A firm increases its debt levels, its stock price may rise at first, reach a peak, and then begin to decline.
The stock price of a firm is typically directly correlated to the amount of debt that a firm holds. As the debt of a firm increases, the stock price may initially rise due to increased financial leverage.
However, at a certain point, the increased debt can signal that the firm may be taking on too much risk, which could lead to a decrease in the stock price.
1. As the firm takes on more debt, it is able to leverage its assets to generate more profits. This leads to an increase in the stock price as investors see the potential for higher returns.
2. However, as the level of debt continues to increase, the firm becomes more risky. This is because the firm has to pay interest on the debt, which reduces the amount of profits available to shareholders. As a result, the stock price may hit a peak and then begin to decline.
3. Additionally, if the firm's level of debt becomes too high, it may face difficulty in meeting its debt obligations. This can lead to a decline in the stock price as investors become concerned about the firm's ability to repay its debt.
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Hester (age 17) is claimed as a dependent by his parents, charlton and abigail. In 2017, hester received $10,000 of qualified dividends and he received $6,200 from a part time job. What is his taxable income for 2017?
The taxable income for 2022, given the amount that Hester received from his part time job, and qualified dividends, would be $3700.
Hester's taxable income will be determined by adding up his total income for the time period and subtracting his deductions. He can only take the basic deduction if he doesn't claim any additional deductions.
Hester should be entitled to a different form of deduction because to his dependency on his parents, but due to his income, he will in 2022 be given the standard deduction for individuals.
= Qualified dividends + Income from part time job - Standard deduction
= 10, 000 + 6200 - 12,500
= $ 3700
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What are main steps in creating a computer (mathematical) model?
What types of models do you know?
A computer (mathematical) model is a type of mathematical model that is created using computer software to simulate and analyze complex systems or phenomena.
The main steps in creating a computer (mathematical) model are:
Define the problem or question that the model is meant to answer.Collect data relevant to the problem or question.Formulate a mathematical model using the collected data.Implement the model on a computer using a programming language or software.Analyze the results of the model and make any necessary adjustments.Validate the model by comparing its results with real-world data.There are several types of computer (mathematical) models, including:
Statistical models, which use statistical methods to analyze data and make predictions.Deterministic models, which use a set of equations to describe a system and make predictions about its behavior.Stochastic models, which incorporate random elements to account for uncertainty in a system.Simulation models, which use computer algorithms to simulate the behavior of a system over time.For more such questions on computer, click on:
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SECTION 1: THEORIES
John is selling a laptop and has posted a price of $500 on a tech second-hand website. He expects to make at least $400 but would be willing to accept $350. He is contacted by an interested person, Raphael. Raphael enquires if he has had any issues with it, John lies and says it works perfectly (even though in the last couple of months in terms of overheating and it automatically switches off). Raphael offers him $400 and John then says he will accept no less than $475 and eventually, after two or three more messages, Raphael offers and pays $450 for the laptop and collects it the next day.
Q1) "Lying is just another way of getting what you want business" – Explain to what extent this is true with reference to example above, theories and concepts you have discussed in class. (250 words max)
According to the concept of utilitarianism, lying in business can be seen as ethical if it results in the greatest amount of happiness or benefit for the greatest number of people.
In the case of John and Raphael, John lying about the condition of the laptop can be seen as unethical because it only benefits him and harms Raphael.
However, some may argue that John's actions were justified because he was able to make a profit and Raphael was able to purchase a laptop at a lower price than originally listed.
This is an example of the concept of moral relativism, which states that what is right or wrong is determined by the individual or culture.
Another theory that can be applied to this situation is the concept of deontology, which focuses on the morality of an action based on the action itself, rather than the consequences. According to this theory, John's lying is unethical because it is inherently wrong to deceive someone, regardless of the outcome.
In conclusion, while some may argue that lying in business can be justified if it results in a benefit for the majority of people involved, it is important to consider the ethical implications of such actions.
In the case of John and Raphael, John's lying can be seen as unethical according to both utilitarianism and deontology, as it only benefits him and harms Raphael.
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Explain how banks are able to reconcile conflicting requirementsof lenders and borrowers.
Banks are able to reconcile conflicting requirements of lenders and borrowers through the process of intermediation.
What Is Intermediation?Intermediation involves the bank acting as a middleman between the lender and the borrower, matching the needs of each party and facilitating the transaction. The bank is able to do this by offering different types of loans and deposits, with varying terms and interest rates, that meet the needs of both lenders and borrowers. For example, a bank may offer a high-interest savings account to attract lenders, while also offering low-interest loans to attract borrowers. Through intermediation, banks are able to balance the conflicting requirements of lenders and borrowers and ensure that both parties are satisfied.
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13. A company that began the year with $23,920 in accounts receivable and ended the year with $28,080 in accounts receivable had credit sales of $338,000 and cost of goods sold of $182,000. What is the accounts receivable turnover for this company?
The accounts receivable turnover for the company will be 13
The accounts receivable turnover for this company can be calculated by using the formula:
Accounts Receivable Turnover = Net Credit Sales / Average Accounts Receivable.
To find the average accounts receivable, we can use the formula:
Average Accounts Receivable = (Beginning Accounts Receivable + Ending Accounts Receivable) / 2.
In this case, the beginning accounts receivable is $23,920 and the ending accounts receivable is $28,080.
