Barfly Inc. manufactures and markets a line of non-alcoholic mixers sold to restaurants and bars. Barfly’s Creative Bartender has recently experimented with making alcoholic versions with the intention of bottling and marketing these directly to the public through appropriate retail outlets. Prior spending on R&D was $1.5 million and Barfly anticipates spending half of that again during the first year of the project to conclude R&D (for total R&D of $2.25 million). The cost of building the manufacturing line is estimated at $1,175,000. Marketing projects revenues from the new product line will be 800,000 units in the first year, growth in years 2 and 3 at 15%, growth in year 4 at 10%, and 5% for year 5. While Barfly anticipates the product will have a longer life than 5 years, their initial projections are for a 5 year time horizon, fully depreciating the cost of plant and equipment over that time on a straight-line basis. Revenue per unit is projected to be $2.50 in the first year, with prices rising by 3% per year thereafter. COGS are projected to be 68% of revenues, SG&A 7% of revenues, and the company’s marginal tax rate is 32%. Net working capital required for the project is expected to be 2% of revenues annually once the project is fully online in year 1. Barfly’s balance sheet includes $3,000,000 in total capital, of which $980,000 is debt. The market yield to maturity on debt is 3.75%, the risk free rate on a 5-year Treasury is 3%, and the market risk premium is 6.5%. The company’s beta is 1.3 and the CFO uses the CAPM to estimate cost of equity.

Management has been studying the company’s capital structure and is considering using a small secondary offering of stock to pay down debt. The following data is used to determine the cost of debt under varying capital structures.

1. If Barfly issues $180,000 in new equity and uses the proceeds to repurchase (and defease*) existing debt, what would the resulting weighted average cost of capital be?

2)Should management move towards this capital structure? Why or why not?

Clopack Company manufactures one product that goes through one processing department called Mixing. All raw materials are introduced at the start of work in the Mixing Department. The company uses the weighted-average method of process costing. Its Work in Process T-account for the Mixing Department for June follows (all forthcoming questions pertain to June):

The June 1 work in process inventory consisted of 5,000 units with $16,000 in materials cost and $12,000 in conversion cost. The June 1 work in process inventory was 100% complete with respect to materials and 50% complete with respect to conversion. During June, 37,500 units were started into production. The June 30 work in process inventory consisted of 8,000 units that were 100% complete with respect to materials and 40% complete with respect to conversion.

1. Prepare the journal entries to record the raw materials used in production and the direct labor cost incurred. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

2. Prepare the journal entry to record the overhead cost applied to production. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

3. How many units were completed and transferred to finished goods during the period?

4. Compute the equivalent units of production for materials.

5. Compute the equivalent units of production for conversion.

6. What is the cost of beginning work in process inventory plus the cost added during the period for materials?

7. What is the cost of beginning work in process inventory plus the cost added during the period for conversion?

8. What is the cost per equivalent unit for materials? (Round your answer to 2 decimal places.)

9. What is the cost per equivalent unit for conversion? (Round your answer to 2 decimal places.)

10. What is the cost of ending work in process inventory for materials? (Round your intermediate calculations to 2 places.)

11. What is the cost of ending work in process inventory for conversion?

12. What is the cost of materials transferred to finished goods? (Round your intermediate calculations to 2 places.)

13. What is the amount of conversion cost transferred to finished goods?

14. Prepare the journal entry to record the transfer of costs from Work in Process to Finished Goods. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

15-a. What is the total cost to be accounted for?

15-b. What is the total cost accounted for?

