year)

Year 1

Year 2

Year 3

0.1

$1.2

$1.52

$1.73

0.3

$1.3

$1.72

$1.99

0.4

$1.81

$2.32

$2.49

0.2

$2.19

$2.5

$2.81

Required: Calculate the percentage change on the basis that an increase would take place from the NPV under assumption #1 to the probability-weighted (expected) NPV.

Answer% Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places (for example: 28.31%).

Note: The educational purpose of this problem targets the students’ ability to read + follow instructions.

Further Information (solution steps):

  • Step (1): Calculate the annual expected price of diesel per gallon under each assumption, based on the probabilities outlined in the inputs section.
  • Step (2): Using the annual expected fuel prices calculated in step (1), determine the increase in annual savings created by the proposed efficiency for each assumption.
  • Step (3): Find the increased cash flow after taxes (CFAT) for both forecasts, based on the annual increase in fuel savings determined in step (2) as the increase in earnings before depreciation and taxes (EBDT), and the starting point from which profit is calculated for each assumption. As part of this step, you must establish annual depreciation (remember: depreciation is a noncash charge).
  • Step (4): Considering the increased annual CFAT produced in step (3), calculate the NPV of the truck purchases for each assumption, based on the discount rate (cost of capital) indicated in the inputs section
  • Step (5): In view of the outcomes produced in step (4), estimate the combined NPV weighed by the probability of each assumption.
  • Step (6): Finally, calculate the percentage difference hypothesizing that an increase took place starting from the NPV for assumption #1 to the combined NPV worked out in step (5).

In: Finance

Five years ago, a company was considering the purchase of 74 new diesel trucks that were...

Five years ago, a company was considering the purchase of 74 new diesel trucks that were 15.13% more fuel-efficient than the ones the firm is now using. The company uses an average of 10 million gallons of diesel fuel per year at a price of $1.25 per gallon. If the company manages to save on fuel costs, it will save $1.875 million per year (1.5 million gallons at $1.25 per gallon). On this basis, fuel efficiency would save more money as the price of diesel fuel rises (at $1.35 per gallon, the firm would save $2.025 million in total if he buys the new trucks).

Consider two possible forecasts, each of which has an equal chance of being realized. Under assumption #1, diesel prices will stay relatively low; under assumption #2, diesel prices will rise considerably. The 74 new trucks will cost the firm $5 million. Depreciation will be 25.35% in year 1, 38.81% in year 2, and 36.55% in year 3. The firm is in a 39% income tax bracket and uses a 10% cost of capital for cash flow valuation purposes. Interest on debt is ignored. In addition, consider the following forecasts:

Forecast for assumption #1 (low fuel prices):

Price of Diesel Fuel per Gallon

Prob. (same for each year)

Year 1

Year 2

Year 3

0.1

$0.83

$0.93

$1.02

0.2

$1.01

$1.11

$1.13

0.3

$1.12

$1.21

$1.3

0.2

$1.31

$1.45

$1.47

0.2

$1.4

$1.57

$1.62

Forecast for assumption #2 (high fuel prices):

Price of Diesel Fuel per Gallon

Prob. (same for each year)

Year 1

Year 2

Year 3

0.1

$1.21

$1.49

$1.72

0.3

$1.31

$1.7

$2.01

0.4

$1.82

$2.32

$2.53

0.2

$2.19

$2.49

$2.79

Required: Calculate the percentage change on the basis that an increase would take place from the NPV under assumption #1 to the probability-weighted (expected) NPV.

Answer% Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places (for example: 28.31%).

Note: The educational purpose of this problem targets the students’ ability to read + follow instructions.

Further Information (solution steps):

  • Step (1): Calculate the annual expected price of diesel per gallon under each assumption, based on the probabilities outlined in the inputs section.
  • Step (2): Using the annual expected fuel prices calculated in step (1), determine the increase in annual savings created by the proposed efficiency for each assumption.
  • Step (3): Find the increased cash flow after taxes (CFAT) for both forecasts, based on the annual increase in fuel savings determined in step (2) as the increase in earnings before depreciation and taxes (EBDT), and the starting point from which profit is calculated for each assumption. As part of this step, you must establish annual depreciation (remember: depreciation is a noncash charge).
  • Step (4): Considering the increased annual CFAT produced in step (3), calculate the NPV of the truck purchases for each assumption, based on the discount rate (cost of capital) indicated in the inputs section
  • Step (5): In view of the outcomes produced in step (4), estimate the combined NPV weighed by the probability of each assumption.
  • Step (6): Finally, calculate the percentage difference hypothesizing that an increase took place starting from the NPV for assumption #1 to the combined NPV worked out in step (5).