Plugging these values into the formula, we get:
Average Accounts Receivable = ($23,920 + $28,080) / 2 = $26,000
Now, we can plug this value and the net credit sales of $338,000 into the formula for accounts receivable turnover:
Accounts Receivable Turnover = $338,000 / $26,000 = 13
Therefore, the accounts receivable turnover for this company is 13. This means that the company collected its average accounts receivable balance 13 times during the year.
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The approaches to risk management post the global financial
crisis of 2008. (Traditional and Enterprise wide)
The global financial crisis of 2008 exposed weaknesses in the traditional approach to risk management and prompted organizations to adopt a more holistic and enterprise-wide approach to risk management.
Traditional risk management involved identifying and mitigating individual risks within specific business units or functions.
In contrast, enterprise-wide risk management (ERM) takes a holistic view of risk across the entire organization. It involves identifying, assessing, and managing risks at all levels and across all business units and functions.
ERM also considers the potential impact of risks on the organization's strategic objectives and overall performance.
ERM is now considered a best practice in risk management and is often required by regulators and investors.
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The Statement of Purpose is a brief essay (300-400 words). Please describe your interest in your first choice major and your future career goals, plans after graduation, etc.Major: MarketingCareer Goal: Professional sellingAfter Graduation: I plan to go to Clemson to earn MBA in Marketing!
The Statement of Purpose should focus on your interest in marketing and how your experiences and skills make you a good fit for the major. You should also discuss your long-term career goals and how earning an MBA in Marketing from Clemson will help you achieve them.
Additionally, you may want to highlight any relevant experiences or achievements that demonstrate your passion for marketing and selling. This could include internships, projects, or leadership positions. Be sure to explain how these experiences have prepared you for success in your chosen field and how they align with your future plans.
Overall, your Statement of Purpose should clearly convey your passion for marketing and your commitment to achieving your career goals. By discussing your experiences, skills, and plans, you can effectively communicate your interest in your first choice major and your potential for success in the field of professional selling. Good luck!
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Assume you are the Chief Investment Officer of a family office and the matriarch of the family wants you to outline your investment thoughts and strategies regarding ESG.
1) how you would incorporate ESG into the family’s investment portfolio of public securities?
2) what would you do with the family’s coal mine that they have owned for three generations and is the source of their enormous wealth?
3) how would you address the family offices’ board of directors that includes only male members of the matriarch’s family?
To incorporate ESG first assess the current portfolio, Regarding the family's coal mine, would first assess the financial and environmental impact and To address the lack of diversity on the family office's board of directors, would recommend implementing a diversity and inclusion policy.
As the Chief Investment Officer of a family office, it is important to consider ESG (environmental, social, and governance) factors in the investment decisions. Here is how I would approach the three situations:
To incorporate ESG into the family's investment portfolio of public securities, would first assess the current portfolio to identify any holdings that do not align with ESG principles.Then, would research and identify companies that have strong ESG practices and consider adding them to the portfolio. Additionally, would consider using ESG indexes or funds as a way to further diversify the portfolio and align it with ESG principles.
Regarding the family's coal mine, would first assess the financial and environmental impact of continuing to operate the mine. If it is not financially viable or if it is causing significant environmental harm, would recommend divesting from the mine and reinvesting in more sustainable and profitable ventures.However, if the mine is still profitable and can be operated in an environmentally responsible manner, would recommend implementing ESG practices and investing in technology to reduce the environmental impact.
To address the lack of diversity on the family office's board of directors, would recommend implementing a diversity and inclusion policy and actively seeking out qualified female candidates to add to the board.Additionally, would recommend providing diversity and inclusion training for all board members to ensure that they are aware of the importance of diversity and how to create an inclusive environment.
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Your firm has a project opportunity with the following cash flows: -$1,200,000 in Year 0, $150,000 in Year 1, $295,000 in Year 2, $875,000 in Year 3, and $390,000 in Year 4. Your ACC is 12%. What would be the discounted payback period of this project assuming that cash flows from Years 1 to 4 are received equally throughout the year? A) 2.31 years B) 3.27 years C) 3.84 years D) 4.18 years
The discounted payback period of this project is 3.85 years, which is closest to option B) 3.27 years. The correct answer is B) 3.27 years.
To find the discounted payback period of this project, we need to calculate the present value of the cash flows for each year using the ACC of 12%. Then, we need to find the year in which the cumulative present value of the cash flows becomes positive.
Here are the steps:
1. Calculate the present value of the cash flows for each year:
Year 0: -$1,200,000 / (1 + 0.12)^0 = -$1,200,000
Year 1: $150,000 / (1 + 0.12)^1 = $133,929
Year 2: $295,000 / (1 + 0.12)^2 = $235,223
Year 3: $875,000 / (1 + 0.12)^3 = $619,835
Year 4: $390,000 / (1 + 0.12)^4 = $248,158
2. Find the cumulative present value of the cash flows:
Year 0: -$1,200,000
Year 1: -$1,200,000 + $133,929 = -$1,066,071
Year 2: -$1,066,071 + $235,223 = -$830,848
Year 3: -$830,848 + $619,835 = -$211,013
Year 4: -$211,013 + $248,158 = $37,145
3. Find the year in which the cumulative present value of the cash flows becomes positive:
The cumulative present value of the cash flows becomes positive in Year 4. However, since the cash flows are received equally throughout the year, we need to find the fraction of the year in which the cumulative present value becomes positive.
To do this, we can use the formula:
Fraction of the year = (Cumulative present value at the beginning of the year) / (Present value of the cash flow for the year)
Fraction of the year = (-$211,013) / ($248,158) = 0.85
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Edward and Ruth were not only best friends, they were coworkers— coworkers who were very passionate about their jobs and their company! The Job Shop, the clever name of the company where they work, produces and sells several different styles of reading glasses. Today, on The Job Shop floor, Edward and Ruth are discussing the styles of readers that are currently in production.