 Wells Printing is considering the purchase of a new printing press. The total installed cost of the press is $ 2.15 million. This outlay would be partially offset by the sale of an existing press. The old press has zero book​ value, cost $ 1.01 million 10 years​ ago, and can be sold currently for $ 1.29 million before taxes. As a result of acquisition of the new​ press, sales in each of the next 5 years are expected to be $ 1.65 million higher than with the existing​ press, but product costs​ (excluding depreciation) will represent 54 % of sales. The new press will not affect the​ firm's net working capital requirements. The new press will be depreciated under MACRS- using a​ 5-year recovery period. The firm is subject to a 40 % tax rate. Wells​ Printing's cost of capital is 11.4 % ​(Note: Assume that the old and the new presses will each have a terminal value of $ 0at the end of year​ 6.)

Rounded Depreciation Percentages by Recovery Year Using MACRS for
First Four Property Classes              
   Percentage by recovery year*          
Recovery year    3 years    5 years    7 years    10 years
1    33%   20%   14%   10%
2    45%   32%   25%   18%
3    15%   19%   18%   14%
4    7%   12%   12%   12%
5        12%   9%   9%
6        5%   9%   8%
7            9%   7%
8            4%   6%
9                6%
10                6%
11                4%
Totals   100%   100%   100%   100%
               

a. Determine the initial investment required by the new press.

a. Determine the initial investment required by the new press.

Calculate the initial investment will​ be:  ​(Round to the nearest​ dollar.)

b. Determine the operating cash flows attributable to the new press.​ (Note: Be sure to consider the depreciation in year​ 6.)

c. Determine the payback period.

d. Determine the net present value​ (NPV) and the internal rate of return​ (IRR) related to the proposed new press.

e. Make a recommendation to accept or reject the new​ press, and justify your answer.

SHOW ALL WORK!!! Including formulas

1.

During the first 13 weeks of the television season, the Saturday evening 8:00 P.M. to 9:00 P.M. audience proportions were recorded as ABC 30%, CBS 27%, NBC 25%, and independents 18%. A sample of 300 homes two weeks after a Saturday night schedule revision yielded the following viewing audience data: ABC 93 homes, CBS 63 homes, NBC 88 homes, and independents 56 homes. Test with  = .05 to determine whether the viewing audience proportions changed. Use Table 12.4.

Round your answers to two decimal places.

χ ² = ?

2.

With double-digit annual percentage increases in the cost of health insurance, more and more workers are likely to lack health insurance coverage (USA Today, January 23, 2004). The following sample data provide a comparison of workers with and without health insurance coverage for small, medium, and large companies. For the purposes of this study, small companies are companies that have fewer than 100 employees. Medium companies have 100 to 999 employees, and large companies have 1000 or more employees. Sample data are reported for 50 employees of small companies, 75 employees of medium companies, and 100 employees of large companies.

1. Conduct a test of independence to determine whether employee health insurance coverage is independent of the size of the company. Use  = .05. Use Table 12.4.
   
   Compute the value of the  ² test statistic (to 2 decimals).
   
   
   The p value is Selectless than .005between .005 and .01between .01 and .025between .025 and .05between .05 and .10greater than .10Item 2
   
   What is your conclusion?
   SelectConclude health insurance coverage is not independent of the size of the companyCannot reject the assumption that health insurance coverage and size of the company are independentItem 3
   
2. The USA Today article indicated employees of small companies are more likely to lack health insurance coverage. Calculate the percentages of employees without health insurance based on company size (to the nearest whole number).
   

   Small	%
   Medium	%
   Large	%

Integrative—Complete investment decision   

Wells Printing is considering the purchase of a new printing press. The total installed cost of the press is $2.11 million. This outlay would be partially offset by the sale of an existing press. The old press has zero book​ value, cost $1.02 million 10 years​ ago, and can be sold currently for $1.28 million before taxes. As a result of acquisition of the new​ press, sales in each of the next 5 years are expected to be $1.57 million higher than with the existing​ press, but product costs​ (excluding depreciation) will represent 46% of sales. The new press will not affect the​ firm's net working capital requirements. The new press will be depreciated under MACR

using a​ 5-year recovery period. The firm is subject to a 40% tax rate. Wells​ Printing's cost of capital is 11.1%.​(Note: Assume that the old and the new presses will each have a terminal value of $0 at the end of year​ 6.)

a. Determine the initial investment required by the new press.

b. Determine the operating cash flows attributable to the new press.​ (Note: Be sure to consider the depreciation in year​ 6.)

c. Determine the payback period.

d. Determine the net present value​ (NPV) and the internal rate of return​ (IRR) related to the proposed new press.

e. Make a recommendation to accept or reject the new​ press, and justify your answer.

