Solano Company has sales of $840,000, cost of goods sold of $540,000, other operating expenses of $70,000, average invested assets of $2,450,000, and a hurdle rate of 11 percent.


Required:
1. Determine Solano’s return on investment (ROI), investment turnover, profit margin, and residual income. (Do not round your intermediate calculations. Enter your ROI and Profit Margin percentage answer to the nearest 2 decimal places, (i.e., 0.1234 should be entered as 12.34%). Round your Investment Turnover answer to 4 decimal places.)
Return on Investment Turnover= __%

Investment Turnover

Profit Margin= __ %

Residual Income (Loss)=
     

2. Several possible changes that Solano could face in the upcoming year follow. Determine each scenario’s impact on Solano’s ROI and residual income. (Note: Treat each scenario independently.) (Enter your ROI percentage answers to 2 decimal places, (i.e., 0.1234 should be entered as 12.34%.))

   a. Company sales and cost of goods sold increase by 40 percent.      

Return on Investment= __ %

Residual Income (Loss)=  

         
       
    b. Operating expenses decrease by $12,000.        
      
       

Return on Investment= __ %

Residual Income (Loss)=  

         

   c. Operating expenses increase by 10 percent.

         

Return on Investment= __ %

Residual Income (Loss)=  

       

    d. Average invested assets increase by $470,000.

Return on Investment= __ %

Residual Income (Loss)=  

                

    e. Solano changes its hurdle rate to 17 percent.

Return on Investment= __ %

Residual Income (Loss)=

Explore how multinational giant Philips NV has evolved over time. The Dutch company, which was internationally oriented almost from the start, moved to a national organization approach during World War II. This approach, which allowed the company to tailor its product line and marketing to each national market, remained in place for several decades, however, by the 1970s, the duplication of effort the approach required began to cause problems and Philips shifted toward a product division structure that established international production centers. In the mid-1990s, a new CEO implemented significant changes replacing Philips’ 21 product divisions with just 7 global business divisions. This new structure was further refined in 2008 to establish three global divisions responsible for product strategy, global marketing, and production decisions. QUESTION 1: Why did Philips’ decentralized structure make sense in the 1950s and 1970s? Why did this structure start to create problems for the company in the 1980s? QUESTION 2: What was Philips trying to achieve by tilting the balance of power in its structures away from national organizations and toward the product divisions? Why was this hard to achieve? QUESTION 3: What was the point of the organizational changes made by Cor Boonstra? What was he trying to achieve? QUESTION 4: In 2008 Philips reorganized yet again. Why do you think it did this? What is it trying to achieve?

We are evaluating a project that costs $744,000, has a six-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 45,000 units per year. Price per unit is $60, variable cost per unit is $20, and fixed costs are $744,000 per year. The tax rate is 35 percent, and we require a return of 18 percent on this project.

Calculate the accounting break-even point. (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

Calculate the base-case cash flow and NPV. (Do not round intermediate calculations and round your NPV answer to 2 decimal places, e.g., 32.16.)

What is the sensitivity of NPV to changes in the sales figure? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.) ΔNPV/ΔQ $

Calculate the change in NPV if sales were to drop by 500 units. (Enter your answer as a positive number. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV would (INCREASE/DECREASE) by $

What is the sensitivity of OCF to changes in the variable cost figure? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) ΔOCF/ΔVC $

Solano Company has sales of $820,000, cost of goods sold of $530,000, other operating expenses of $60,000, average invested assets of $2,400,000, and a hurdle rate of 11 percent.


Required:
1. Determine Solano’s return on investment (ROI), investment turnover, profit margin, and residual income. (Do not round your intermediate calculations. Enter your ROI and Profit Margin percentage answer to the nearest 2 decimal places, (i.e., 0.1234 should be entered as 12.34%). Round your Investment Turnover answer to 4 decimal places.)

Return on investment-

Investment turnover-

Profit Margin-

Residiual Income(loss)-

2. Several possible changes that Solano could face in the upcoming year follow. Determine each scenario’s impact on Solano’s ROI and residual income. (Note: Treat each scenario independently.) (Enter your ROI percentage answers to 2 decimal places, (i.e., 0.1234 should be entered as 12.34%.))

   a. Company sales and cost of goods sold increase by 30 percent.    

