Purpose of Assignment

The purpose of the assignment is to develop students' abilities in using data sets to apply the concepts of sampling distributions and confidence intervals to make management decisions.

Assignment Steps

Resources: Microsoft Excel®, The Payment Time Case Study, The Payment Time Case Data Set

Review the Payment Time Case Study and Data Set.

Develop a 700-word report including the following calculations and using the information to determine whether the new billing system has reduced the mean bill payment time:

• Assuming the standard deviation of the payment times for all payments is 4.2 days, construct a 95% confidence interval estimate to determine whether the new billing system was effective. State the interpretation of 95% confidence interval and state whether or not the billing system was effective.
• Using the 95% confidence interval, can we be 95% confident that µ ≤ 19.5 days?
• Using the 99% confidence interval, can we be 99% confident that µ ≤ 19.5 days?
• If the population mean payment time is 19.5 days, what is the probability of observing a sample mean payment time of 65 invoices less than or equal to 18.1077 days?

Case Study – Payment Time Case Study

Major consulting firms such as Accenture, Ernst & Young Consulting, and Deloitte & Touche Consulting employ statistical analysis to assess the effectiveness of the systems they design for their customers. In this case, a consulting firm has developed an electronic billing system for a Stockton, CA, trucking company. The system sends invoices electronically to each customer’s computer and allows customers to easily check and correct errors. It is hoped the new billing system will substantially reduce the amount of time it takes customers to make payments. Typical payment times—measured from the date on an invoice to the date payment is received—using the trucking company’s old billing system had been 39 days or more. This exceeded the industry standard payment time of 30 days.

The new billing system does not automatically compute the payment time for each invoice because there is no continuing need for this information. The management consulting firm believes the new system will reduce the mean bill payment time by more than 50 percent. The mean payment time using the old billing system was approximately equal to, but no less than, 39 days. Therefore, if µ denotes the new mean payment time, the consulting firm believes that µ will be less than 19.5 days. Therefore, to assess the system’s effectiveness (whether µ < 19.5 days), the consulting firm selects a random sample of 65 invoices from the 7,823 invoices processed during the first three months of the new system’s operation. Whereas this is the first time the consulting company has installed an electronic billing system in a trucking company, the firm has installed electronic billing systems in other types of companies.

Analysis of results from these other companies show, although the population mean payment time varies from company to company, the population standard deviation of payment times is the same for different companies and equals 4.2 days. The payment times for the 65 sample invoices are manually determined and are given in the Excel^® spreadsheet named “The Payment Time Case”. If this sample can be used to establish that new billing system substantially reduces payment times, the consulting firm plans to market the system to other trucking firms.

I do not need help with the paper. I need to understand the math.

Capital Budgeting Risk Analysis Project Instruction Create the pro forma income statement and estimate the cash flows for the following project. Decide whether to accept this project based on analysis of the NPV, Profitability Index, and IRR. Project Assumptions (Base Case) Equipment Life 6 Years Initial Equipment Cost $2,500,000 in year 0 Depreciation Straight Line Method Initial Revenue $1,000,000 in year 1 Revenue growth rate year 2 10% Revenue growth rate year 3 15% Revenue growth rate year 4 10% Revenue growth rate year 5 5% Variable Costs 60% of this year's revenue Fixed Costs $75,000 in year 1 Fixed Costs Inflation Rate 3% per year Long-term growth rate 2% per year Net Working Capital 4% of next year's revenue Tax Rate 35% Discount Rate 18% Model Structure Since this project does not have an end date we need to decide how many years of detailed analysis we will conduct. For this assignment, we will estimate detailed cash flows for 5 years and estimate the terminal value at the end of year 5. The Income Statement is the building block for cash flow estimation. Your income statement should contain the following items. You may include additional items if you find them useful in your model. Revenue Variable Cost Gross Profit Cash Fixed Cost Depreciation EBIT (Earnings Before Interest and Tax) Tax Net Income Cash Flows: • Operating Cash Flow = EBIT + Depreciation – Taxes • Other cash flow items o initial investment o change in Net Working Capital o Terminal value   Analyses 1. Scenario Analysis: prepare a scenario summary report. Use the values in the original assumption as the base case and add the following two cases. Case 1 (worst case) Variable Costs 65% of this year's revenue Fixed Costs $80,000 in year 1 Fixed Costs Inflation Rate 5% per year Long-term growth rate 1% per year Case 2 (best case) Variable Costs 55% of this year's revenue Fixed Costs $70,000 in year 1 Fixed Costs Inflation Rate 3% per year Long-term growth rate 3% per year 2. Sensitivity Analysis: prepare a one-way data table. Make sure to use the base case values. Allow the long-term growth rate to vary from -3.0% to +3.0% in increments of 0.5%. Show the impact on NPV and IRR. 3. Breakeven Analysis: identify the initial revenue level that will result in $0 NPV. Things to turn in: 1. A one-page memo explaining the results of your analysis and your recommendation. The memo should include important results of your analysis such as a summary table or graph. The memo is limited to one page so be very selective on what information to include. 2. An Excel spreadsheet showing the following: • Entire model for the base case • Scenario Analysis (Scenario Summary Report) • Sensitivity Analysis (Data Table) • Breakeven Analysis (Goal Seek result) Check Figures (Base case): Model Year 0 1 5 6 Pro Forma Incremental Income Statement Revenue 1,000,000 1,461,075 1,490,297 Net Income (59,583) 54,178 Pro Forma Incremental Balance Sheet Net Working Capital 40,000 44,000 59,612 Pro Forma Incremental Cash Flows Total Net AT CF (2,540,000) 353,083 3,463,856

