|
We are evaluating a project that costs $837,000, has an 11-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 106,000 units per year. Price per unit is $40, variable cost per unit is $22, and fixed costs are $852,903 per year. The tax rate is 36 percent, and we require a 20 percent return on this project. |
| Requirement 1: Break-Even |
| (a) | Calculate the accounting break-even point. (Do not round your intermediate calculations.) |
| (Click to select) 47,383 units 52,611 units 51,611 units 50,511 units 49,383 units |
| (b) |
What is the degree of operating leverage at the accounting break-even point? (Do not round your intermediate calculations.) |
| (Click to select) 12.309 12.109 12.209 1.093 1.189 |
| Requirement 2: Base-Case & NPV Sensitivity |
| (a) | Calculate the base-case operating cash flow. (Do not round your intermediate calculations.) |
| (Click to select) $722,655 $682,655 $352,443 $702,655 $362,443 |
| (b) | Calculate the base-case NPV. (Do not round your intermediate calculations.) |
| (Click to select) $352,443 $2,213,430 $2,203,430 $2,193,430 $362,443 |
| (c) |
What is the sensitivity/elasticity of NPV to changes in the sales figure? Recall from your economics class that an elasticity measures a percentage change in one variable due to a percentage change in another. So simply increase sales quantity by 1 percent, calculate the new NPV, and then calculate the percentage change in the NPV. (Do not round your intermediate calculations.) |
| (Click to select) 49.748 21.132 5.198 2.398 49.948 |
| (d) |
Based on this sensitivity, what is the change in NPV (in dollars) if there is a 10 percent decrease in projected sales? (Do not round your intermediate calculations.) |
| (Click to select) -$352,443 $528,386 $351,443 -$-502 -$528,386 |
| Requirement 3: Sensitivity of OCF |
| (a) |
In addition to NPV, we can calculate the sensitivity of other things, such as OCF. What is the sensitivity of base-case OCF to changes in the variable cost? Estimate the sensitivity by increasing variable costs by 10%. (Do not round your intermediate calculations.) |
| (Click to select) 32,980 979 -2.12 -1,021 -25,002 |
| (b) |
Based on this sensitivity, estimate the change in OCF (in dollars) given a 14% decrease in the variable costs? (Do not round your intermediate calculations.) |
| (Click to select) $208,947 $53,611 $52,611 $1,030 $-970 |
In: Finance
PA11-3 Comparing, Prioritizing Multiple Projects [LO 11-1, 11-2, 11-3, 11-6]
Hearne Company has a number of potential capital investments.
Because these projects vary in nature, initial investment, and time
horizon, management is finding it difficult to compare them. Assume
straight line depreciation method is used.
Project 1: Retooling Manufacturing Facility
This project would require an initial investment of $5,500,000. It
would generate $982,000 in additional net cash flow each year. The
new machinery has a useful life of eight years and a salvage value
of $1,156,000.
Project 2: Purchase Patent for New Product
The patent would cost $3,855,000, which would be fully amortized
over five years. Production of this product would generate $732,450
additional annual net income for Hearne.
Project 3: Purchase a New Fleet of Delivery
Trucks
Hearne could purchase 25 new delivery trucks at a cost of $180,000
each. The fleet would have a useful life of 10 years, and each
truck would have a salvage value of $6,300. Purchasing the fleet
would allow Hearne to expand its customer territory resulting in
$855,000 of additional net income per year.
Required:
1. Determine each project's accounting rate of return.
(Round your answers to 2 decimal places.)
Accountng Rate of Return:
Project 1 percentage =
Project 2 percentage =
Project 3 percentage =
2. Determine each project's payback period.
(Round your answers to 2 decimal places.)
Payback Period
Project 1 years =
Project 2 years =
Project 3 years =
3. Using a discount rate of 10 percent, calculate the net present value of each project. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Round your intermediate calculations to 4 decimal places and final answers to 2 decimal places.)
Net Present Value
Project 1 =
Project 2 =
Project 3 =
4. Determine the profitability index of each project and prioritize the projects for Hearne. (Round your intermediate calculations to 2 decimal places. Round your final answers to 4 decimal places.)
