Sandra and Michael Wilson are the parents of Rory who just turned 5 years old (coincidentally on the same date that primary, secondary and university academic years commence). They own a four-bedroom home in Edinburgh. Sandra is a partner in a local dental practice and Michael is a stay at home dad. Sandra earns £100,000 a year (after tax).

Now that Rory is starting primary school, thoughts have turned to saving for his education. Rory is enrolled to attend a state (i.e. non fee-paying) primary school. The Wilsons plan to send Rory to a private secondary school (when he turns 11). The school is prestigious and its fees are set accordingly. Currently tuition is £20,000 per school year and are projected to rise at the rate of inflation. Currently around 2% per annum.

The Wilsons hope that Rory will subsequently attend their alma mater, Oxford University when he turns 18. Most undergraduate courses at Oxford have a four academic year duration. Undergraduate fees at Oxford are currently £9250 per annum and are projected to rise faster than inflation, at a rate of 4% per annum. In addition, as Rory would be living away from home if he attended Oxford, his parents envisage that his living costs (primarily student accommodation and food) would amount to £10,000 per annum (expressed in today’s prices). These living costs are projected to increase at the rate of inflation, 2% per annum.

Using a discount rate of 7%, what is the present value of the combined projected spend on Rory’s private school fees, university tuition and living costs? (Assume that all fees and living costs are incurred at the beginning of each academic year e.g. Rory’s first school fee invoice will arrive in exactly 6 years which coincides with his first day at secondary school when he turns 11).

The Wilsons plan to fund the expenditure on private school fees from Sandra’s income. They would however like to start investing today in a fund that would be used to pay Rory’s university fees and living costs. They would like to make an equal annual payment into that fund every year (starting in one years’ time) with a view to accumulating £120,000 by Rory’s 18th birthday. This £120,000 would then be drawn down over Rory’s time at Oxford to meet expenses as they come due.

How much money would they have to deposit into the fund every year (with the first payment one year from now) to meet that target assuming a conservative fund return estimate of 3% a year. Will the accumulated amount be enough to cover the joint fees and living costs during Rory’s time at Oxford?

The Arm & Hammer^® product—sodium bicarbonate—was introduced in the US in 1846 as “baking soda.” For the next 100 years, Arm & Hammer^® was a staple in the typical American home.

Church & Dwight Company, a publically traded company, is the parent company of the Arm & Hammer^® product line. Although originally used only for baking purposes, the company has leveraged the other key attributes of basic baking soda (cleaning and deodorizing benefits) into numerous applications.

The first Arm & Hammer^® detergent was introduced as early as 1970. In 1972, the product benefits expanded to use inside the refrigerator and freezer to eliminate odors. By 2005, the Arm & Hammer^® product line included laundry detergent, carpet deodorizers, Dental Care^® products, cat litter, Clear Balance^® pool maintenance tablets; and CleanShower^® for the bathroom.

In addition, line filling was accomplished through acquisitions of companies like USA Detergents, Carter-Wallace, Inc., and Orange Glo International. These acquired product lines allowed Arm & Hammer^® to expand their product line further into the personal care and household product segments.

In 1995, Church & Dwight Co., Inc. reported annual sales of $600 million. Their 2007 annual report reflects annual sales of $2.22 billion—40% of which is generated by Arm & Hammer products. Church & Dwight Company divides their product lines into three segments: consumer domestic, consumer international, and special product division (B2B). In 2007, consumer domestic (of which Arm & Hammer^® is the major player) generated 71% of total revenues. Wal-Mart, Arm & Hammer’s^® leading retailer, produced 22% of total consumer domestic revenues.

Level 1: Qualitative Questions

1.   What is the core benefit of Arm & Hammer^® products?

2.   Would you consider Arm & Hammer^® to have a “full-line product strategy?”

3.   Would you consider Arm & Hammer products to be in direct competition with those offered by Proctor & Gamble? Why?

Level 2: Quantitative Questions

1.         In dollars, how important is the Wal-Mart relationship to the Arm & Hammer^® segment of Church & Dwight’s annual sales?

2.         Some marketing gurus warn that line expansions can dilute the brand. Do you feel this should be a concern for Arm & Hammer?