Edward: You see this job over here, Ruth? This job (#AA110) was started last month, but now it’s finally ready to ship. I heard that most of the order is already sold, in fact.
Ruth: Really? I heard something similar about the job on the other side of the plant (#AA111). That is, I heard most of it is already sold, too. But, because that job just started at the beginning of this month, I bet it’ll be more profitable because it didn’t have to sit in processing as long.
Edward: Ruth, I don’t think that’s how this works. Remember our manager telling us that we need to keep our machine hours down to a minimum? The reason is because we use machine hours to budget and apply our MOH costs to our products. If the job is just sitting there, waiting for the next processing step to be completed, it is not using machine hours, so more MOH costs shouldn’t be applied because hours are not being used.
Edward is correct in that only one job (#AA110) is still in process on January 1, 2025. The job cost sheet for Job #AA110 shows that $7,300 of direct material had been used on the job in 2024. Direct labor used on the job in 2024 was $2,950, and MOH applied to the job in 2024 was $5,350. Ruth is also correct as Job #AA111 was started in January. But two other jobs were freshly started in January, too: #AA112, #AA113.
Material cost, labor cost, and machine hour usage for January is as follows.
Job # Direct
Materials
Requisitioned
Direct Labor
Cost Incurred
Machine
Hours Worked
AA110
$2,700 $2,200 90
AA111
8,600 3,390 270
AA112
6,800 2,800 160
AA113
5,000 2,400 120
Based on the information provided, it appears that Edward is correct in his understanding of how machine hours and MOH costs are applied to the company's products. If a job is just waiting for the next processing step to be completed, it is not using machine hours, and thus, more MOH costs should not be applied. This means that Ruth's assumption that Job #AA111 will be more profitable because it didn't have to sit in processing as long may not necessarily be true.
Looking at the cost data provided, we can see that Job #AA110 had already incurred $7,300 of direct material costs and $2,950 of direct labor costs in 2024. In addition, $5,350 of MOH costs had been applied to the job in 2024. As of January 1, 2025, the job was still in process and had used an additional 90 machine hours. No new MOH costs would have been applied to the job in January because it was not waiting for the next processing step to be completed.
For the jobs started in January 2025, we can see that Job #AA111 had incurred $8,600 of direct material costs, $3,390 of direct labor costs, and had used 270 machine hours. Job #AA112 had incurred $6,800 of direct material costs, $2,800 of direct labor costs, and had used 160 machine hours. Job #AA113 had incurred $5,000 of direct material costs, $2,400 of direct labor costs, and had used 120 machine hours.
Overall, it is difficult to determine which job will be more profitable based solely on the information provided. Profitability depends on a variety of factors, including the selling price of the product, the amount of overhead costs applied, and the amount of revenue generated. However, it is clear that the amount of machine hours used and the amount of MOH costs applied are important factors to consider when analyzing profitability.
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Please help! please, clearly show where you getting each number for the Equation. The existing answers are wrong. thank you!
United Healthcare, a health maintenance organization, is expected to have earings growth of 30% for the next five years and 6% after that. The dividend payout ratio will be only 10% during the high growth phase, but will increase to 60% in steady state. The stock has a beta of 1.65 currently , But the beta is expected to drop to 1.10 in steady state. (The Treasury bond rate is 7.25%
a. Estimate the price-book value ratio for United Healthcare, given the inputs as given.
b. How sensitive is the price-book value ratio to estimates of growth during the high growth period?
c. United Healthcare trades at a price-book value ratio of 7.00. How long would extraordinary growth have to last (at a 30% annual rate) to justify
this PBV ratio?
A. The required Rate of Return = 7.25%
To estimate the price-book value ratio for United Healthcare, given the inputs given, we must first calculate the required rate of return. This can be done using the Capital Asset Pricing Model (CAPM):
Required Rate of Return = Risk-free Rate + Beta x (Market Return - Risk-free Rate)
Required Rate of Return = 7.25% + 1.65 (7.25% - 7.25%)
Required Rate of Return = 7.25%
Price-Book Value Ratio = [Expected Annual Earnings x (1+g)] / (Required Rate of Return - g)
Price-Book Value Ratio = [30% x (1+0.06)] / (7.25% - 0.06)
Price-Book Value Ratio = 10.00
B. The Price-Book Value ratio would increase to 13.33.
The price-book value ratio is sensitive to estimates of growth during the high growth period. For example, if the expected annual earnings growth during the high growth period is 40%, the Price-Book Value ratio would increase to 13.33.
C. Extraordinary growth would have to last for 8.45 years at a rate of 5.91% to justify the Price-Book Value ratio of 7.00.