In: Accounting

Five years ago, a company was considering the purchase of 77 new diesel trucks that were...

Five years ago, a company was considering the purchase of 77 new diesel trucks that were 15.45% more fuel-efficient than the ones the firm is now using. The company uses an average of 10 million gallons of diesel fuel per year at a price of $1.25 per gallon. If the company manages to save on fuel costs, it will save $1.875 million per year (1.5 million gallons at $1.25 per gallon). On this basis, fuel efficiency would save more money as the price of diesel fuel rises (at $1.35 per gallon, the firm would save $2.025 million in total if he buys the new trucks).

Consider two possible forecasts, each of which has an equal chance of being realized. Under assumption #1, diesel prices will stay relatively low; under assumption #2, diesel prices will rise considerably. The 77 new trucks will cost the firm $5 million. Depreciation will be 25.2% in year 1, 38.48% in year 2, and 36.34% in year 3. The firm is in a 40% income tax bracket and uses a 10% cost of capital for cash flow valuation purposes. Interest on debt is ignored. In addition, consider the following forecasts:

Forecast for assumption #1 (low fuel prices):

Price of Diesel Fuel per Gallon

Prob. (same for each year)

Year 1

Year 2

Year 3

0.1

$0.79

$0.92

$1.01

0.2

$0.99

$1.13

$1.12

0.3

$1.12

$1.2

$1.3

0.2

$1.31

$1.44

$1.44

0.2

$1.4

$1.57

$1.6

Forecast for assumption #2 (high fuel prices):

Price of Diesel Fuel per Gallon

Prob. (same for each year)

Year 1

Year 2

Year 3

0.1

$1.22

$1.51

$1.7

0.3

$1.3

$1.71

$2.02

0.4

$1.82

$2.33

$2.49

0.2

$2.21

$2.5

$2.79

Required: Calculate the percentage change on the basis that an increase would take place from the NPV under assumption #1 to the probability-weighted (expected) NPV.

Answer
% Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places (for example: 28.31%).

Note: The educational purpose of this problem targets the students’ ability to read + follow instructions.

Further Information (solution steps):

Step (1): Calculate the annual expected price of diesel per gallon under each assumption, based on the probabilities outlined in the inputs section.

Step (2): Using the annual expected fuel prices calculated in step (1), determine the increase in annual savings created by the proposed efficiency for each assumption.

Step (3): Find the increased cash flow after taxes (CFAT) for both forecasts, based on the annual increase in fuel savings determined in step (2) as the increase in earnings before depreciation and taxes (EBDT), and the starting point from which profit is calculated for each assumption. As part of this step, you must establish annual depreciation (remember: depreciation is a noncash charge).

Step (4): Considering the increased annual CFAT produced in step (3), calculate the NPV of the truck purchases for each assumption, based on the discount rate (cost of capital) indicated in the inputs section

Step (5): In view of the outcomes produced in step (4), estimate the combined NPV weighed by the probability of each assumption.

Step (6): Finally, calculate the percentage difference hypothesizing that an increase took place starting from the NPV for assumption #1 to the combined NPV worked out in step (5).

In: Finance

Five years ago, a company was considering the purchase of 65 new diesel trucks that were...

Five years ago, a company was considering the purchase of 65 new diesel trucks that were 14.73% more fuel-efficient than the ones the firm is now using. The company uses an average of 10 million gallons of diesel fuel per year at a price of $1.25 per gallon. If the company manages to save on fuel costs, it will save $1.875 million per year (1.5 million gallons at $1.25 per gallon). On this basis, fuel efficiency would save more money as the price of diesel fuel rises (at $1.35 per gallon, the firm would save $2.025 million in total if he buys the new trucks).