F. Jack comes to see you in February 2020. He is full of enthusiasm for a new product that he is about to launch on to the market. Unfortunately, his financial recklessness in the past has led him into being bankrupt twice, and he has only just been discharged by the court from his second bankruptcy. ‘Look here, Amben,’ he says, ‘with my new idea I’ll be a wealthy man before Christmas.’ ‘Calm down,’ you say, ‘and tell me all about it.’ Jack’s plans as far as cash is concerned for the next six months are:

(a) Opening cash (including bank) balance on 1 July 2020 £3,600

(b) Production in units:

(c) Raw materials used in production cost £15 per unit. Of this, 90 per cent is paid in the month of production and 10 per cent in the month after production.

(d) Direct labour costs of £24 per unit are payable in the month of production.

(e) Variable expenses are £6 per unit, payable 40 per cent in the same month as production and 60 per cent in the month following production.

(f) Sales at £60 per unit:

Debtors to pay their accounts three months after that in which sales are made.

(g) Fixed expenses of £1,200 per month payable each month.

(h) Machinery costing £6,000 to be paid for in September 2020. The machine has a useful life of 5 years and depreciation is computed using the reducing balance method.

(i) Will receive a legacy of £7,500 in November 2020 and will pay it into the business account.

(j) Drawings will be £900 per month.

You are required:

Draw up a cash budget for F. Jack showing the balance at the end of each month, from the above information for the six months ended 31 December 2020:

3. The labor supply and demand equations in Mexico and the US are Ndmex = 140 – 2 Wmex and Nsmex = 80 NdUS = 600 – 4 WUS and NsUS = 260 (Notice: To make the exercise simple, we are assuming that the labor supply curves are perfectly vertical at 80 in México and at 260 in the US). where Ndmex and NdUS are the number of workers demanded in Mexico and the US (in millions of workers). Wmex and WUS are the yearly wage rates in Mexico and the US (in thousands of dollars). Nsmex and NsUS are the number of workers supplied in Mexico and the US (in millions of workers).

a. What are the equilibrium wages in Mexico and the US.

b. Due to the higher US wages (see your answer to part a), millions of Mexican workers want to emigrate to the US. However, the US inmigration authorities issue work permits for only 10 million Mexican workers. How will this limited flow of Mexican workers affect wages both in Mexico and the US (hint: if these flows take place, how many workers will there be left in México, how many workers will there be in the US, i.e., how do the labor supply curves shift?).

c. If an unlimited flow of Mexican workers is allowed (free movement of labor across borders), at the end, wages will be equal in both countries (basically, in practice, there will be just one unified labor market). What would be this wage? How many Mexican workers will emigrate to the US? How many Mexican workers will be demanded in the US? At the end, how many workers will there be in México and the US? (Hint: Find the total labor supply and demand equations).

d. With the creation of a Free Trade Zone in North America between the US, Mexico and Canada (the NAFTA agreement), the demand for Mexican food (produced mainly using labor intensive techniques) will increase. This in turn, will increase the demand for labor in Mexico. Asume that the new demand for labor in Mexico is: Ndmex = 240 – 2 Wmex Suppose that at the same time, the Mexican government sets a minimum wage of 80. Discuss the effects of these two simultaneous events on the Mexican labor market.

e. The US authorities know that wages for unskilled labor in the US will go down with the immigration of Mexican workers to the US. Suppose that the US authorities want to keep US wages at 69. How many Mexican workers should be allowed to enter to the US (i.e., how many work permits should the US government issue)?

The labor supply and demand equations in Mexico and the US are

Ndmex = 140 – 2 Wmex and Nsmex = 80

NdUS = 600 – 4 WUS and NsUS = 260

(Notice: To make the exercise simple, we are assuming that the labor supply curves are perfectly vertical at 60 in México and at 260 in the US).

where Nd^mex and Nd^US are the number of workers demanded in Mexico and the US (in millions of workers). W^mex and W^US are the yearly wage rates in Mexico and the US (in thousands of dollars). Ns^mex and Ns^US are the number of workers supplied in Mexico and the US (in millions of workers).

a. What are the equilibrium wages in Mexico and the US.

b. Due to the higher US wages (see your answer to part a), millions of Mexican workers want to emigrate to the US. However, the US inmigration authorities issue work permits for only 10 million Mexican workers. How will this limited flow of Mexican workers affect wages both in Mexico and the US (hint: if these flows take place, how many workers will there be left in México, how many workers will there be in the US, i.e., how do the labor supply curves shift?).

