Question 1
Letter Co. produces and sells two products, T and O. It manufactures these products in separate factories and markets them through different channels. They have no shared costs. This year, the company sold 50,000 units of each product. Sales and costs for each product follow. Product T Product O Sales $800,000 $800,000 Variable Costs 560,000 100,000 Contribution margin 240,000 700,000 Fixed Costs 100,000 560,000 Income before taxes 140,000 140,000 Income taxes (32% rate) 44,800 44,800 Net Income $95,200 $95,200 1. Compute the break-even point in dollar sales for each product. 2. Assume that the company expects sales of each product to decline to 33,000 units next year with no change in unit sales price. Prepare forecasted financial results for next year following the format of the contribution margin income statement as just shown with columns for each of the two products (assume a 32% tax rate). Also, assume that any loss before taxes yields a 32% tax savings. 3. Assume that the company expects sales of each product to increase to 64,000 units next year with no change in unit sales price. Prepare forecasted financial results for next year following the format of the contribution margin income statement shown with columns for each of the two products (assume a 32% income tax rate). 4. If sales greatly decrease, which product would experience a greater loss? 5. Describe some factors that might have created the different cost structures for these two products.
Question 2
Research assignment Length: 2400 words This assignment should be 2400 words in length. You must place the word count on the front cover sheet of your assignment. Topic At a directors? meeting of Stonewalls Ltd (Stonewalls) a resolution was passed to sell valuable land owned by the company to Sand Blocks Pty Ltd at a price which is substantially less than the real value of the land. The majority of the shares in Sand Blocks Pty Ltd are owned by Stonewalls Ltd and each director of Stonewalls owns shares in Sand Blocks. Stonewalls and Sand Blocks have common directors. Brennan is a minority shareholder in Stonewalls and wants to know whether the directors have breached their statutory and or general law duties and if so what could be the consequences for such breaches; and what steps could be taken to protect the interests of the shareholders in Stonewalls. With reference to the Corporations Act 2001 (Cth), relevant case law and secondary material, advise Brennan. Marking criteria Important information: You are advised to consider the following information carefully before starting your assignment. The assignment will be marked according to the following criteria. Research (40%) You are expected to demonstrate a comprehensive review of the primary law sources (legislation, case law) as well as an adequate review of secondary sources (for example textbooks, journal articles, case commentary, explanatory memoranda, Law Reform Commission reports). Your research should be used to identify and clearly state the relevant issues and legal principles and support your analysis. LAW00004 ? Unit Information 19 Analysis (50%) You are expected to analyse the information gathered and evaluate the relevant legal principles. You are expected to develop your argument logically through clear analysis and apply relevant legal principles to the resolution of issue(s). Your analysis should also: ? integrate and evaluate relevant knowledge from the material covered in this unit; ? develop and sustain a concise and convincing legal argument through to a logical conclusion; and ? importantly, answer the specific question asked. Technical aspects (10%) You are expected to: ? correctly reference and acknowledge sources; ? use headings and subheadings (where appropriate), an introduction, conclusion and bibliography or reference section.
Question 3
"1.AmazDeal is an integrated company. The following information is taken from its income statements for 2009 and 2010 (all dollar figures are in millions): 2009 Sales: $240,000; cost of goods sold: 54% of sales, depreciation: $16,000, CAPEX: $6,000, additional investment in net working capital: $1,200 2010 Sales: $267,000, cost of goods sold: 55% of sales, depreciation: $17,200, CAPEX: $6,750, additional investment in net working capital: $1,350 Applicable tax rate for the company is 35%. Calculate company?s free cash flows (FCF) for 2009 and 2010 Estimate company?s FCF for 2011-2015 using the following assumptions: Company?s sales will grow at 4% per year over the next five years; Cost of goods sold as a percentage of sales is expected to increase by 1% each year, i.e., the gross margin ratio will be decreasing by 1% every year; Total CAPEX each year is expected to be equal to 25% of additional sales that year (compared to the previous year); Increase in net working capital in a given year will be equal to 5% of additional sales that year (compared to the previous year); Total depreciation each year will be equal to the total depreciation in a prior year plus 20 % of CAPEX incurred in a prior year (for example, depreciation in 2010 was 16,000 + 20% x 6,000 = 17,200). Since the company is a going concern we need not be concerned about the liquidation value of the firm?s assets at the end of 2015.