Consider two possible forecasts, each of which has an equal chance of being realized. Under assumption #1, diesel prices will stay relatively low; under assumption #2, diesel prices will rise considerably. The 65 new trucks will cost the firm $5 million. Depreciation will be 25.44% in year 1, 38.22% in year 2, and 36.45% in year 3. The firm is in a 39% income tax bracket and uses a 11% cost of capital for cash flow valuation purposes. Interest on debt is ignored. In addition, consider the following forecasts:

Forecast for assumption #1 (low fuel prices):

Price of Diesel Fuel per Gallon

Prob. (same for each year)

Year 1

Year 2

Year 3

0.1

$0.8

$0.89

$1.02

0.2

$1.01

$1.1

$1.11

0.3

$1.1

$1.21

$1.31

0.2

$1.29

$1.47

$1.45

0.2

$1.4

$1.54

$1.61

Forecast for assumption #2 (high fuel prices):

Price of Diesel Fuel per Gallon

Prob. (same for each year)

Year 1

Year 2

Year 3

0.1

$1.22

$1.53

$1.71

0.3

$1.33

$1.71

$2

0.4

$1.8

$2.32

$2.52

0.2

$2.2

$2.51

$2.81

Required: Calculate the percentage change on the basis that an increase would take place from the NPV under assumption #1 to the probability-weighted (expected) NPV.

Answer% Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places (for example: 28.31%).

Further Information (solution steps):

  • Step (1): Calculate the annual expected price of diesel per gallon under each assumption, based on the probabilities outlined in the inputs section.
  • Step (2): Using the annual expected fuel prices calculated in step (1), determine the increase in annual savings created by the proposed efficiency for each assumption.
  • Step (3): Find the increased cash flow after taxes (CFAT) for both forecasts, based on the annual increase in fuel savings determined in step (2) as the increase in earnings before depreciation and taxes (EBDT), and the starting point from which profit is calculated for each assumption. As part of this step, you must establish annual depreciation (remember: depreciation is a noncash charge).
  • Step (4): Considering the increased annual CFAT produced in step (3), calculate the NPV of the truck purchases for each assumption, based on the discount rate (cost of capital) indicated in the inputs section
  • Step (5): In view of the outcomes produced in step (4), estimate the combined NPV weighed by the probability of each assumption.
  • Step (6): Finally, calculate the percentage difference hypothesizing that an increase took place starting from the NPV for assumption #1 to the combined NPV worked out in step (5).

In: Finance

Operating Section of Statement of Cash Flows (Indirect Method) Assume following are the income statement and...

Operating Section of Statement of Cash Flows (Indirect Method)
Assume following are the income statement and balance sheet for Nike for the year ended May 31, 2012, and a forecasted income statement and balance sheet for 2013.

Income Statement
($ millions) 2012 actual 2013 Est.
Revenues $ 18,627.0 $ 21,253.0
Cost of sales 10,239.6 11,689.0
Gross margin 8,387.4 9,564.0
Selling and administrative expense 5,953.7 6,801.0
Operating profit 2,433.7 2,763.0
Interest income, net 77.1 77.1
Other (expense) income, net (7.9) (7.9)
Income before income taxes 2,502.9 2,832.2
Income taxes 619.5 684.0
Net income $ 1,883.4 $ 2,148.2
Balance Sheet
($ millions) 2012 actual 2013 Est.
Assets
Cash and equivalents $ 2,162.9 $ 3,355.4
Short-term investments 642.2 642.2
Accounts receivable, net 2,759.3 3,188.0
Inventories 2,438.4 2,740.0
Deferred income taxes 227.2 259.0
Prepaid expenses and other current assets 609.3 680.0
Total current assets 8,839.3 10,864.6
Property, plant and equipment* 4,103.0 4,613.0
Accumulated depreciation (2,211.9) (2,556.9)
Property, plant and equipment, net 1,891.1 2,056.1
Goodwill and other current assets 1,191.9 1,152.9
Deferred income taxes and other assets 520.4 594.0
Total Assets $ 12,442.7 $ 14,667.6
Liabilities and Equity
Current portion of long-term debt $ 6.3 $ 31.3
Notes payable 177.7 107.7
Accounts payable 1,287.6 1,488.0
Accrued liabilities 1,761.9 2,027.0
Income taxes payable 88.0 140.0
Total current liabilities 3,321.5 3,794.0
Long-term debt 441.1 408.8
Deferred income taxes and other liabilities 854.5 976.0
Total liabilities 4,617.1 5,178.8
Redeemable preferred stock 0.3 0.3
Common stock 2.8 2.8
Capital in excess of stated value 2,497.8 2,497.8
Accumulated other comprehensive income 251.4 251.4
Retained earnings 5,073.3 6,736.5
Stockholders' equity 7,825.6 9,488.8
Total liabilities and equity $ 12,442.7 $ 14,667.6