Price-Book Value Ratio = [Expected Annual Earnings x (1+g)] / (Required Rate of Return - g)
7.00 = [30% x (1+g)^8.45] / (7.25% - g)
g = 5.91%
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Josephine picks up a handbag. She brings it to the cashier. The cashier refuses to sell the handbag to Josephine because the handbag has been reserved for another customer. Advise Josephine whether she can force the shop to sell her the handbag. (20mark) (b) Yen Yen offered to sell her dog for RM 500. Ah Beng offers to purchase Yen Yen's dog for RM 200. Yen Yen answered "hello, no way". Ah Beng replied that he now wants to accept the original offer of RM 500. Yen Yen did not reply to Ah Beng. Discuss whether there is a contract between the parties.(20mark) (c) Pinky is a sought-after speaker. She asks Ah Meng, her husband, to prepare her speech in one of her seminars. She says she will give him 50% of the fees she earns for speaking in the event. Ah Meng completed the speech and claims for the money. Pinky refuses to pay her husband. Advise Ah Meng whether Pinky's promise to pay him is binding. (20mark) (d) Christy, a 17 year old daughter of a rich businessman, is currently studying at Segi University College. She signed a contract to buy a luxurious handbag that costs RM 5,000. Is this contract valid? (20mark)
In the passage shop cannot be stopped forcefully by Josephine , The contract was not made between Yen Yen and Ah Beng. Because of the domestic agreement between a husband and wife Pinky's promise was not binding
(a) Josephine cannot force the shop to sell her the handbag because the handbag has been reserved for another customer. The shop has the right to refuse to sell the handbag to Josephine as it is not available for sale.
(b) There is no contract between Yen Yen and Ah Beng. An offer is a proposal to enter into a contract, and an acceptance is an agreement to the terms of the offer. In this case, Yen Yen offered to sell her dog for RM 500, but Ah Beng countered with an offer of RM 200.
Yen Yen rejected Ah Beng's counteroffer, and there was no acceptance of the original offer. Therefore, there is no contract between the parties.
(c) Pinky's promise to pay Ah Meng is not binding because it is a domestic agreement between a husband and wife. Domestic agreements are generally not enforceable because they are not intended to create legal relations. Therefore, Ah Meng cannot enforce Pinky's promise to pay him for preparing her speech.
(d) The contract between Christy and the seller of the luxurious handbag is not valid because Christy is a minor. Minors are not legally capable of entering into contracts, and any contract entered into by a minor is voidable. Therefore, the contract between Christy and the seller is not enforceable.
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me and my group members have to put on a act about (what happens if u don't pay enough attention to the task your doing in the workshop) so it's basically about what what would happen if you don't pay attention any suggestions on what we can say or do
In the act, you can start by showing that many students are attending the workshop and everyone is paying attention to it. When the task was assigned everyone was able to complete it but one student was not able to because he or she was not paying attention.
What is attention?Attention in psychology is the concentration of awareness on some phenomenon to the exclusion of other stimuli. A process of selectively concentrating on a discrete aspect of information, whether considered subjective or objective. William James wrote that "Attention is the taking possession by the mind, in clear and vivid form, of one out of what seem several simultaneously possible objects or trains of thought. Focalization, concentration, of consciousness are of its essence.
Attention has also been described as the allocation of limited cognitive processing resources.
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Coolidge's administration was marked by
A. A continuation of the post-World War I economic slump
B. Continued tax breaks for the lower and middle classes at the expense of the upper class.
C. Prosperity.
D. The creation of the Internal Revenue and Tariff Commission, which drastically reformed taxation formulas and duty lists
C. Abundance. The United States went through a time of economic expansion and prosperity dubbed as the "Roaring Twenties" under Coolidge's presidency.
From 1923 to 1929, Calvin Coolidge served as the 30th President of the United States. The "Roaring Twenties," a time of great economic success that characterised his presidency. The nation witnessed a boom in industries, technology, and construction during his presidency, which resulted in the creation of numerous employment and an increase in earnings. Coolidge supported a small-government, free-market system of capitalism that encouraged economic growth. Also, he approved laws that lowered income taxes and promoted stock market investment. His administration, however, also came under fire for neglecting to address issues of inequality as well as challenges in rural and agricultural communities.
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Venezuela Corporation built a futsal court at a total cost of $2,500,000. Venezuela received a $500,000 Downpayment (DP) from a local company to support the project, and now needs a $2,000,000 loan to complete the project. The company issues a $2,000,000 bond with an interest rate of 10.5% and a maturity of 10 years. The bonds were issued on January 1, 2009 and the annual interest payment period is January 1. The market interest rate for the bonds is 10%.
(PV10, 10% is 0.38554 and PV of Annuity 10, 10% is 6.14457).
The present value of the bond is $2,060,439.70. This is the amount that Venezuela Corporation will receive when it issues the bond.
The present value of the bond can be calculated by using the formula:
PV = C * (PV of Annuity n, i) + FV * (PV n, i)
Where:
- PV is the present value of the bond
- C is the annual coupon payment
- FV is the face value of the bond
- n is the number of years until maturity
- i is the market interest rate
In this case, the annual coupon payment is $2,000,000 * 10.5% = $210,000. The face value of the bond is $2,000,000. The number of years until maturity is 10, and the market interest rate is 10%.
Plugging these values into the formula, we get:
PV = $210,000 * 6.14457 + $2,000,000 * 0.38554
PV = $1,290,359.70 + $770,080
PV = $2,060,439.70
Therefore, the present value of the bond is $2,060,439.70. This is the amount that Venezuela Corporation will receive when it issues the bond.
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Sandi, Jin and Nika owns and operates a bakeshop. Sandi purchased all the ingredients they will need for their products amounting to 63,440. Nika used half of the ingredients to bake the products they will sell for the day. Jin was able to sell all the products Nika made for 52,125. Compute for the % Margin of the products they sold for that day.
Accoding to the question, Sandi, Jin and Nika owns and operates a bakeshop. Sandi purchased all the ingredients they will need for their products amounting to 63,440. Nika used half of the ingredients to bake the products they will sell for the day. Jin was able to sell all the products Nika made for 52,125. The % Margin of the products they sold for that day is 64.2%.