Gonzales Food Stores, a family-owned grocery store chain headquartered in El Paso, has hired you to make recommendations concerning financing needs for the following two situations. Part I: Initial Expansion Gonzales is a closely held corporation considering a major expansion. The proposed expansion would require the firm to raise $10 million in additional capital. Because Gonzales currently has 50 percent debt and because the family members already have all their funds tied up in the business, the owners cannot supply any additional equity, so the company will have to sell stock to the public. The family wants to ensure that it will retain control of the company. This offering would be Gonzales’s first stock sale, and the owners are not sure exactly what would be involved. For this reason, they have asked you to research the process and to help them decide how to raise the needed capital. In doing so, you should answer the following questions:

a. What are the advantages to Gonzales of financing with stock rather than with bonds? What are the disadvantages of using stock?

b. Is the stock of Gonzales Food Stores currently publicly held or privately owned? Would this situation change if the company undertook a stock sale?

c. What is classified stock? Would Gonzales find any advantage in designating the stock currently outstanding as founders’ shares? What type of common stock should Gonzales sell to the public to allow the family members to retain control of the business?

d. If some members of the Gonzales family wanted to sell some of their own shares to diversify at the same time that the company was selling new shares to raise expansion capital, would this choice be feasible?

Assignment 4: Financing an Expansion

After twelve (12) years, your business is wildly successful with multiple locations throughout the region. You are now ready to think really big. You want to purchase a huge competitor. (Note: You determine whether the competitor is a privately or publicly held company.) To expand, you will need additional capital from the debt or equity market, or both.

Use one (1) of the valuation techniques identified in Chapters 10 and 11 to calculate the value of the credit repair competitor you wish to purchase. Note: You will have to make assumptions; however, your assumptions need to be rationally supported.

2. Analyze the various financial tools available to you to determine the tools that will be most helpful in assessing whether your credit repair business can afford to purchase the competitor. Support your response.

Imagine you can indeed afford to purchase the competitor; however, you will need an additional $100 million.

3. Examine the options available to you to finance the competitor through the debt market, recommending the best alternative as a result of your analysis. Provide support for your recommendation.

4. Examine the options available to you to finance the competitor through the equity market, recommending the best alternative as a result of your analysis. Provide support for your recommendation.

5. Conduct a cross comparison of your debt and equity examinations to determine where to ideally obtain the additional $100 million funding needed to make the purchase and the approach that you would take to securing the funds. Provide support for your recommendation.

Bradley-Link’s December 31, 2018, balance sheet included the following items: Long-Term Liabilities ($ in millions) 8.0% convertible bonds, callable at 102 beginning in 2019, due 2022 (net of unamortized discount of $4) [note 8] $146 11.0% registered bonds callable at 105 beginning in 2028, due 2032 (net of unamortized discount of $1) [note 8] 54 Shareholders’ Equity 5 Equity—stock warrants

Note 8: Bonds (in part) The 8.0% bonds were issued in 2005 at 96.0 to yield 10%. Interest is paid semiannually on June 30 and December 31. Each $1,000 bond is convertible into 50 shares of the Company’s no par common stock. The 11.0% bonds were issued in 2009 at 103 to yield 10%. Interest is paid semiannually on June 30 and December 31. Each $1,000 bond was issued with 50 detachable stock warrants, each of which entitles the holder to purchase one share of the Company’s no par common stock for $30, beginning 2019. On January 3, 2019, when Bradley-Link’s common stock had a market price of $37 per share, Bradley-Link called the convertible bonds to force conversion. 90% were converted; the remainder were acquired at the call price. When the common stock price reached an all-time high of $42 in December of 2019, 40% of the warrants were exercised.