* Gross property, plant and equipment and accumulated depreciation are inserted in the balance sheet; both are taken from footnotes to the financial statements.

Prepare the net cash flows from operating activities section of a forecasted statement of cash flows for 2013 using the indirect method. Treat current and noncurrent deferred tax assets and liabilities as operating. Operating expenses (such as Cost of sales and Selling and administrative expense) for 2013 include estimated depreciation expense of $309 million and amortization expense of $39 million. Estimated 2013 retained earnings includes dividends of $467 million.

Enter answers using one decimal place as shown in the above financial statements.

Use negative signs with answers to show a decrease in cash.

Nike, Inc.
STATEMENT OF CASH FLOWS ($ MILLIONS)
Forecasted FOR YEAR ENDED May 31, 2013
Net income $Answer
Add (Deduct) Items to Convert Net Income to Cash Basis
Depreciation Answer
Amortization Answer
Accounts receivable Answer
Inventories Answer
Deferred Income taxes Answer
Prepaid expenses and other current assets Answer
Deferred income taxes and other assets Answer
Accounts payable Answer
Accrued liabilities Answer
Income taxes payable Answer
Deferred income taxes and other liabilities Answer
Net cash flow from operating activities $Answer

In: Accounting

Question 1 (1 point) Airline companies recognize that empty seats represent lost revenues that can never...

Question 1 (1 point)

Airline companies recognize that empty seats represent lost revenues that can never be recovered. To avoid losing revenues, the companies often book more passengers than there are available seats. Then, when a flight experiences fewer no-shows than expected, some passengers are 'bumped' from their flights (are denied boarding). Incentives are provided to encourage passengers to give up their reserved seat voluntarily, but occasionally some passengers are involuntarily bumped from the flight. Obviously, these incidents can reflect poorly on customer satisfaction. Suppose Southwest Airlines would like to estimate the true proportion of involuntarily bumped passengers across all domestic flights in the industry. In a pilot sample of 863 domestic passengers, 259 were involuntarily bumped. What is the estimate of the population proportion and what is the standard error of this estimate?

Question 1 options:

1)

 The true population proportion is needed to calculate this.

2)

 Estimate of proportion: 0.3, Standard error: 0.0156.

3)

 Estimate of proportion: 0.7, Standard error: 0.0005.

4)

 Estimate of proportion: 0.7, Standard error: 0.0156.

5)

 Estimate of proportion: 0.3, Standard error: 0.0005.

Question 2 (1 point)

Approximately 43.73% of all businesses are owned by women. If you take a sample of 180 businesses in Michigan, what is the probability that less than 45.32% of them would be owned by women?

Question 2 options:

1)

 0.6664

2)

 0.3336

3)

 9.8370

4)

 0.5000

5)

 >0.999

Question 3 (1 point)

Fill in the blank. In a drive thru performance study, the average service time for McDonald's is 217.32 seconds with a standard deviation of 8.5 seconds. A random sample of 62 times is taken. There is a 26% chance that the average drive-thru service time is greater than ________ seconds.

Question 3 options:

1)

 There is not enough information to determine this.

2)

 211.85

3)

 222.79

4)

 218.01

5)

 216.63

Question 4 (1 point)

Experimenters injected a growth hormone gene into thousands of carp eggs. Of the 289 carp that grew from these eggs, 23 incorporated the gene into their DNA (Science News, May 20, 1989). With a confidence of 90%, what is the margin of error for the proportion of all carp that would incorporate the gene into their DNA?