Let's find the total cost of all the ingredients first. The cost of the ingredients was 63,440. Then, Nika used half of the ingredients to bake the products so we can calculate the cost of the products by dividing the cost of the ingredients by 2:
63,440 / 2 = 31,720
Then, Jin was able to sell all the products Nika made for 52,125. So, the margin of the products sold is the difference between the cost of the products and the amount sold:
52,125 - 31,720 = 20,405
Finally, to find the % Margin of the products sold for that day, we need to divide the margin by the cost of the products and multiply by 100:
20,405 / 31,720 x 100 = 64.2%
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ASAP
Form the Journal entry of the given transaction:
Judy Mason completed these transactions during the first month of her business’s operations:
Date Transactions
September 2 Talas invested P14,000 cash to start her business.
September 2 Paid monthly rent, P500
September 3 Paid cash for a Dell computer, P2,000.
September 4 Purchased office furniture on account, P3,600.
September 10 Purchased supplies on account, P300.
September 15 Performed service to customers on account, P1,700
September 22 Paid salaries, P200
September 25 Performed service for customers and received cash for the full amount of P800
September 26 Paid P1,000 for the office furniture purchased on September 4 and gave a note payable for the remaining accounts payable
September 30 Received P1,500 from customers billed before.
The journal entry for the given transactions can be formed as follows:
Thus this was Received P1,500 from customers billed before.
Journal Entry:
September 2: Cash Dr. P14,000
Talas Capital Cr. P14,000
(Talas invested P14,000 cash to start her business)
September 2: Rent Expense Dr. P500
Cash Cr. P500
(Paid monthly rent)
September 3: Computer Equipment Dr. P2,000
Cash Cr. P2,000
(Paid cash for a Dell computer)
September 4: Office Furniture Dr. P3,600
Accounts Payable Cr. P3,600
(Purchased office furniture on account)
September 10: Supplies Dr. P300
Accounts Payable Cr. P300
(Purchased supplies on account)
September 15: Accounts Receivable Dr. P1,700
Service Revenue Cr. P1,700
(Performed service to customers on account)
September 22: Salaries Expense Dr. P200
Cash Cr. P200
(Paid salaries)
September 25: Cash Dr. P800
Service Revenue Cr. P800
(Performed service for customers and received cash for the full amounts
September 26: Accounts Payable Dr. P1,000
Cash Cr. P1,000
Notes Payable Cr. P2,600
(Paid P1,000 for the office furniture purchased on September 4 and gave a note payable for the remaining accounts payable)
September 30: Cash Dr. P1,500
Accounts Receivable Cr. P1,500
(Received P1,500 from customers billed before)
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Let's Put Together Everything We've Learnt In Our Lesson On Petty Cash and Bank Reconciliation Use 1.5 Resource To Help You Complete The Various Tasks In This Activity! Mark Task 1: Complete the journal entries for the transactions posted here. The Journal template has been created for you and is posted below along with the transactions, along with a list of account names for you to use. Marks Breakdown Task 1 - Journal Transactions Done Correctly (2 Marks Each) Task 1.1 - Journal Transactions Done Correctly (2 Marks Each) out of /10 /4 114 Task Total Journal - Page 30 Date 20-- Accounts and Explanation PR Debit Credit Chart of Accounts 100 Cash 101 Petly Cash 102 Supplies 103 Accounts Receivable - A. Michaels 200 HST Payable 201 HST Recoverable . 400 Sales 401 Interest Earned a. 402 Sales Discount 500 Bank Service Charges 501 Delivery Expense 502 Postage Expense 503 Miscellaneous Expense Transactions Nov 7 Cash sales slips totalled $3295 plus $428.35 HST. Cash was deposited. Issued Sales Invoice 87-B to A. Michaels, terms 3/15, n/30, amount $2000, plus HST 8 Received bank credit memo for $215, interest earned by the company 9 Received bank debit memo for $25, plus $3.25 HST, for the annual charge for a safety deposit box. Total $28.25 15 Received cheque from A. Michaels, $2056.40 for Invoice 87-B, less $63.60 discount. Cheque was deposited. Task 1.1: Read through the following word problem and complete the TWO journal entries that are relevant to the accounts and information given. Renfrew Services established a petty cash fund by issuing a $150 cheque on Sept. 1. By October 15, petty cash vouchers had been prepared for the following petty cash payments. A replenishing cheque was issued. Office Supplies - $45.00 Postage Expense - $50.00 Miscellaneous Expense - $22.50 Delivery Expense - $24.75 Record the initial journal entry that established the fund, and then record the journal entry that was done later to replenish the fund. Raceway Motor Sports Co. Bank Reconciliation Statement July 31, 20- Task 2: Prepare a bank reconciliation statement for the Raceway Motor Sports Co. using the following information: The Cash account balance in the company ledger is $3651.40. A deposit of $565 was recorded in the company journal, but not the bank statement. Attached the bank statement is a debit memo for $85 for a customer's NSF cheque. Bank service charges of $11.40 are shown on the bank statement, Mark out of /1 /1 Marks Breakdown Task 2 - Correct Balance Inputted Task 2 - Deposit Put in Correct Spot Task 2 - Charges & Memos Correctly Inputted Task 2 - Final Cash Balance is correct Task 2 - All Numbers and Formatting Correct 12 11 12 17 Task Total Worksheet Total 121
Task 1:
Debit: $3295
Credit: $428.35
Task 2:
Bank Reconciliation Statement for Raceway Motor Sports Co.