Required: 1. Prepare the journal entries that were recorded when each of the two bond issues was originally sold in 2005 and 2009. 2. Prepare the journal entry to record (book value method) the conversion of 90% of the convertible bonds in January 2019 and the retirement of the remainder. 3. Assume Bradley-Link induced conversion by offering $140 cash for each bond converted. Prepare the journal entry to record (book value method) the conversion of 90% of the convertible bonds in January 2019. 4. Assume Bradley-Link induced conversion by modifying the conversion ratio to exchange 55 shares for each bond rather than the 50 shares provided in the contract. Prepare the journal entry to record (book value method) the conversion of 90% of the convertible bonds in January 2019. 5. Prepare the journal entry to record the exercise of the warrants in December 2019.  

Bradley-Link’s December 31, 2018, balance sheet included the following items:

Note 8: Bonds (in part)
The 11.0% bonds were issued in 2005 at 98.0 to yield 10%. Interest is paid semiannually on June 30 and December 31. Each $1,000 bond is convertible into 50 shares of the Company’s no par common stock.

The 11.0% bonds were issued in 2009 at 103 to yield 10%. Interest is paid semiannually on June 30 and December 31. Each $1,000 bond was issued with 50 detachable stock warrants, each of which entitles the holder to purchase one share of the Company’s no par common stock for $30, beginning 2019.

On January 3, 2019, when Bradley-Link’s common stock had a market price of $37 per share, Bradley-Link called the convertible bonds to force conversion. 90% were converted; the remainder were acquired at the call price. When the common stock price reached an all-time high of $42 in December of 2019, 40% of the warrants were exercised.

Required:
1. Prepare the journal entries that were recorded when each of the two bond issues was originally sold in 2005 and 2009.
2. Prepare the journal entry to record (book value method) the conversion of 90% of the convertible bonds in January 2019 and the retirement of the remainder.
3. Assume Bradley-Link induced conversion by offering $170 cash for each bond converted. Prepare the journal entry to record (book value method) the conversion of 90% of the convertible bonds in January 2019.
4. Assume Bradley-Link induced conversion by modifying the conversion ratio to exchange 55 shares for each bond rather than the 50 shares provided in the contract. Prepare the journal entry to record (book value method) the conversion of 90% of the convertible bonds in January 2019.
5. Prepare the journal entry to record the exercise of the warrants in December 2019.

Bradley-Link’s December 31, 2018, balance sheet included the following items: Long-Term Liabilities ($ in millions) 8.0% convertible bonds, callable at 102 beginning in 2019, due 2022 (net of unamortized discount of $2) [note 8] $198 11.0% registered bonds callable at 105 beginning in 2028, due 2032 (net of unamortized discount of $1) [note 8] 61 Shareholders’ Equity 7 Equity—stock warrants Note 8: Bonds (in part) The 8.0% bonds were issued in 2005 at 98.0 to yield 10%. Interest is paid semiannually on June 30 and December 31. Each $1,000 bond is convertible into 50 shares of the Company’s no par common stock. The 11.0% bonds were issued in 2009 at 103 to yield 10%. Interest is paid semiannually on June 30 and December 31. Each $1,000 bond was issued with 50 detachable stock warrants, each of which entitles the holder to purchase one share of the Company’s no par common stock for $30, beginning 2019. On January 3, 2019, when Bradley-Link’s common stock had a market price of $37 per share, Bradley-Link called the convertible bonds to force conversion. 90% were converted; the remainder were acquired at the call price. When the common stock price reached an all-time high of $42 in December of 2019, 40% of the warrants were exercised. Required: 1. Prepare the journal entries that were recorded when each of the two bond issues was originally sold in 2005 and 2009. 2. Prepare the journal entry to record (book value method) the conversion of 90% of the convertible bonds in January 2019 and the retirement of the remainder. 3. Assume Bradley-Link induced conversion by offering $170 cash for each bond converted. Prepare the journal entry to record (book value method) the conversion of 90% of the convertible bonds in January 2019. 4. Assume Bradley-Link induced conversion by modifying the conversion ratio to exchange 55 shares for each bond rather than the 50 shares provided in the contract. Prepare the journal entry to record (book value method) the conversion of 90% of the convertible bonds in January 2019. 5. Prepare the journal entry to record the exercise of the warrants in December 2019.

