A company is thinking about changing its credit policy to attract customers away from competitors. The present policy calls for a 1.37/10, net 30 cash discount. The new policy would call for a 3.48/10, net 50 cash discount. Currently, 21% of its customers are taking the discount, and it is anticipated that this number would go up to 60% with the new discount policy. It is further anticipated that annual sales would increase from a level of $427k to $686k as a result of the change in the cash discount policy. The average inventory carried by the firm is based on an EOQ. Assume sales increase from 16k to 21.3k units. The ordering cost for each order is $200 and the carrying cost per unit is $1.82 – these values will not change with the discount. Each unit in inventory has an average cost of $11. Cost of goods sold equates to 69% of net sales, general and administrative expenses are 16% of net sales, and interest payments of 14% will only be necessary for the increase in the accounts receivable and inventory balances*(see information below). Taxes will be 36% of before-tax income. Note: The term “k” is used to represent thousands (× $1,000).

Required: Calculate the percentage in earnings after taxes (EAT) between the current policy (before the discount) and the new policy (after the discount).

1) Rainbow Ltd. manufactures two industrial compounds. In the month of May, 15,000 litres of direct material costing $160,000 were processed at a cost of $400,000. The joint process yielded 16,000 containers of a compound known as Jarlon and 4,000 containers of a compound known as Kharton. The respective selling prices of Jarlon and Kharton are $38 and $58. Both products may be processed further. Jarlon may be processed into Jaxton at an incremental cost of $8 per jar of the final product while Kharton may be processed into Kraxton at an additional cost of $32 per jar of the final product. The volume of jars of the final product are: 12,000 and 3,000 for Jaxton and Kraxton respectively. The selling price of Jaxton is $48 per jar. The selling price of Kraxton is $102 per jar.

A) Using the sales value at splitoff method, the percentage weightings for joint cost allocations for Jarlon and Kharton respectively are?

B) Using the sales value at splitoff, the joint costs allocated to Jarlon would be?

C) Using the sales value at splitoff method, the joint costs allocated to Kharton would be?

D) Assuming Cranbrook uses the sales value at splitoff method and 2,000 containers of Jarlon and 75 containers of Kharton are unsold at the end of the period, Cranbrook would report ending inventory of?

Suppose that you are again working for your state government but that instead of working on health and human services issues, you are running the highway department. Your state turnpike is in poor shape, with large potholes and crumbling shoulders that slow down traffic and pose an accident risk. You have been charged by the governor with the task of considering whether the state should invest in repairing this road assuming it will last for 100 years.

The data for the project is indicated in the Table below. Note that all values are in nominal dollar terms (actual market values).

Benefit and Cost:                        

Making improvements will require the following inputs:

1. Initial cost: 1 million bags of asphalt, $100/bag;
2. Initial cost: 1 million hours of construction labor (500 workers for 2,000 hours each), at $20/hour
3. $10 million per year in the future for maintenance costs

There are two main benefits to these road improvements:

1. Driving time for producers (trucks) and consumers will be reduced by 500,000 hours per year. Hourly value is $19/hour.
2. The road will be safer, resulting in five fewer fatalities per year. The estimated life value (using wages) is $8.7 million/life.

Question 1: What is the net present value of the investment at 5%, 7%, and 10%? Should the project be undertaken?

Question 2: Now assume that the maintenance cost is increasing at the rate of 5% per year in nominal terms. Hourly value of the reduced driving time is rising at 2% per year in nominal terms. Life values increase by 1% per year in nominal terms. The inflation rate is 2% per annum. All annual values accrue at the end of each year. Assume the nominal discount rate is 7%.

1. What is the real discount rate?
2. What is the Net Annual Worth (annualized net benefit) of this project?
3. What is the net present value? Should the project be undertaken?

Suppose that you are working for the state highway department. The state turnpike is in poor shape, with large potholes and crumbling shoulders that slow down traffic and pose an accident risk. The governor has charged you with the task of considering whether the state should invest in repairing this road, assuming it will last for 100 years.

The data for the project is indicated in the Table below. Note that all values are in nominal dollar terms (actual market values).