Cash Balance per Company Ledger: $3651.40
Add: Deposit not recorded by bank: $565
Less: NSF cheque: $85
Less: Bank service charges: $11.40
Adjusted Cash Balance: $4120
Cash Balance per Bank Statement: $4120
Add: Deposit not recorded by bank: $565
Less: NSF cheque: $85
Less: Bank service charges: $11.40
Adjusted Cash Balance: $4588.60
Final Cash Balance: $4588.60
Task 1:
Journal Entry 1:
Date: Nov 7
Accounts and Explanation: Cash Sales
PR: 100
Debit: $3295
Credit: $428.35
Journal Entry 2:
Date: Nov 7
Accounts and Explanation: Sales Invoice 87-B to A. Michaels
PR: 103
Debit: $2000
Credit: $260
Journal Entry 3:
Date: Nov 8
Accounts and Explanation: Bank Credit Memo
PR: 401
Debit: $215
Credit: $0
Journal Entry 4:
Date: Nov 9
Accounts and Explanation: Bank Debit Memo
PR: 500
Debit: $25
Credit: $3.25
Journal Entry 5:
Date: Nov 15
Accounts and Explanation: Cheque from A. Michaels
PR: 100
Debit: $2056.40
Credit: $63.60
Task 1.1:
Journal Entry 1:
Date: Sept 1
Accounts and Explanation: Petty Cash Fund
PR: 101
Debit: $150
Credit: $0
Journal Entry 2:
Date: Oct 15
Accounts and Explanation: Petty Cash Replenishment
PR: 102
Debit: $45
Credit: $50
PR: 502
Debit: $50
Credit: $22.50
PR: 501
Debit: $22.50
Credit: $24.75
Task 2:
Bank Reconciliation Statement for Raceway Motor Sports Co.
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Carl Draper is operating the training service business, Draper Consulting, in Sydney. He completed the following transactions during the month of December: Dec 1 Received $18,000 cash and a land valued at $90,000 by Carl Draper, the owner. Dec 3 Provided training service to the client at $18,000 and received 2/3 amount of cash immediately. Dec 5 Paid last-month salary to employee, $50,000. Dec 10 Paid cash for a Dell computer, $18,000. This equipment is expected to remain in service for five years. Dec 15 Officially launched a new branch in Melbourne. Dec 15 Borrowed money from ADT Bank for the future plan of investment at $60,000. Dec 17 Purchase supplies on credit, $900 Dec 19 Perform consulting service for a client on credit, $1,500 Dec 20 The secretary loaned money form Carl at $20,000. Dec 22 Acquired a new building for business office at $100,000, half paid cash immediately, half used from the loan of bank. Dec 30 Carl withdrew cash from the business for his personal petrol at $200. Dec 30 Paid full cash to the credit supplier on transaction Dec 17. Dec 31 Received the remaining cash from client that provided service on Dec 3. Dec 31 Received the electricity bill of $800 for December and the accountant promised to paid the first date of next month. Dec 31 Performed service for a client and received cash of $1,100
During December, Draper Consulting received cash and land from the owner, provided training and consulting services to clients for cash and credit, purchased a computer and a building, borrowed money from the bank, paid salaries and bills, and had a personal withdrawal by the owner.
Draper Consulting's transactions for the month of December are as follows:
Dec 1: Received $108,000 ($18,000 cash and $90,000 land) from the owner, Carl Draper.
Dec 3: Provided training services to a client for $18,000 and received $12,000 (2/3 amount) in cash immediately.
Dec 5: Paid last month's salary to employee for $50,000.
Dec 10: Purchased a Dell computer for $18,000, which is expected to remain in service for five years.
Dec 15: Launched a new branch in Melbourne.
Dec 15: Borrowed $60,000 from ADT Bank for future investment plans.
Dec 17: Purchased supplies on credit for $900.
Dec 19: Performed consulting services for a client on credit for $1,500.
Dec 20: The secretary loaned $20,000 from Carl.
Dec 22: Acquired a new building for the business office for $100,000, paying half in cash and half with the bank loan.
Dec 30: Carl withdrew $200 cash from the business for his personal petrol.
Dec 30: Paid the full amount of $900 to the credit supplier from the transaction on Dec 17.
Dec 31: Received the remaining $6,000 ($18,000 - $12,000 received on Dec 3) from the client for the training services provided.
Dec 31: Received the electricity bill of $800 for December, which the accountant promised to pay on the first day of the next month.
Dec 31: Performed consulting services for a client and received $1,100 in cash.
Overall, the business received cash and a land from the owner, provided services to clients for cash and credit, purchased a computer and a building, borrowed money from the bank, paid salaries and bills, and had a personal withdrawal by the owner.
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HOW DOES US TREASURY AND FEDERAL RESERVE BANK WORK
TOGETHER ON ISSUING NEW SECURITIES - T-BILLS AND
T-BONDS
The US Treasury is responsible for creating and issuing new securities, such as T-Bills and T-Bonds. The Treasury Department sells these securities through auctions to the public and to financial institutions.
The Federal Reserve Bank is responsible for regulating the supply of money in the economy. One of the ways the Federal Reserve Bank does this is by buying and selling securities, such as T-Bills and T-Bonds, in the open market.
When the Federal Reserve Bank buys securities from the Treasury Department, it is effectively increasing the supply of money in the economy. This is because the Federal Reserve Bank is creating new money to buy the securities, which then flows into the economy.
Similarly, when the Federal Reserve Bank sells securities to the public or to financial institutions, it is effectively decreasing the supply of money in the economy. This is because the Federal Reserve Bank is taking money out of the economy in exchange for the securities.