Bradley-Link’s December 31, 2018, balance sheet included the following items:

Note 8: Bonds (in part)
The 11.0% bonds were issued in 2005 at 97.0 to yield 10%. Interest is paid semiannually on June 30 and December 31. Each $1,000 bond is convertible into 50 shares of the Company’s no par common stock.

The 11.0% bonds were issued in 2009 at 105 to yield 10%. Interest is paid semiannually on June 30 and December 31. Each $1,000 bond was issued with 50 detachable stock warrants, each of which entitles the holder to purchase one share of the Company’s no par common stock for $25, beginning 2019.

On January 3, 2019, when Bradley-Link’s common stock had a market price of $32 per share, Bradley-Link called the convertible bonds to force conversion. 90% were converted; the remainder were acquired at the call price. When the common stock price reached an all-time high of $37 in December of 2019, 40% of the warrants were exercised.

Required:
1. Prepare the journal entries that were recorded when each of the two bond issues was originally sold in 2005 and 2009.
2. Prepare the journal entry to record (book value method) the conversion of 90% of the convertible bonds in January 2019 and the retirement of the remainder.
3. Assume Bradley-Link induced conversion by offering $150 cash for each bond converted. Prepare the journal entry to record (book value method) the conversion of 90% of the convertible bonds in January 2019.
4. Assume Bradley-Link induced conversion by modifying the conversion ratio to exchange 55 shares for each bond rather than the 50 shares provided in the contract. Prepare the journal entry to record (book value method) the conversion of 90% of the convertible bonds in January 2019.
5. Prepare the journal entry to record the exercise of the warrants in December 2019.

Activity-Based Costing and Customer Profitability

Schneider Electric manufactures power distribution equipment for commercial customers, such as hospitals and manufacturers. Activity-based costing was used to determine customer profitability. Customer service activities were assigned to individual customers, using the following assumed customer service activities, activity base, and activity rate:

Assume that the company had the following gross profit information for three representative customers:

The administrative records indicated that the activity-base usage quantities for each customer were as follows:

a. Prepare a customer profitability report dated for the year ended December 31, 20Y8, showing (1) the income from operations after customer service activities, (2) the gross profit as a percent of sales, and (3) the income from operations after customer service activities as a percent of sales. Prepare the report with a column for each customer. Round percentages to the nearest whole percent. Enter all amounts as positive numbers.

b. Interpret the report in part (a).

The gross profit as a percent of sales indicated that was the least profitable, while was the most profitable. After deducting the activity costs associated with customer service activities, became the least profitable, while became nearly as profitable as Customer 2. The reason is because consumed much more customer service activities than did the other customers. Apparently, ordered nonstandard products that required specialized bid requests. In addition, required more shipments, indicating smaller shipments to a customer’s location, rather than a few large shipments.

The following are transactions of Samantha Payapag Advertising Company for the month of July 2013

Prepare Journal Entries, General Ledger, T- Accounts, Trial Balance, Income Statement, and Balance Sheet

July 3 Samantha Payapag invested 500,000 in the business.

July 5 Bought for cash, advertising supplies costing 80,000. Paid rental of the office, 7,300

July 9 Bought delivery truck from MJ Idos Trading, 350,000 on credit

July 12 Received 43,000 cash as advertising income

July 13 Bought furniture & fixtures, 32,000 in cash

July 17 Took 3,200 cash for personal purposes

July 18 Billed Bernalyn Galvez for the advertising service rendered to promote her product to the market, 10,000

July 23 Paid salaries of the employees, 15,000. Billed Zaldy Co. for the advertising service rendered, 4,000

July 24 Collected 1/2 of the amount Bernalyn Galvez owed to the company

July 26 Purchased another truck amounting to 120,000 from Edwina Motor, Inc. on credit

July 27 Paid MJ Idos Trading 230,000 as partial settlement of the account

July 30 Paid utility expense for the month