Question 4 options:

1)

 0.0261

2)

 0.0015

3)

 0.0204

4)

 0.0159

5)

 0.0004

Question 5 (1 point)

You are interested in getting an investment portfolio started with any extra money you make from your part time job while also going to school. While flipping through the latest edition of Money magazine, you read an article that of a survey of magazine subscribers, 179 were randomly selected and analyzed. A 99% confidence interval was constructed for the proportion of all subscribers who made money in the previous year in their investments, which was ( 0.7216 , 0.8762 ). What is the correct interpretation of this confidence interval?

Question 5 options:

1)

 We are 99% confident that of the 179 respondents, between 0.7216 and 0.8762 of them made more than they lost.

2)

 We are certain that 99% of subscribers made between 0.7216 and 0.8762.

3)

 We cannot determine the proper interpretation of this interval.

4)

 We are 99% confident that the proportion of all Money magazine subscribers sampled that made money in the previous year from their investments is between 0.7216 and 0.8762.

5)

 We are 99% confident that the proportion of all Money magazine subscribers that made money in the previous year from their investments is between 0.7216 and 0.8762.

In: Statistics and Probability

Kerry Manufacturing Company is a German subsidiary of a U.S. company. Kerry records its operations and...

Kerry Manufacturing Company is a German subsidiary of a U.S. company. Kerry records its operations
and prepares financial statements in euros. However, its functional currency is the British pound.
Kerry was organized and acquired by the U.S. company on June 1, 20X4. The cumulative translation
adjustment as of December 31, 20X6, was $79,860. The value of the subsidiary's retained earnings expressed
in British pounds and U.S. dollars as of December 31, 20X7, was 365,000 pounds and $618,000, respectively.
On March 1, 20X7, Kerry declared a dividend of 120,000 euros. The trial balance of Kerry in euros as of
December 31, 20X7, is as follows:
Debit Credit
Cash 240,000
Accounts Receivable (net) 2,760,000
Inventory (at cost) 3,720,000
Marketable Securities (at cost) 2,040,000
Prepaid Insurance 210,000
Depreciable Assets 8,730,000
Accumulated Depreciation 1,417,000
Cost of Goods Sold 17,697,000
Selling, General, and
     Administrative Expense 4,762,000
Sales Revenue 26,430,000
Investment Income 180,000
Accounts Payable 2,120,000
Unearned Sales Revenue 960,000
Loans and Mortgage Payable 5,872,000
Common Stock 1,500,000
Paid-in Capital in Excess of Par 210,000
Retained Earnings                    1,470,000
     Total 40,159,000 40,159,000
The marketable securities were acquired on November 1, 20X6, and the prepaid insurance was acquired on
December 1, 20X7. The cost of goods sold and the ending inventory are calculated by the weighted-average
method.
The following items are measured in pound at the December 31, 20x7.
Euros Pounds
Accumulated depreciation
Depreciable Assets 8,730,000 2,671,380
Cost of Goods Sold 17,697,000 5,262,294
Selling, General, Admin. Expense 4,762,000 1,415,886
Accumulated Depreciation 1,417,000 773,915
Sales Revenue 26,430,000 7,866,030
On November 1, 20X6, Kerry received a customer prepayment valued at 3,000,000 euros. On February 1, 3000000
20X7, 2,040,000 euros of the prepayment was earned. The balance remains unearned as of December 31, 2040000
20X7. 960000
Relevant exchange rates are as follows:
Pounds/Euro $/Pound
June 1, 20X4 0.31 $1.60
March 1, 20X6 0.3 $1.64
November 1, 20X6 0.305 $1.65
December 31, 20X6 0.31 $1.68
February 1, 20X7 0.302 $1.67
March 1, 20X7 0.3 $1.66
December 1, 20X7 0.29 $1.64
December 31, 20X7 0.288 $1.64
20X7 average 0.297 $1.66
Required:
Prepare a remeasured and translated trial balance of the Kerry Manufacturing
Company as of December 31, 20X7.
ANS:
Kerry Manufacturing Company
Trial Balance Translation
December 31, 20X7
Relevant Relevant
Exchange Exchange
Balance in Rate Balance in Rate Balance in
Account Euros (Pds/Euros) Pounds ($/Pds) Dollars
Cash 240,000
Accounts Receivable (net) 2,760,000
Inventory (at cost) 3,720,000
Marketable Securities (at cost) 2,040,000
Prepaid Insurance 210,000
Depreciable Assets 8,730,000
Cost of Goods Sold 17,697,000
Selling, General, Admin. Expense 4,762,000
Exchange Loss                   
Total Debits 40,159,000 12,183,001 20,117,316
Accumulated Depreciation 1,417,000
Sales Revenue 26,430,000
Investment Income 180,000
Accounts Payable 2,120,000
Unearned Sales Revenue 960,000
Loans and Mortgage Payable 5,872,000
Common Stock 1,500,000
Paid-in Capital in Excess of Par 210,000
Retained Earnings 1,470,000
Cumulative Translation
   Adjustment                    0 -19,392
Total Credits 40,159,000 12,183,001 20,117,316