Benefit and Cost:                        

Making improvements will require the following inputs:

1. Initial cost: 1 million bags of asphalt, $100/bag;
2. Initial cost: 1 million hours of construction labor (500 workers for 2,000 hours each), at $20/hour
3. $10 million per year in the future for maintenance costs

There are two main benefits to these road improvements:

1. Driving time for producers (trucks) and consumers will be reduced by 500,000 hours per year. Hourly value is $19/hour.
2. The road will be safer, resulting in five fewer fatalities per year. The estimated life value (using wages) is $8.7 million/life.

Question 1: What is the net present value of the investment at 5%, 7%, and 10%? Should the project be undertaken?

Question 2: Now assume that the maintenance cost is increasing at the rate of 5% per year in nominal terms. Hourly value of the reduced driving time is rising at 2% per year in nominal terms. Life values increase by 1% per year in nominal terms. The inflation rate is 2% per annum. All annual values accrue at the end of each year. Assume the nominal discount rate is 7%.

1. What is the real discount rate?
2. What is the Net Annual Worth (annualized net benefit) of this project?
3. What is the net present value? Should the project be undertaken?

A US multinational corporation (MNC) is evaluating a capital project for a Brazilian subsidiary. Project cost is 400 Million Brazilian Real (BR). 300 Million will be financed by debt and the remaining 100 Million by issuing equity. The benchmark 3-year Brazilian Treasury note is at 4.24% and the current corporate tax rate is 34%. The Brazilian Bovespa stock market index is up 31.58 % for the year, the firm decides to use this data.

The firm can borrow (pre-tax) in the Brazilian markets at 76 basis points (bps) over the 3-year Treasury rate. They compute a beta coefficient for their Brazilian market at 1.5.

1. Based on the above assumptions, compute the weights for debt and equity for the project. Each weight is the percentage of the capital devoted to each financing method.
   1. Debt: 0.75
   2. Equity: 0.25
2. Based on the above statistics, compute the after-tax cost of debt for the project.
   1. Cost of Debt = 5% (4.24 + .76)
   2. After Tax Cost of Debt = 0.033 (0.05 * ( 1 - .34))
   3. Interest Expense = 9.9 million (0.033 * 300mil)
   4. After Tax Cost of Debt = 6.534 million (9.9 * (1-0.34))
3. Using the CAPM, compute the cost of equity for the project.
4. Based on your answers in a, b and c, compute the WACC for the Brazilian project. (Round to 4 places).
5. The firm does an internal study and computes the internal rate of return on the project at 15%. Based on your answer in d, should the firm proceed with the project based on IRR and WACC? Explain your decision.
6. The current exchange rate is 4.24 Brazilian Real/USD 1. If he firm translated the cost of the project into home currency (USD) at this rate, what dollar cost would they book it at?

Annenbaum Corporation uses the weighted-average method in its process costing system. This month, the beginning inventory in the first processing department consisted of 400 units. The costs and percentage completion of these units in beginning inventory were:

A total of 6,500 units were started and 5,900 units were transferred to the second processing department during the month. The following costs were incurred in the first processing department during the month:

The ending inventory was 50% complete with respect to materials and 35% complete with respect to conversion costs.

The cost per equivalent unit for conversion costs for the first department for the month is closest to:

Multiple Choice

$30.99

$35.92

$33.12

$34.21

2.

Sumter Corporation uses the weighted-average method in its process costing system. The following data pertain to operations in the first processing department for a recent month:

What was the cost per equivalent unit for conversion during the month?

Multiple Choice

$5.45

$6.95

$4.00

$3.05

A car insurance company would like to determine the proportion of accident claims covered by the company. According to a preliminary estimate, 60 percent of the claims are covered. How large a sample should be taken to estimate the proportion of accident claims covered by the company if we want to be 98 percent confident that the sample percentage is within ±3 percent of the actual percentage of the accidents covered by the insurance company?

In a study of the accuracy of fast food​ drive-through orders, Restaurant A had 284 accurate orders and 67 that were not accurate. a. Construct a 90​% confidence interval estimate of the percentage of orders that are not accurate. b. Compare the results from part​ (a) to this 90​% confidence interval for the percentage of orders that are not accurate at Restaurant​ B: 0.172 < p< 0.237. What do you​ conclude? Please help.