In this way, the US Treasury and the Federal Reserve Bank work together to regulate the supply of money in the economy and to ensure that there is enough money available to support economic growth.
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QUESTION FIVE
A. Empress Express has no debt but can borrow at 8.2 percent. The WACC for the
firm is currently at 11 percent, and the tax rate is 35 percent.
I. What is the cost of equity for the firm? [2 Marks]
II. If the firm converts to 25 percent debt, determine the total cost of equity and
the WACC for the firm. [8 Marks]
B. The analysis of inventory policy is analogous to the analysis of credit policy.
C. Explain how efficient inventory management affects the risk, liquidity and
profitability of the firm. [9 Marks]
D. Discuss any three (3) sources of information that you might use to analyze a credit
applicant. [6 Marks]
The firm has 11% of cost of equity, inventory policy determines the optimal level of inventory to hold which is similar to Credit and Debit policy.
Risks, Liquidity, Profitability are affected by the inventory management, there are three sources of of information.
A. I: The cost of equity for the firm is 11%. This is because the WACC for the firm is currently at 11% and there is no debt, so the cost of equity is the same as the WACC.
II: If the firm converts to 25% debt, the total cost of equity will be 11.55% and the WACC will be 9.96%.
The cost of equity can be calculated using the formula: Cost of equity = WACC + (WACC - Cost of debt) * (1 - Tax rate) * (Debt/Equity)
= 11% + (11% - 8.2%) * (1 - 35%) * (25%/75%)
= 11.55%
The WACC can be calculated using the formula: WACC = (Cost of equity * Equity) + (Cost of debt * Debt) * (1 - Tax rate)
= (11.55% * 75%) + (8.2% * 25%) * (1 - 35%)
= 9.96%
B. The analysis of inventory policy is analogous to the analysis of credit policy because both involve managing the firm's assets and liabilities in a way that maximizes profitability and minimizes risk.
Just like credit policy, inventory policy involves determining the optimal level of inventory to hold, the cost of holding inventory, and the impact of inventory levels on the firm's liquidity and profitability.
C. Efficient inventory management affects the risk, liquidity, and profitability of the firm in the following ways:
- Risk: By maintaining an optimal level of inventory, the firm can minimize the risk of stockouts and lost sales, as well as the risk of holding excess inventory that may become obsolete or spoil.
- Liquidity: By managing inventory efficiently, the firm can ensure that it has enough cash on hand to meet its short-term obligations and avoid liquidity problems.
- Profitability: Efficient inventory management can help the firm reduce the cost of holding inventory, which can increase profitability. It can also help the firm avoid stockouts and lost sales, which can also increase profitability.
D. Three sources of information that you might use to analyze a credit applicant are:
- Credit reports: These reports provide information on the applicant's credit history, including payment history, outstanding debt, and credit utilization.
- Financial statements: These statements provide information on the applicant's financial position, including assets, liabilities, and profitability.
- References: These can provide information on the applicant's payment history and creditworthiness from other creditors.
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Are electric cars the future? A Is it all about technology? What are the political, social, and environmental concerns/implications for electric cars?
Yes, electric cars are considered to be the future of transportation due to their ability to reduce our reliance on fossil fuels and reduce our carbon footprint. However, there are also political, social, and environmental concerns and implications associated with electric cars.
Political: The transition to electric cars requires a significant investment in infrastructure, such as charging stations and battery production facilities. This can create political challenges, as governments must decide how to allocate resources and prioritize funding for these initiatives.
Social: There is also a social concern related to the affordability of electric cars. While the cost of electric cars is decreasing, they are still generally more expensive than traditional gas-powered vehicles. This raises concerns about access and equity, as lower-income individuals may not be able to afford electric cars.
Environmental: While electric cars have a lower environmental impact than traditional cars, there are still concerns about the production and disposal of batteries. The mining of materials for batteries can have negative environmental impacts, and the disposal of batteries can create hazardous waste.
Overall, while electric cars are seen as a promising technology for the future, there are still political, social, and environmental concerns that need to be addressed.
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In a regression of the single-index model, the R-square is 68%,
residual variance is 0.08, beta estimate is 0.7. What is the
variance of the market excess return? (round 4 decimal places)
Variance of market excess return = 1.8503 .
In a regression of the single-index model, we can use the formula for R-square to find the variance of the market excess return.
The formula for R-square is:
R-square = (beta^2 * variance of market excess return) / (beta^2 * variance of market excess return + residual variance)
Given that R-square = 68%, beta = 0.7, and residual variance = 0.08, we can plug in these values and solve for the variance of market excess return:
0.68 = (0.7^2 * variance of market excess return) / (0.7^2 * variance of market excess return + 0.08)
0.68 * (0.7^2 * variance of market excess return + 0.08) = 0.7^2 * variance of market excess return
0.68 * 0.7^2 * variance of market excess return + 0.68 * 0.08 = 0.7^2 * variance of market excess return
0.68 * 0.08 = 0.7^2 * variance of market excess return - 0.68 * 0.7^2 * variance of market excess return
0.0544 = 0.0294 * variance of market excess return
Variance of market excess return = 0.0544 / 0.0294
Variance of market excess return = 1.8503
Therefore, the variance of the market excess return is 1.8503 (rounded to 4 decimal places).
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Explain the term "competitive advantage" as it relates to
organizational staffing. Provide at least two (2) detailed examples
that illustrate your explanation.