ROI-

Residual Income(loss)-

    b. Operating expenses decrease by $11,000.   

ROI-

Residual Income(loss)-

c. Operating expenses increase by 20 percent.

ROI-

Residual Income(loss)-

d. Average invested assets increase by $460,000.

ROI-

Residual Income(loss)-

e. Solano changes its hurdle rate to 16 percent.

ROI-

Residual Income(loss)-

Answer the following questions in the space provided in your own words. 1. A Bureau of Labor Statistics (BLS) economist conducts a statistical study to test his hunch that in households with a minimum-wage worker, mean household debt changes following a hike in the minimum wage. Suppose the mean household debt stays the same following a minimum-wage hike. However, when the economist collects a random sample, the sample mean difference is actually greater than zero.

a. Does this mean the economist made a mistake in his research? Explain why/why not.

b. Suppose the economist collects a random sample and decides to conduct a hypothesis test. Formulate the null and alternative hypothesis: c

. For each statement in the following table, place in X in the correct box to indicate whether the statement is the null hypothesis, the alternative hypothesis, or neither (Hint: this is a non-directional hypothesis test)

1) Suppose r_RF = 6%, r_M = 9%, and b_i = 1.5.

1. What is r_i, the required rate of return on Stock i? Round your answer to two decimal places.
     %

2. 1. Now suppose r_RF increases to 7%. The slope of the SML remains constant. How would this affect r_M and r_i?

   1. Both r_M and r_i will decrease by 1%.
   2. Both r_M and r_i will remain the same.
   3. Both r_M and r_i will increase by 1%.
   4. r_M will remain the same and r_i will increase by 1%.
   5. r_M will increase by 1% and r_i will remain the same.

2. Now suppose r_RF decreases to 5%. The slope of the SML remains constant. How would this affect r_M and r_i?

1. Both r_M and r_i will increase by 1%.
2. Both r_M and r_i will remain the same.
3. Both r_M and r_i will decrease by 1%.
4. r_M will decrease by 1% and r_i will remain the same.
5. r_M will remain the same and r_i will decrease by 1%

c.

1. Now assume that r_RF remains at 6%, but r_M increases to 10%. The slope of the SML does not remain constant. How would these changes affect r_i? Round your answer to two decimal places.

The new r_i will be   %.

2. Now assume that r_RF remains at 6%, but r_M falls to 8%. The slope of the SML does not remain constant. How would these changes affect r_i? Round your answer to two decimal places.

The new r_i will be   %.

Cascade Company was started on January 1, Year 1, when it acquired $152,000 cash from the owners. During Year 1, the company earned cash revenues of $80,700 and incurred cash expenses of $68,400. The company also paid cash distributions of $6,500.

Required
Prepare a Year 1 income statement, capital statement (statement of changes in equity), balance sheet, and statement of cash flows under each of the following assumptions. (Consider each assumption separately.)

c. Cascade is a corporation. It issued 10,000 shares of $9 par common stock for $152,000 cash to start the business. (Amounts to be deducted should be indicated with minus sign.)

Jacob Jones is the manager of the produce section at Snell’s grocery store. Jacob must determine each day how many pounds of bananas to order from the supplier. Demand varies somewhat from day to day and if Jacob orders too many bananas, he will have to sell leftovers at a discount, if he orders too few bananas, customers will be dissatisfied and complain to his boss.   Jacob wants to set up a profit model in Excel to experiment with the number of pounds of bananas he should order each day.

Bananas are ordered (and assume delivered the same day) from the supplier each day and cost Jacob 15 cents per pound. They are sold for 69 cents a pound if sold the first day after delivery.  

Any bananas that are not sold the first day must be discounted to 39 cents per pound. Assume all bananas that are discounted will be sold at the lower price.

a. Set up an EXCEL spreadsheet in order to calculate profit for Jacob’s banana problem.

First day Demand and Order Quantity are separate unknown variables.  

You must use the Excel IF function in this model.

b. Using Excel Data/What-If/Data Table create a two way-table to show how profit changes with changes in First day demand and Quantity ordered. Use values of 100, 120, 140, 160, 180, and 200 for both variables in your table.