A 10-yr project has an initial cost of $300,000 for fixed assets. The fixed assets will be depreciated to a $0 book value using a 20-yr straight line depreciation method.

Each year, annual revenue is $30,000 and cost is $10,000.

After 10 years, you will terminate the project. You expect to sell the the fixed assets for $200,000.

The project is financed by 30% equity and 70% debt. The required rate of return on equity is 7% and the borrowing cost is 3%.

Assume the tax rate is 25%.

What is the project's NPV?

Group of answer choices

-14,735

5,027

11,405

25,229

A manufacturer is considering a switch from manufacturers’ representatives to an internal sales force. The following cost estimates are available. Manufacturers’ reps are paid 8.1% commission and incur $600,000 in fixed costs, while an internal sales force has fixed costs projected at $1,900,000 and would receive 2.6% commission. Assume that sales revenue is double the breakeven volume or the point at which the manufacturer would be indifference between reps and an internal sales force. At this volume, how much would the manufacturer save, assuming the company had switched to an internal sales force? Report your answer in dollars.

The following is the ending balances of accounts at December 31, 2021, for the Weismuller Publishing Company.

Additional information:

1. Prepaid expenses include $160,000 paid on December 31, 2021, for a two-year lease on the building that houses both the administrative offices and the manufacturing facility.
2. Investments include $50,000 in Treasury bills purchased on November 30, 2021. The bills mature on January 30, 2022. The remaining $130,000 is an investment in equity securities that the company intends to sell in the next year.
3. Deferred revenue represents customer prepayments for magazine subscriptions. Subscriptions are for periods of one year or less.
4. The notes payable account consists of the following:

1. a $60,000 note due in six months.
2. a $141,000 note due in six years.
3. a $99,000 note due in three annual installments of $33,000 each, with the next installment due August 31, 2022.

5. The common stock account represents 420,000 shares of no par value common stock issued and outstanding. The corporation has 840,000 shares authorized.

Required:
Prepare a classified balanced sheet for the Weismuller Publishing Company at December 31, 2021. (Amounts to be deducted should be indicated by a minus sign.)

Question 3: Application of finance-capital budgeting (20 Marks)

Kogan.com is considering investing in a new fleet of delivery trucks, costing $10,000,000 today. In the first year of the project, it is expected to yield revenue of $4,000,000 and this is expected to grow at 10% p.a. for another 2 years. Operating costs are expected to be 15% of annual revenue. The project will be terminated at the end of the third year and the entire fleet is expected to be sold for 10% of the original cost.

Kogan.com is financed 70% through debt which has a cost of 8% and shareholders expect a 12% return on their equity.

Show all your workings when calculations are required and round off your FINAL result to TWO decimal places.

a) Set out the project time line complete with cash inflows, outflows and net cash flows by year. (6 marks)

b) Determine the required rate of return of Kogan.com to be used as the discount rate in the analysis of this project. (3 marks)

c) What is the Net Present Value (NPV) of this project? Explain if this project should be accepted according to the NPV rule. (4 marks)

d) What is the Internal Rate of Return (IRR) of this project? Explain if this project should be accepted according to the IRR rule. (3 marks)

e) Identify which of the following changes may lead to an increase in the required rate of return for this project and briefly explain why and why not. (4 marks)

Holding everything else being equal,

The credit risk of Kogan.com unexpectedly increases The proportion of debt of the total fund raised for the project increases

The table below shows the weekly marginal cost (MC) and average total cost (ATC) for Smitten, a perfectly competitive firm that produces children’s mittens in a competitive market.

Smitten's Production Costs

Instructions: In part a, enter your answer as a whole number. In parts b–d, round your answers to two decimal places.

a. If the market price of children’s mittens is $6.00 per pair, how many pairs of children’s mittens should Smitten produce per week to maximize its profits?

     pairs of mittens

b. What is Smitten’s average total cost at the profit-maximizing quantity of children’s mittens?

   $

c. What are Smitten’s weekly profits if the market price is $6.00 per pair and the firm produces the profit-maximizing quantity of mittens?

   $

d. What are Smitten’s weekly profits if the market price is $5.50 per pair and the firm produces the profit-maximizing quantity of mittens?

     $

e. The price at which Smitten would earn a normal profit is where:

• a. average cost equals average revenue at the minimum of average cost.

• b. marginal cost equals average cost.

• c. marginal cost equals average cost at the minimum of average cost.

• d. marginal cost equals marginal revenue at the minimum of marginal cost.