Net cash flows-No terminal value Central Laundry and Cleaners is considering replacing an existing piece of machinery with a more sophisticated machine. The old machine was purchased 3 years ago at a cost of $47,100, and this amount was being depreciated under MACRS using a​ 5-year recovery period. The machine has 5 years of usable life remaining. The new machine that is being considered costs $76,700 and requires $4,000 in installation costs. The new machine would be depreciated under MACRS using a​ 5-year recovery period. The firm can currently sell the old machine for $54,300 without incurring any removal or cleanup costs. The firm is subject to a tax rate of 40%. The revenues and expenses​ (excluding depreciation and​ interest) associated with the new and the old machines for the next 5 years are given in the table

    New machine           Old machine  
Year   Revenue   Expenses
(excluding depreciation and interest)       Revenue   Expenses
(excluding depreciation and interest)
1   $749,200    $719,600       $673,700   $659,100
2   749,200   719,600       675,700   659,100
3   749,200   719,600       679,700   659,100
4   749,200   719,600       677,700   659,100
5   749,200   719,600       673,700   659,100

(Table

Rounded Depreciation Percentages by Recovery Year Using MACRS for
First Four Property Classes              
   Percentage by recovery year*          
Recovery year    3 years    5 years    7 years    10 years
1                         33%         20%         14%          10%
2                       45%           32%        25%           18%
3                        15%           19% 18%      14%
4                          7%            12%       12%       12%
5                                           12%         9%        9%
6                                            5%         9%         8%
7                                                          9%       7%
8                                                        4%        6%
9                                                                   6%
10                                                                  6%
11                                                                 4%
Totals   100%   100%   100%   100%
               

contains the applicable MACRS depreciation​ percentages.) Note: The new machine will have no terminal value at the end of 5 years.)

a. Calculate the initial investment associated with replacement of the old machine by the new one.

b. Determine the incremental operating cash inflows associated with the proposed replacement.​ (Note: Be sure to consider the depreciation in year​ 6.)

c. Depict on a time line the relevant cash flows found in parts (a​) and (b​) associated with the proposed replacement decision.

**Urgent Please

Paulson Technologies Inc.

Paulson Industries Inc. is an established mid-level tech firm concentrating on the implementation of Artificial Intelligence (AI) and Augmented Reality (AR) platform analysis and distribution into automated manufacturing processes throughout the United States and Canada. It is based in Riverside, California for which the company originally was spun off from Magnum Industries, Inc. and then was sold to Ocean Intel Partners-a private equity firm before the original owners repurchased the firm eleven years ago. Due to location and the evolution of the company’s target market within the high-tech sector of the economy, the company concentrates its efforts on the single product line mentioned above. Paulson is motivated to diversify its product line up to create greater consistency of cash flows and hence reduce the overall level of risk; they theorize this will enhance its market value and overall appeal to the market while pursuing a transaction (sale of company) as the owners contemplate retirement and a new generation to lead the company.

Currently, Paulson has hired a market research firm (Boston Solutions, Inc.) to gauge an estimate of expected unit sales that they think will likely emerge over the next five years. Their work has resulted in an estimate of 165,487, 178,788, 164,369, 159,327 and 93,675 units respectively for the next five years conditioned on Paulson adhering to an average sales price of $412 per unit for the first two years and $349 in years three, four, and five. From that point going forward, growth in unit sales are predicted to be 2.85% indefinitely.