Profibility Index
Project 1 =
Project 2 =
Project 3 =
In: Accounting
Exercise 12-81
Profitability Ratios
Financial statements for Steele Inc. follow.
| Steele Inc. | |||||||
| Consolidated Income Statements | |||||||
| (in thousands except per share amounts) | |||||||
| 2019 | 2018 | 2017 | |||||
| Net sales | $7,245,088 | $6,944,296 | $6,149,218 | ||||
| Cost of goods sold | (5,286,253) | (4,953,556) | (4,355,675) | ||||
| Gross margin | $1,958,835 | $1,990,740 | $1,793,543 | ||||
| General and administrative expenses | (1,259,896) | (1,202,042) | (1,080,843) | ||||
| Special and nonrecurring items | 2,617 | 0 | 0 | ||||
| Operating income | $701,556 | $788,698 | $712,700 | ||||
| Interest expense | (63,685) | (62,398) | (63,927) | ||||
| Other income | 7,308 | 10,080 | 11,529 | ||||
| Gain on sale of investments | 0 | 9,117 | 0 | ||||
| Income before income taxes | $645,179 | $745,497 | $660,302 | ||||
| Provision for income taxes | (254,000) | (290,000) | (257,000) | ||||
| Net income | $391,179 | $455,497 | $403,302 | ||||
| Steele Inc. | |||||
| Consolidated Balance Sheets | |||||
| (in thousands) | |||||
| ASSETS | Dec. 31, 2019 | Dec. 31, 2018 | |||
| Current assets: | |||||
| Cash and equivalents | $320,558 | $41,235 | |||
| Accounts receivable | 1,056,911 | 837,377 | |||
| Inventories | 733,700 | 803,707 | |||
| Other | 109,456 | 101,811 | |||
| Total current assets | $2,220,625 | $1,784,130 | |||
| Property and equipment, net | 1,666,588 | 1,813,948 | |||
| Other assets | 247,892 | 248,372 | |||
| Total assets | $4,135,105 | $3,846,450 | |||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||
| Current liabilities: | |||||
| Accounts payable | $250,363 | $309,092 | |||
| Accrued expenses | 347,892 | 274,220 | |||
| Other current liabilities | 15,700 | 0 | |||
| Income taxes | 93,489 | 137,466 | |||
| Total current liabilities | $707,444 | $720,778 | |||
| Long-term debt | 650,000 | 541,639 | |||
| Deferred income taxes | 275,101 | 274,844 | |||
| Other long-term liabilities | 61,267 | 41,572 | |||
| Total liabilities | 1,693,812 | 1,578,833 | |||
| Stockholders’ equity: | |||||
| Preferred stock | $100,000 | $100,000 | |||
| Common stock | 89,727 | 89,727 | |||
| Additional paid-in capital—common stock | 128,906 | 127,776 | |||
| Retained earnings | 2,397,112 | 2,136,794 | |||
| $2,715,745 | $2,454,297 | ||||
| Less: Treasury stock, at cost | (274,452) | (186,680) | |||
| Total stockholders’ equity | $2,441,293 | $2,267,617 | |||
| Total liabilities and stockholders’ equity | $4,135,105 | $3,846,450 | |||
Use the information provided above and below to respond to the
following requirements.
| Statement Item | January 1, 2018 (in thousands) | |
| Total assets | $3,485,233 | |
| Total stockholders’ equity | 2,083,122 | |
Required:
Compute the five profitability ratios for 2018 and 2019. Round intermediate calculations and final answers to two decimal places.
| 2019 | 2018 | |
| Gross profit percentage | % | % |
| Operating margin percentage | % | % |
| Net profit margin percentage | % | % |
| Return on assets | % | % |
| Return on equity | % | % |
In: Accounting
The team agrees that the goal is to have a winning boat ready to leave for the competition in 45 weeks at a cost of $3.2 million.
Design of the hull, deck, mast, and accessories will initiate the boat construction. After the design is complete, the hull can be constructed, the mast ordered, sails ordered, and accessories ordered. As soon as the hull is finished, the ballast tanks can be installed. Then the deck can be built. Concurrently with the deck construction, the hull can be treated with sealant. When the deck is completed and mast, sails, and accessories received, the mast and sails can be installed concurrently with the accessories. When these installations are complete, the boat can be sea-tested.