c. If an unlimited flow of Mexican workers is allowed (free movement of labor across borders), at the end, wages will be equal in both countries (basically, in practice, there will be just one unified labor market). What would be this wage? How many Mexican workers will emigrate to the US? How many Mexican workers will be demanded in the US? At the end, how many workers will there be in México and the US? (Hint: Find the total labor supply and demand equations).

d. With the creation of a Free Trade Zone in North America between the US, Mexico and Canada (the NAFTA agreement), the demand for Mexican food (produced mainly using labor intensive techniques) will increase. This in turn, will increase the demand for labor in Mexico. Asume that the new demand for labor in Mexico is:

Nd^mex = 240 – 2 W^mex

Suppose that at the same time, the Mexican government sets a minimum wage of 90.

Discuss the effects of these two simultaneous events on the Mexican labor market.

e. The US authorities know that wages for unskilled labor in the US will go down with the immigration of Mexican workers to the US. Suppose that the US authorities want to keep US wages at 69. How many Mexican workers should be allowed to enter to the US (i.e., how many work permits should the US government issue)?

The Valley Wine Company produces two kinds of wine—Valley Nectar and Valley Red. The wines are produced from 64 tons of grapes the company has acquired this season. A 1000-gallon batch of Nectar requires 4 tons of grapes and a batch of Red requires 8 tons. However, production is limited by the availability of only 50 cubic yards of storage space for aging and 120 hours of processing time. A batch of each type of wine requires 5 cubic yards of storage space. The processing time for a batch of Nectar is 15 hours and the processing time for a batch of Red is 8 hours. Demand for the two types of wine is limited to 7 batches, each. The profit for a batch of Nectar is $9,000 and the profit for a batch of red is $12,000. The company wants to determine the number of 1,000--gallon batches of Nectar and Red to produce in order to maximize profit.

a. Formulate a linear programming model for this problem.

b. Use POM for windows to obtain the solutions list and results printouts for this problem.

c. Answer the questions below from the printouts you obtained in b above and submit both the printout and answers to the questions to Blackboard by the time and date specified.

1. How much is produced of each type of wine to maximize profits and what is the maximum profit?

2. How much of each type of resource is left over?

3. What is the value for an additional unit of each resource?

4. Over what ranges are the values in 3) above valid?

5. What is the profit-per-unit at which the production plan will change for each type of wine?

Evaluate the capital budgeting project using the traditional Net Present Value (NPV) approach and the Internal Rate of Return (IRR) criterion and present findings.

Find if this new proposal will turn out to be a good investment for his company.

Capital budgeting and investment proposal – a new product line of branded shirts that the committee was considering for launch. What would be the basis for calculating the after-tax operating cash flows for the capital project? How would you arrive at the depreciation and working capital requirements for computing the NPV? What would be the basis for calculating the terminal year cash flows?

Indian Retail Market The Indian retail market is at the cusp of a sweet spot driven by strong GDP (Gross Domestic Product) growth, benign inflation, and rising per capita income and purchasing power of consumers. Currently, the retail industry accounts for more than ten percent of the Indian Gross Domestic Product and approximately eight percent of employment. The industry is expected to nearly double, from US$ 600 billion in 2015 to US$ 1 trillion, by 2020 driven by income growth, urbanization, and attitudinal shifts (Indian Terrain Annual Report, 2015–16). It has been estimated that, by 2030, the Indian apparel market, in particular, is expected to grow at a CAGR (compounded annual growth rate) of approximately 10–12%, backed by increasing affordability on account of an increase in disposable incomes, increase in aspirations, and a shift from unbranded to branded products by the burgeoning middle class. This trend is likely to be further accentuated by the rise of e-commerce companies that enable shopping from anywhere, thereby leading to increased penetration in small cities and towns (Indian Terrain Annual Report, 2015–16).