In: Accounting

Modern Kitchens specializes on sell prefabricated kitchens. The company has stores in all major capital cities...

Modern Kitchens specializes on sell prefabricated kitchens. The company has stores in all major capital cities throughout Australia. It’s been established since 2001 and has seen tremendous growth but more recently has seen several overseas competitors enter the Australian market resulting in an increase in competition. This increased competition has placed significant pressure on containing costs and drawn management’s attention to a review of working capital practices. Detailed below are relevant figures and ratios to assist you in evaluating Modern Kitchen’s working capital management.
Working Capital Ratios 2016 2017 2018 2019
Accounts Receivable Days 14.0 days 18.1 days 23.1 days 31.9 days
Inventory Days 16.0 days 19.1 days 21.9 days 25.0 days
Accounts Payable Days 14.1 days 21. days 29.0 days 37.0 days
Note: Ratios are based on assuming end year figures are the average throughout the majority of the year
Extracts from Financial Statements
Cash on hand 0.20 mill 0.15 mill .01 mill (.003 mill)
Sales – all on credit 8.1 mill 6.9 mill 8.0 mill 9.0 mill
Accounts Receivable Balance 0.3069 mill 0.3453 mill 0.5044 mill 0.7894 mill
Inventory 0.1754 mill 0.2186 mill 0.2712 mill 0.3219 mill
Cost of Goods Sold 4.0 mill 4.2 mill 4.5 mill 4.7 mill
Accounts Payable 0.1534 mill 0.2417 mill 0.3574 mill 0.4762mill
Budgeted Figures
Cash on hand 0.3 mill 0.3 mill 0.31 mill 0.32 mill
Accounts Receivable Balance 0.30 mill 0.31 mill 0.37 mill 0.38 mill
Inventory Balance 0.16 mill 0.17 mill 0.20 mill 0.21 mill
Accounts Payable 0.16 mill 0.17 mill .19 mill 0.20 mill
Accounts Receivable Terms 14 days 14 days 14 days 14 days
Accounts Payable Terms 30 days 30 days 30 days 30 days
Industry Averages
Accounts Receivable Days 14 days 14 days 15 days 16 days
Inventory Days 15 days 16 days 16 days 15 days
Accounts Payable Days 30 days 28 days 25 days 20 days
REQUIRED:
Calculate (show full workings to your answer):
(i)  the dollar value of actual net working capital each year from 2016 to 2019 for Modern Kitchens.
(ii) the duration of the operating cash cycle each year from 2016 to 2019 for Modern Kitchens.
(iii) interpret the meaning of each of the figures calculated above (40-word limit)
(a) Review Modern Kitchens’s working capital management performance utilizing calculations in (a) above and information provided such as trends / benchmark figures / industry averages and budgets (300-word limit).

(b)  Once you have analyzed their performance, provide some strategies and recommendations to assist in improving any weaknesses in working capital management referring to the management of components of working capital including cash, inventory, accounts receivable and accounts payable. As part of your recommendations identify the associated potential benefits and costs of each recommendation. (400-word limit)

In: Finance