1A.Draw two graphs. On the first, show the short-run profit maximizing output of an individual firm earning an economic profit, including MR, MC, AVC, and ATC. On the second, show the short-run market equilibrium price and quantity. Explain how the industry supply curve and the market equilibrium price and quantity are determined.

B.Draw the MC, MR, ATC, and long-run ATC curves for a perfectly competitive firm in long-run equilibrium. Explain the relationship between those curves. Next, draw another graph showing long-run equilibrium for the perfectly competitive market. What is the relationship between the two graphs?

C.In the short run, a perfectly competitive firm may earn positive economic profits. On a graph, show this situation, using marginal revenue, marginal cost, average-total-cost, and average-variable-cost curves. Indicate the level of output the firm will produce and shade in the area that represents the firm's positive economic profit. In words, explain why your graph shows positive economic profits.

D.In the short run, a perfectly competitive firm may earn negative economic profits but continue to operate. On a graph, show this situation, using marginal revenue, marginal cost, average-total-cost, and average-variable-cost curves. Indicate the level of output the firm will produce and shade in the area that represents the firm's negative economic profit. Explain why your graph shows negative economic profits.

FINANCIAL REPORTING & ANALYSIS - chapter 3- Question E3-1

The time frame in each of these scenarios is after the effective date of the new revenue recognition

rules in ASC Topic 606.

Required:

For each of the following independent situations, determine the point at which a contract

exists and is subject to application of the 5-step revenue recognition model by Amiel

Corporation.

1. A regular customer of Amiel’s always places an order on the last day of the month,

but did not do so in December. Amiel is certain it is because the customer’s

purchasing

manager was ill and that the order will be received when she returns. In

fact, the order is received by fax in early January, with an apology from the customer’s

purchasing

manager and a note requesting that Amiel “expedite shipment of this

December order.”

2. One of Amiel’s customers calls and gives Amiel a list of goods it intends to buy, but with

the caveat that the order is subject to the approval of the purchasing manager, who will

not be in for several days. In fact, the order is received by fax several days later when the

purchasing manager returns.

3. One of Amiel’s customers calls and gives Amiel an order. Amiel typically receives orders

by fax and asks the customer to confirm the order by fax, which it does several days later.

4. Amiel and one of its customers agree that Amiel will sell it certain goods, but that the

price will depend on the price of oil two weeks later. Amiel and the customer have agreed

on a formula that will determine the price of the goods based on the price of oil. Amiel

makes this arrangement because oil is a key component of the goods Amiel sells

Existence of a contract (LO 3-2)

The time frame in each of these scenarios is after the effective date of the new revenue recognition rules in ASC Topic 606.

Required:

For each of the following independent situations, determine the point at which a contract exists and is subject to application of the 5-step revenue recognition model by Amiel Corporation.

1. A regular customer of Amiel’s always places an order on the last day of the month, but did not do so in December. Amiel is certain it is because the customer’s purchasing manager was ill and that the order will be received when she returns. In fact, the order is received by fax in early January, with an apology from the customer’s purchasing manager and a note requesting that Amiel “expedite shipment of this December order.”
2. One of Amiel’s customers calls and gives Amiel a list of goods it intends to buy, but with the caveat that the order is subject to the approval of the purchasing manager, who will not be in for several days. In fact, the order is received by fax several days later when the purchasing manager returns.
3. One of Amiel’s customers calls and gives Amiel an order. Amiel typically receives orders by fax and asks the customer to confirm the order by fax, which it does several days later.
4. Amiel and one of its customers agree that Amiel will sell it certain goods, but that the price will depend on the price of oil two weeks later. Amiel and the customer have agreed on a formula that will determine the price of the goods based on the price of oil. Amiel makes this arrangement because oil is a key component of the goods Amiel sells.

Problem 10-1A

On January 1, 2017, the ledger of Ivanhoe Company contained these liability accounts.

During January, the following selected transactions occurred.

During January, the company’s employees earned wages of $71,200. Withholdings related to these wages were $5,447 for Social Security (FICA), $5,086 for federal income tax, and $1,526 for state income tax. The company owed no money related to these earnings for federal or state unemployment tax. Assume that wages earned during January will be paid during February. No entry had been recorded for wages or payroll tax expense as of January 31.

a) Journalize the January transactions

b) Journalize the adjusting entries at January 31 for the outstanding note payable and for salaries and wages expense and payroll tax expense.

c) Prepare the current liabilities section of the balance sheet at January 31. 207. Assume no change in Accounts payable.