Question 1
Could you please check my work so far and help me to calculate (show calculations) for the NVP and IRR? I uploaded a spreadsheet. BobCo. is trying to decide between the following two mutually exclusive projects: Cash Flows Year Project I Project II 0 -$18,000 -$12,000 1 $8,500 $6,500 2 $9,000 $6,000 3 $9,500 $7,000 The only requirement the company has is that any project that is accepted must produce a minimum rate of return of 11%. Calculate payback period, discounted payback period, IRR and NPV, as well as any other measures which would be helpful. Fill in the following table with your results: Year Project I Project II Payback (yrs.) Discounted Payback (yrs.) IRR NPV What should the company do and why? Year Project I Project II Payback (yrs) 2.0526 2.0714 Disc Payback (yrs) 2.4373 2.249 IRR 22.90% 28.40% NPV $3,909.00 $3,844.00 Both projects payback within the three years identified and both exceed the minimum desired rate of return requirement of 11%. Were they not mutually exclusive, both would be feasible. However, they are mutually exclusive projects, and while it is tempting to select the project with the higher internal rate of return, it is more appropriate that we choose the project with the higher net present value and earlier payback, Project I.
Question 2
Consider the following scenario: On July 15th, Mr. Jones talks to the president of ABC Corp about the possibility of selling a property owned by ABC. Mr. Jones tells ABC that he is an experienced realtor and will be able to sell the property within a short period of time. The president of ABC states: ?That sounds good. Let?s meet next week and iron out the details." On July 22nd, Mr. Jones approaches the president of ABC with an offer from XYZ Corp to purchase the property for $450,000. Unbeknownst to the president of ABC, the offer also includes a provision indicating that, if the property contains asbestos, the offer will be reduced by $50,000. The president of ABC tells Mr. Jones to sign the contract and sell the property to XYZ. Mr. Jones signs the contract and gives a copy to ABC. The contract contains the provision regarding a price reduction if asbestos is found on the property. During inspection, asbestos is found on the property. The inspection report notes the presence of asbestos on the property. A copy of this report is sent to ABC corp. In the interim, XYZ hires an asbestos removal company to evaluate the cost of removing the asbestos. This evaluation cost XYZ $17,000. On August 22nd, the presidents of ABC and XYZ attend the closing on the property. As he is about to sign the closing documents, the president of ABC notices the asbestos provision and refuses to sell the property. XYZ sues ABC in district court for breach of contract. XYZ is seeking specific enforcement of the agreement and costs. XYZ claims that ABC is bound by the actions of its agent, Mr. Jones. ABC contends that Mr. Jones was not an agent of ABC. ABC states that it never ratified the actions of Mr. Jones, because it was not aware of all material facts. Describe the facts, issues, decision, and reason for this case.
Question 3
"Q1) This is a short answer question. Seneca Foods is a regional producer of low-priced private-label snack foods. Seneca contracts with local supermarkets to supply good-tasting packaged snack foods that the retailers sell at significantly lower prices to price-sensitive consumers. Because Seneca?s production costs are low, and it spends no money on advertising and promotion, it can sell its products to retailers at much lower prices than can national-brand snack food companies, such as Frito-Lay. The low purchase prices often allow the retailer to mark this product up and earn a gross margin well above what it earns from brand products, while still keeping and selling price to the consumer well below the price of the brand products. Seneca has recently been approached by several large discount food chains who wish to offer their consumers a high-quality but much lower-priced alternative to the heavily advertised and high-priced national brands. But each discount retailer wants the recipe for the snack foods to be customized to its own tastes. Also, each retailer wants its own name and label on the snack foods it sells. Thus, the retailer, not the manufacturer, would be providing the branding for the private-label product. In addition, the retail chains want their own retailer-branded product to offer a full snack product line, just as the national brands do. Seneca?s managers are intrigued with the potential for quantum growth by becoming the prime producer of retailer-brand snack foods to large, national discount chains. As they contemplated this new opportunity. Dale Williams, the senior marketing manager, proposed that if Seneca enters this business, it can think of even higher growth opportunities. Seneca does not have to sell just to the discount chains that have approached it. Local supermarket chains may also be attracted to the idea of having their own brand of high quality but lower-priced snack products that could compete with the national brands, not just be a low-priced alternative for highly price-sensitive consumers. Perhaps Seneca could launch a marketing effort to regional supermarket chains around the country for a retail-brand snack food product line. Williams noted, however, that the local supermarket chains were not as sophisticated as the national discounters in promoting products under their own brand name. Each supermarket chain likely would need extensive assistance and support to learn how to advertise, merchandise, and promote the store-brand products to be competitive with the national-brand products. John Thompson, director of logistics for Seneca Foods, noted another issue. The national-brand producers used their own salespeople to deliver their products directly to the retailer?s store and even stocked their products on the retailer?s shelves. Seneca, in contrast, delivered to the retailer?s warehouse or distribution center, leaving the retailer to move the product to the shelves of its various retail outlets. The national producers were trying to dissuade the large discount chains from following their proposed private-label (retailer-brand) strategy by showing them studies that the apparently higher margins they would earn on the private label would be eaten away by much higher warehousing, distribution, and stocking costs for these products. Heather Gerald, the controller of Seneca, was concerned with the new initiatives. She felt that Seneca?s current success was due to its focus. It currently offered a relatively narrow range of products aimed at the high-volume snack food segments to supermarket chains in its local region. Seneca got good terms from its relatively few supplier because of the high volume of business it did with each of them. Also, the existing production processes were efficient for the products and product range currently produced. She feared that customizing products for each discount or supermarket retailer, plus adding additional products so that they could offer a full product line, would cause problems with both suppliers and the production process. She also wondered about the cost of providing new services, such as consulting and promtoins, to the supermarket chains and of developing some of the new items required for the proposed full product line strategy. Heather was attracted to the growth prospects offered by becoming the preferred supplier to major discount and supermarket chains. But she was not as optimistic as Dale Williams that these retailers truly believed that selling their own private-label foods would be more profitable than selling the national brands. Perhaps they were only using Seneca as a negotiating ploy, threatening to turn to private labels to increase their power in setting terms with the national manufacturers. Once production geared up, how much volume would these retailers provide to Seneca? How could Seneca convince the large retailers about the profitability associated with the new private-label strategy? Gerald knew that Seneca?s existing cost systems were adequate for their current strategy. Most expenses were related to materials and machine processing, and these costs were well assigned to products with the conventional standard costing system. But the new strategy would seem to involve a lot more spending in areas other than purchasing materials and running machines. She wished she knew how to provide input into the strategic deliberations now under way at Seneca, but she didn?t know how to quantify all the effects of the proposed strategy. REQUIRED: a) How can activity-based costing help Heather Gerald assess the attractiveness of the proposed policy? b) Assuming that Seneca starts to supply new customers-large discounters and supermarkets outisde its local region-what ABC systems would be helpful to guide the profitability of the strategy and assist Seneca managers in making decisions?