Company Background: Case

Bhatia Textiles is a small, privately-owned clothing company based in New Delhi, India. It was founded in 1995 by Harish Bhatia, a retired executive. Since then, the company had grown steadily by catering to middle to low income consumers in the Delhi-National Capital Region (NCR). The company recorded stellar growth of 50% in its sales during the last financial year of 2015–16. With a healthy operating margin ratio and low leverage levels, the company had been able to grow its profits at a CAGR of 25% during the last 10 years. With a good brand name and healthy financial metrics, the company was now looking to expand its footprint to new product lines catering to middle to high income customers. Project Investment Proposal Details The project is estimated to be of 10 years duration. It involves setting up new machinery with an estimated cost of as much as INR 500 million, including installation. This amount could be depreciated using the straight-line method (SLM) over a period of 10 years with a resale value of INR 15 million. The project would require an initial working capital of INR 20 million with cumulative investment in net working capital to be maintained at 10% of each year’s projected revenue. With the planned new capacity, the company would be able to produce 240,000 pieces of shirts each year for the next 10 years. In terms of pricing, each shirt can initially be sold at INR 1,300 apiece, which takes into account the target segment and competitor pricing.

The project proposal incorporates an annual increase of 3% in the price of the shirt to compensate for the inflationary impact. With regards to the raw material costs and other expenses, the project estimated the following details: • Raw material cost for manufacturing shirts at INR 400 per shirt, slated to rise by 5% per annum on account of inflation. • Other direct manufacturing costs at INR 125 per shirt with an annual increase of 5% per annum on account of inflation. • Selling, general, and administrative expenses (including employee expenses) at INR 35 million per annum, expected to increase by 10% each year. • Depreciation expense on the basis of SLM. • Tax rate was assumed to be 25%. Funding For funding of the expansion project, the promoters agreed to infuse 50% in the form of equity with the rest (50%) being financed from issue of new debt. Based on the current credit position and market scenario, new debt can be raised by the company at 12% per annum. Cost of equity was assumed to be 15%. The requisite discounting rate or weighted average cost of capital (WACC) for NPV and IRR calculations can now be calculated with the help of the above assumptions.

Although the project proposal estimates maximum annual production of 240,000 shirts, find the capital budgeting analysis under two demand scenarios: Optimistic and Expected. The likely annual demand estimated under each scenario is as follows:

Scenario Annual demand

Optimistic 240,000 Shirts

Expected 200,000 Shirts

Question 1

On the basis of the financial information given in the case, calculate the after-tax operating cash flows, NPV, and IRR under the Optimistic and Expected scenarios. Clearly specify the calculations required for the same.

CVD Sdn Bhd (CVDSB) is a company located at Kedah. The company produces picture frames. Traditionally, all frames are hand-made, which require one hour of direct labor to finish producing one frame. With the increasing demand on their products, the company plans to switch their manufacturing layout to the automated production facility by installing a new automated production machine which will save the direct labor hour used by 25% per frame. The company plans to install a new machine on 1 March 2021.

In preparing the proposal for approval from top management regarding to the plan, the company is now preparing budget for the first quarter of year 2021. The following information are collected by the manager:

i. The labor related costs are as followings: a. Pension contributions of RM0.50 per hour b. Workers compensation insurance of RM0.20 per hour c. Employee medical insurance of RM0.80 per hour d. EPF contribution of 7% of direct labor wages.

ii. The cost of employee benefits paid by the company is treated as a direct labor cost.

iii. The company has a labor contract that calls for wage increase from RM16 to RM18 per hour in April 2021.

iv. The company is expecting to have 8,000 frames on hand on December 2020. The company policy is to have ending inventory equal to 100% of the following month’s sales plus 50% of the second month following sales.

v. The estimated unit sales are as follows:

January February March April May 5,000 6,000 4,000 4,500 4,500

vi. The selling price is expected to reduce from RM50 in January 2021 to RM47.50 for the remaining month in year 2021.


REQUIRED:

(a) Prepare the production budget for CVDSB for the first quarter of 2021.

(b) Prepare the direct labor budget for CVDSB for the first quarter of 2021. The budget must show the detail of each category of direct labor cost.

(c) Discuss ONE (1) reason why it is important for CVDSB to prepare a flexible budget apart of preparing a master budget. .

python.Write a python program that prompts the user to enter the year and first day of the year, and displays the first day of each month in the year. For example, if the user entered the year 2020 and 3 for Wednesday, January 1, 2020, your program should display the following output:

January 1, 2020 is Wednesday

February 1, 2020 is Saturday ……

December 1, 2020 is Tuesday