Question 4
1) During the fiscal year ended 6/30/07, the City of Hartsville engaged in the following transactions. REQUIRED: Assuming the city maintains its books and records in the manner that facilitates the preparation if its governmental fund financial statements, prepare all necessary journal entries that the city should make for each transaction. Clearly indicate in which fund the entry is being made. If no entry is being made. If no entry in required, write ?no entry required?. a) In July 2006, the City issued $20 million in 6% general obligation term bonds to finance construction of a new building to house City offices. The bonds were issued at a premium of $200,000. b) In September 2006, the City transferred $1 million from the general fund to cover the $.6 million principal and $.4 million interest payments due that month on debt issued in previous years. c) In September 2006, the City paid the principal and interest due from (b). d) In June 2007, the City transferred $2 million from the General Fund to cover the $1.2 million interest payment and the $.8 million principal payment due in July 2007 on the bonds issued in (a). 2) Benton County voted to establish an internal service fund to account for printing and copying for all its departments and agencies. The County engaged in the following activities related to the new fund. REQUIRED: Prepare transactions to record these events in internal service fund. If no entry is required, write ?No entry required?. a) The Country Commission voted to transfer $200,000 from the General Fund to the internal service fund to establish the new fund. b) The fund entered into a capital lease for equipment used in printing activities. The total present value of the lease obligation is $600,000. c) Issued $1 million in general obligation bonds at 101. The bonds were issued to acquire additional equipment. The bonds are to be serviced from the internal service fund. d) Purchased equipment at a cost of $980,000. The equipment has an estimated useful life of nine years and an estimated salvage value of $80,000. e) Billed the General Fund for copying and printing charges, $70,000. f) Paid salaries to printing employees, $50,000. 3) The voters of Salt Lake City authorized the construction of a new north-south expressway for a total cost of no more that $75 million. The voters also approved the issuance of $50 million of 5% general obligation bonds. The balance necessary funds will come from the following sources: $15 million from a federal grant and $10 million from a state grant. The City controls expenditures capital project funds through project management. The City does not formally incorporate budgetary entries in the capital projects fund but it does use encumbrance accounting for control purposes. REQUIRED: Assuming the City maintains its books and records in a manner that facilitates the preparation of the fund financial statements, prepare journal entries, in the Capital Projects Fund, for the following transactions. a) The City issued $50 million of 5% general obligation bonds at 101. b) The City transferred the premium to the appropriate fund. c) The City incurred bid-related expenditures of $1,000. d) The City signed a contract with the lowest competent bidder for $48 million. e) The City received notice from the State that the grant had been approved and the proceeds will be forwarded to the City in the State?s current fiscal year. f) The City received the federal grant in full. g) The City received a progress billing from the contractor for $10 million. The City pays the billing.
Question 5
Problem1. Using present value techniques to evaluate alternative investment opportunities. Fast Delivery is a small company that transports business packages between New York and Chicago. It operates a fleet of small vans that moves packages to and from a central depot within each city and uses a common carrier to deliver the packages between the depots in the two cities. Fast recently acquired approximately $6 million of cash capital from its owners, and its president. Don Keenon, is trying to identify the most profitable way to invest these funds. Clarence Roy, the company's operations manager, believes that the money should be used to expand the fleet of city vans at a cost of $720,000. He argues that more vans would enable the company to expand its services into new markets, thereby increasing the revenue base. More specifically, he expects cash inflows to increase by $280,000 per year. The additional vans are expected to have an average useful life of four years and a combined salvage value of $100,000. Operating the vans will require additional working capital of $40,000, which will be recovered at the end of the fourth year. In contrast, Patricia Lipa, the company's chief accountant, believes that the funds should be used to purchase large trucks to deliver the packages between the depots in the two cities. The conversion process would produce continuing improvement in operating savings with reductions in cash outflows as the following. Year 1 Year 2 Year 3 Year 4 $160,000 $320,000 $400,000 $440,000 The large trucks are expected to cost $800,000 and to have a four-year useful life and a $80,000 salvage value. In addition to the purchase price of the trucks, up-front training costs are expected to amount to $16,000. Fast Delivery's management has established a 16 percent desired rate of return. Required a. Determine the net present value of the two investment alternatives. b. Calculate the present value index for each alternative. c. Indicate which investment alternative you would recommend. Explain your choice. Problem 2Using the payback period and unadjusted rate of return to evaluate alternative investment opportunities. Louis Gallo owns a small retail ice cream parlor. He is considering expanding the business and has identified two attractive alternatives. One involved purchasing a machine that would enable Mr. Gallo to offer frozen yogurt to customers. The machine would cost $8,100 and has an expected useful life of three years with no salvage value. Additional annual cash revenues and cash operating expenses associated with selling yogurt are expected to be $5.940 and $900, respectively. Alternatively, Mr. Gallo could purchase for $10,080 the equipment necessary to serve cappuccino. That equipment has an expected useful life of four years and no salvage value. Additional annual cash revenues and cash operating expenses associated with selling cappuccino are expected to be $8,280 and $2,430 respectively. Income before taxes earned by the ice cream parlor is taxed at an effective rate of 20 percent. Required a. Determine the payback period and unadjusted rate of return (use average investment) for each alternative. b. Indicate which investment alternative you would recommend. Explain your choice. Problem 3Using net present value and internal rate of return to evaluate investment opportunities. Veronica Tanner, the present of Tanner Enterprises, is considering two investment opportunities. Because of limited resources, she will be able to invest in only one of them. Project A is to purchase a machine that will enable factory automation; the machine is expected to have a useful life of four years and no salvage value. Project B supports a training program that will improve the skills of employees operating the current equipment. Initial cash expenditures for Project A are $100,000 and for Project B are $40,000. The annual expected cash inflows are $31,487 for Project A and $13,169 for Project B. Both investments are expected to provide cash flow benefits for the next four years. Tanner Enterprise's cost of capital is 8 percent. Required a. Compare the net present value of each project. Which project should be adopted based on the net present value approach? b. Compute the approximate internal rate of return on each project. Which one should be adopted based on the internal rate of return approach? c. Compare the net present value approach with the internal rate of return approach. Which method is better in the given circumstances? Why?