On the parallel path, choosing the crew and relocating them on site will take 6 weeks. At the same time, housing for the crew can be secured. Once the crew arrives and is housed, the training program using the old vessel will take place. After crew arrival, crew equipment can be selected and then ordered while training is underway. When training is complete, crew maintenance on the new vessel can begin. In order for the maintenance to begin, the deck must also be complete. Once crew maintenance is complete and while the boat is being sea-tested, sailing training on the new boat can be implemented. Finally, after the boat is sea-tested and sailing training is completed, regular sea training can be implemented, weather permitting.
- Fill in correct Predecessors, Contruct AON , If it’s currently the end of week 20 and $2 million has been spent to date, calculate SPI and CPI based on the following completion information: all tasks on track as planned for week 20 except C is 50%, F is 100%, and Q is 50%.
|
Activity |
Predecessor |
Weeks |
Cost ($000) |
|
A Design |
—— |
6 |
40 |
|
B Build hull |
12 |
1000 |
|
|
C Install ballast tanks |
2 |
100 |
|
|
D Order mast |
8 |
100 |
|
|
E Order sails |
6 |
40 |
|
|
F Order accessories |
15 |
600 |
|
|
G Build deck |
5 |
200 |
|
|
H Coat hull |
3 |
40 |
|
|
I Install accessories |
6 |
300 |
|
|
J Install mast and sails |
2 |
40 |
|
|
K Sea-test boat |
5 |
60 |
|
|
L Sea training |
8 |
200 |
|
|
M Select & relocate crew |
—— |
6 |
10 |
|
N Secure housing |
—— |
3 |
30 |
|
O Select crew equipment |
2 |
10 |
|
|
P Order crew equipment |
5 |
30 |
|
|
Q Training with old boat |
15 |
40 |
|
|
R Crew maintenance on new boat |
10 |
100 |
|
|
S Sail training on new boat |
7 |
50 |
- Fill in correct Predecessors, Find SPI , Find CPI
In: Operations Management
QUESTION 6
What is the tax treatment for rents received for a home rented out for less than 14 days?
|
a. |
Taxed at ordinary rates |
|
|
b. |
Tax Exempt |
|
|
c. |
Taxed at Capital Gains Rates |
|
|
d. |
Tax at the property tax rates for the locality. |
5 points
QUESTION 7
Assume you have a taxpayer, who wants to sell their home and they have heard they don’t have to pay any tax on the sale. You tell her there are conditions to gain exclusion. Which of the following are requirements for the §121 gain exclusion? (Choose only one, best answer)
|
a. |
An ownership test of 5 out of the last 8 years and use test of 2 of the last 5 years. |
|
|
b. |
An ownership and use test of 5 out of the last 8 years. |
|
|
c. |
A use test of 5 out of the last 8 years and ownership test of 2 of the last 5 years. |
|
|
d. |
An ownership and use test of 2 out of the last 5 years. |
QUESTION 9
Assume your client Peace and Love, Inc. has purchased the following assets listed below, when they moved into their new office space in 2020. The office building was purchased in 2017 and placed into service on Dec 31, 2017. Also assume they have taxable income of $350,000 for the year and charitable deductions of $50,000 (This client files a 1040 Tax Return).
|
Asset |
Purchase Date |
Cost |
|
Furniture – 7 Year |
Nov 20 |
$180,000 |
|
Office Equipment – 7 Year |
Apr 1 |
30,000 |
|
Construction Truck – 5 Year |
May 30 |
80,000 |
|
Office Leasehold Improvements – 39 Year |
Jan 15 |
500,000 |
|
Total |
$790,000 |
Assume the income listed above and deductions are all from the taxpayers only business activity. What is the maximum §179 Deduction allowed by the client in 2020?
|
210,000 |
||
|
790,000 |
||
|
290,000 |
||
|
300,000 |
5 points
QUESTION 10
Assume your client Peace and Love, Inc. has purchased the following assets listed below, when they moved into their new office space in 2020. The office building was purchased in 2017 and placed into service on Dec 31, 2017. Also assume they have taxable income of $350,000 for the year and charitable deductions of $50,000 (This client files a 1040 Tax Return).