After the results of an internal company analysis by the Corporate Finance staff, it has been determined that the company can manufacture its product line at a variable cost per unit expected to be $143.50 growing at 4.05% per year for the first 5 years and 4.65% per year indefinitely thereafter while overall fixed costs are estimated to be $11,487,500 annually for the first year and then grow 3.94% per year indefinitely.

The necessary capital expenditures are projected to be $31,175,775 upfront and due to the nature of the investments that Paulson makes, it is deemed by the IRS to be depreciated on the seven-year MACRS schedule. In the terminal phase of growth, investment strategy will likely change to that of a maintenance orientation in support of AI/AR opportunities. As such, an average annual depreciation charge following a straight-line depreciation method is anticipated to be $1,167,750 reflecting a scaled down one-time 4-year investment strategy.

Working capital to support sales is estimated to be 11.27% of yearly sales for the first 5 years and then is projected to slow to a 3.89% annual growth rate thereafter.

The marginal corporate income tax rate is expected to average 21.67% barring any changes to the corporate tax code and the projected annual growth rate of Free Cash Flow (FCF) in the terminal phase is expected to grow approximately the current risk-free rate of return indefinitely. Historically, the debt-equity ratio has averaged roughly 163% for which Paulson’s current debt level is $12,678,991 with an average maturity of 6 years and an interest rate on this debt averaging 9.47%. Upon a regression analysis, the historical equity Beta was calculated to be 2.135, while the risk-free rate of return is given as 2.5625% and the market rate of return is assumed to be 12.225%%. Currently there are 3,461,228 shares of common stock outstanding.

You have been hired by Paulson Industries Inc. to determine the following:

Operating Cash Flow for each of the first 5 years and the Terminal Phase

Free Cash Flow for each of the first 5 years and the Terminal Phase

What the Asset Beta (Industry Beta) is that can use in its analysis

What the appropriate discount rate is for valuing the firm and hence stock price

What the asset value of the firm

What the equity value of the firm

What the appropriate stock price

Describe the Stanford prison experiment. What are your thoughts on it? (100 words minimum)

Describe Milgram’s study on obedience. What are your thoughts on it? (100 words minimum)

Describe the bystander effect. What are your thoughts on it? (100 words minimum)

PT Sepatu Top is now a leading producer of shoes in the Sumatera region. The management of PT Sepatu Top is now analyzing the investments in a machine to produce specialized football shoes. The specialized football shoes would be manufactured in a building owned by the firm. The building and the land can be sold for Rp 8.000.000.000,- after taxes.

Suppose that you were the CFO of PT Sepatu Top and working on an analysis of the proposed new product. You outline the following assumptions: The cost of the machine is Rp3.000.000.000,- and it is expected to last five years. At the end of five years, the machine will be sold at a price estimated to be Rp 200.000.000,- The specialized football shoes would be produced in the next five consecutive years as follows: 10.000 units, 12.000 units, 15.000 units, 10.000 units, and 7.000 units. The price of the specialized football shoes in the first year will be Rp 800.000,- and is expected to increase at 4 percent per year.

Because of the rapid increase price of the raw materials, the management expects that the production cash outflows will be increased at 12 percent per year. First-year production costs will be Rp 450.000,- per unit. The management of PT Sepatu Top determines that initial investment (at Year 0) in net working capital of Rp 1.000.000.000,- is required. Subsequently, net working capital at the end of each year will be equal to 10 percent of sales for that year. In the final year of the project, net working capital will decline to zero as the project is wound down. PT Sepatu Top applies the straight line depreciation method.

The appropriate incremental corporate tax rate in the specialized football shoe project is 28 percent. According to Badan Pusat Statistik, the annual inflation rate is expected at 8 percent per annum.

Required:

Evaluate the proposal of PT Sepatu Top in producing specialized football shoes! Your analysis MUST include NPV calculations, as well as the necessary assumptions and brief explanation. Any UNCLEAR calculation will result in ZERO marks.