Question 4
*Exercise 16-2 Cash flow classification (indirect) L.O. C1 The following transactions and events occurred during the year. Assuming that this company uses the indirect method to report cash provided by operating activities, indicate where each item would appear on its statement of cash flows by placing an x in the appropriate column. (Leave no cells blank - If the item does not appear in the category, please select "NA".) (Operating Activities) (Statement of Cash flows Investing Activities) (Financing Activities) (Noncash Investing and Financing Activities, Not Reported on Statement or in Notes) a. Accounts receivable decreased in the year b. Purchased land by issuing common stock c. Paid cash to purchase inventory d. Sold equipment for cash, yielding a loss e. Accounts payable decreased in the year f. Income taxes payable increased in the year g. Declared and paid a cash dividend h. Recorded depreciation expense i. Paid cash to settle long-term note payable j. Prepaid expenses increased in the year *Exercise 16-10 Preparation of statement of cash flows (indirect) L.O. P1 [The following information applies to the questions displayed below.] Use the following financial statements and additional information. GECKO INC. Comparative Balance Sheets June 30, 2011 and 2010 2011 2010 Assets Cash $ 107,000 $ 66,700 Accounts receivable, net 69,300 51,500 Inventory 66,000 96,500 Prepaid expenses 5,900 4,200 Equipment 123,000 112,000 Accum. depreciation?Equipment (28,200 ) (10,700 ) Total assets $ 343,000 $ 320,200 Liabilities and Equity Accounts payable $ 26,700 $ 32,700 Wages payable 7,100 16,600 Income taxes payable 2,600 3,600 Notes payable (long term) 51,000 79,000 Common stock, $5 par value 231,000 180,000 Retained earnings 24,600 8,300 Total liabilities and equity $ 343,000 $ 320,200 GECKO INC. Income Statement For Year Ended June 30, 2011 Sales $ 671,000 Cost of goods sold 406,000 Gross profit 265,000 Operating expenses Depreciation expense $ 58,200 Other expenses 66,800 Total operating expenses 125,000 140,000 Other gains (losses) Gain on sale of equipment 2,800 Income before taxes 142,800 Income taxes expense 57,120 Net income $ 85,680 Additional Information a. A $28,000 note payable is retired at its $28,000 carrying (book) value in exchange for cash. b. The only changes affecting retained earnings are net income and cash dividends paid. c. New equipment is acquired for $59,900 cash. d. Received cash for the sale of equipment that had cost $48,900, yielding a $2,800 gain. e. Prepaid Expenses and Wages Payable relate to Other Expenses on the income statement. f. All purchases and sales of merchandise inventory are on credit. GECKO, INC. Statement of Cash Flows For Year Ended June 30, 2011 Cash flows from operating activities $ Adjustments to reconcile net income to net cash provided by operating activities Net cash by operating activities $ Cash flows from investing activities Net cash in investing activities Cash flows from financing activities Net cash in financing activities $ Cash balance at beginning of year Cash balance at end of year $
Question 5
"This is for government and not for profit governemtal accounting. financial statements must be adjusted to ensure proper accounting of internal service fund activities. sun city accounts for its telecommunication services in an internal service fund. in a recent year, its records indicated the following: billings to units accounted for in governmental funds $400,000 billings to units accounted for in proprietary funds 100,000 year-end accounts receivable from units accounted for in governmental fund 25,000 year-end accounts receivable from units accounted for in proprietary fund 10,000 per city policy, the telecommunications department bills other departments for the actual cost of providing its services. 1. how is each of the following reported in the city's government-wide statement of net assets and statement of activities? a. the billing of the internal service funf (and offsetting purchases of services by other funds) b. the year end accounts receivable and payable 2. how is each of the following reported in the balance sheets and statement of revenues and expenditures or expenses of the individual government and proprietary funds to which the internal service fund provides services and of the internal service fund itself? a. the billing from the internal service fund b. the year-end accounts payable and receivable 3. internal services funds are classified as proprietary funds. yet, in the government-wide statements, their assets and liabilities that have not been eliminated in the consolidation process are reported in the governmental activities column. how can you justify this apparent inconsistency?,Thanks.