|
Asset |
Purchase Date |
Cost |
|
Furniture – 7 Year |
Nov 20 |
$180,000 |
|
Office Equipment – 7 Year |
Apr 1 |
30,000 |
|
Construction Truck – 5 Year |
May 30 |
80,000 |
|
Office Leasehold Improvements – 39 Year |
Jan 15 |
500,000 |
|
Total |
$790,000 |
What convention will be used for the property placed into service in 2020?
|
a. |
MQ |
|
|
b. |
MM |
|
|
c. |
HY |
|
|
d. |
MY |
In: Accounting
Cupcakes-Palooza (CP) is bakery in Janesville, WI, that specializes in gourmet cupcakes. CP is a privately held corporation that was founded by partners Pat and Chris Anderson. Pat and Chris are the majority shareholders.
CP currently owns a building that serves as their bakery. They sell their cupcakes at select area grocery stores. They do not currently sell directly to consumers; they only sell to grocery stores who sell to consumers. They sell an average of 1,000 cupcakes a day (five days a week, year-round) at their current location, and see demand staying strong despite the economy.
Pat and Chris would like to expand their business. They are considering adding a retail storefront to their existing building. Pat and Chris received an estimate from a construction company to add a retail presence to their existing building. The project cost is a $ 50,000 one-time charge for renovations to the building. Construction time is expected to be three months. (Note that this means that in the first year of operations, they will only receive nine months of revenue from the retail store!)
Pat and Chris did some market research and estimate the following sales from this new retail shop: 100 cupcakes a day @ $2 per cupcake, and they will be open 5 days a week, 52 weeks a year. Pat and Chris expect their cost of goods sold to be $0.46 per cupcake.
To sell to the public at the current building, they plan on hiring one new full-time employee; he or she will be managed by existing bakery employees, who will also cover for the new employee during breaks, sick days, etc. You do not need to include any expenses for the new employee other than their hourly wage. Pat and Chris estimate they will pay $10 per hour (including taxes and benefits) for this new employee. Assume the employee will work 40 hours a week, 52 weeks a year.
Pat and Chris have told you that they pay 20% of their profit in taxes. They also want you to use a discount rate of 14% in calculating this potential investment. They plan to retire in 5 years, so they want you to base your analysis on a 5 year term.
Pat and Chris have asked you to review this potential investment and write a short, one page memo to them, with an Excel file attached with the supporting financial calculations. The memo should communicate to Pat and Chris three financial measurements:
The Payback period for the investment
The Net Present Value of the investment
The Internal Rate of Return for the investment
In: Accounting
The distribution of weights of newborn babies is bell shaped with a mean of 3200 grams and standard deviation of 450 grams.
a. what percentage of newborn babies weigh between 2300 and 4100 grams?
I have already done part A
Part b asks What percentage of newborn babies weigh less then 2300 grams?
I need to know how to do that on a ti84 plus calculator
In: Statistics and Probability
A stock is selling today for $50 per share. At the end of the year, it pays a dividend of $3 per share and sells for $56.
Required:
a. What is the total rate of return on the stock?
b. What are the dividend yield and percentage capital gain?
c. Now suppose the year-end stock price after the dividend is paid is $48. What are the dividend yield and percentage capital gain in this case?
In: Finance
The Acme Company manufactures widgets. The distribution of widget weights is bell-shaped. The widget weights have a mean of 40 ounces and a standard deviation of 9 ounces. Use the Empirical Rule, find a) 99.7% of the widget weights lie between and b) What percentage of the widget weights lie between 22 and 67 ounces? % c) What percentage of the widget weights lie below 49 ? %
In: Statistics and Probability
Suppose height and weight of people in a certain population are jointly normal with the mean height of 180cm and mean weigh of 80kg. The corresponding standard deviations are 5cm and 6kg, respectively, and the correlation is equal to 0.6. a) What is the percentage of people whose weight exceeds 95kg among those 185cm tall? b) What is the percentage of people whose weight exceeds 95kg among those whose height is 175cm?
In: Statistics and Probability