Explain (in detail and provide at
"Competitive advantage" refers to the unique set of capabilities and resources that allow an organization to create and deliver value to its customers better than its competitors.
In terms of organizational staffing, having a competitive advantage means having the right people in the right places, with the right skills and the right attitude.
For example, if a company's competitive advantage is in the field of information technology, it would make sense to staff the company with IT professionals who have the knowledge, skills, and experience needed to develop and implement innovative IT solutions.
This would give the company a competitive edge over its competitors.
Another example would be if an organization's competitive advantage is in customer service. In this case, the organization should focus on recruiting, training, and retaining employees with the necessary customer service skills and knowledge.
This would allow the company to provide superior customer service and give it a competitive advantage in the marketplace.
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identify and briefly discuss five challenges to the successful
implementation of an enterprise system.Provide several tips to
overcome these challenges.
The implementation of an enterprise system can be challenging due to several reasons:Resistance to change, Integration with existing systems, Data migration,Lack of support from top management,Cost.
1. Resistance to change: Employees may resist the implementation of a new system because they are comfortable with the existing one. To overcome this challenge, it is important to involve employees in the implementation process, provide proper training, and communicate the benefits of the new system.
2. Integration with existing systems: It can be difficult to integrate the new enterprise system with the existing systems. To overcome this challenge, it is important to carefully plan the integration process and use integration tools and technologies.
3. Data migration: Transferring data from the old system to the new system can be challenging. To overcome this challenge, it is important to carefully plan the data migration process and use data migration tools.
4. Lack of support from top management: Without the support of top management, the implementation of an enterprise system may fail. To overcome this challenge, it is important to communicate the benefits of the new system to top management and gain their support.
5. Cost: The implementation of an enterprise system can be expensive. To overcome this challenge, it is important to carefully plan the implementation process and budget, and look for ways to reduce costs.
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FACTUAL REVIEW QUESTIONS 1. Define the expression quality culture. 2. Explain why the implementation of total quality requires cultural change. 3. List and describe the steps involved in laying the foun- dation for a quality culture. 4. What are the characteristics shared by companies that have a quality culture? 64
1. Quality culture is an organizational culture that prioritizes quality in every aspect of the business, from production processes to customer service.
2. The implementation of total quality requires cultural change because it requires a shift in mindset and behavior throughout the organization.
3. The steps involved in laying the foundation for a quality culture includes like Setting quality goals ,Creating a system,Establishing a vision .
4. Companies that have a quality culture share several characteristics, including focus on customer satisfaction,Employee empowerment,commitment to quality .
1, It is characterized by a focus on continuous improvement, employee empowerment, and customer satisfaction.
2.This includes a commitment to quality at all levels of the organization, a willingness to continually improve processes and products, and a focus on customer satisfaction.
3. The steps involved in laying the foundation for a quality culture are:
- Establishing a vision for quality and communicating it throughout the organization
- Setting quality goals and objectives
- Creating a quality management system
- Developing a quality training program for employees
- Creating a system for measuring and monitoring quality performance
- Implementing continuous improvement processes
4. Companies that have a quality culture share several characteristics, including:
- A commitment to quality at all levels of the organization
- A focus on customer satisfaction
- Employee empowerment and involvement in quality improvement efforts
- A willingness to continually improve processes and products
- A system for measuring and monitoring quality performance
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DrinksOnUs Inc. wants to expand its product offerings with a new non-alcoholic drink mix at a cost of $7.8 million. The drink mix is expected to bring incremental pre-tax sales of $2.75 million per year for the next 5 years. If the firm has a cost of capital of 8.5%, and pays a 30% corporate tax rate, what would be the NPV of this drink mix investment?
A) $308,880
B) -$11,672
C) -$214,264
D) $92,880
E) -$114,033
The correct answer is B) -$11,672. The NPV of this drink mix investment is -$220,000, which is closest to the answer choice B) -$11,672.
To calculate the NPV of this drink mix investment, we need to use the following formula:
NPV = Σ{[Ct/(1+r)^t] - C0}
Where:
Ct = net cash flow at time t
r = discount rate (cost of capital)
C0 = initial investment
First, we need to calculate the net cash flow at time t. This is the incremental pre-tax sales minus the corporate tax rate:
Ct = $2.75 million - ($2.75 million * 0.30) = $1.925 million
Next, we need to calculate the NPV for each year and sum them up:
NPV = ($1.925 million / (1 + 0.085)^1) + ($1.925 million / (1 + 0.085)^2) + ($1.925 million / (1 + 0.085)^3) + ($1.925 million / (1 + 0.085)^4) + ($1.925 million / (1 + 0.085)^5) - $7.8 million
NPV = $1.773 million + $1.633 million + $1.505 million + $1.388 million + $1.281 million - $7.8 million
NPV = $7.58 million - $7.8 million
NPV = -$0.22 million
NPV = -$220,000
Therefore, the NPV of this drink mix investment is -$220,000, which is closest to the answer choice B) -$11,672.
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A firm that sells oil worries that if oil price is too low, they will suffer a loss and lead to bankruptcy. They will be making a delivery at the end of the year, and they will receive the spot price at that time. Their cost of extracting oil was $120 per barrel. The firm will bankrupt if they lose more than $30 per barrel. The one year risk-free interest rate is 2% p.a.. Which of the following would be the best hedging strategy that would guarantee the firm avoid bankruptcy? *In the risk management chapter, there is no need to compound operational costs, i.e. there is no need to compound $120. a. Short forward with an exercise price of 91.8 O b. Long forward with an exercise price of 91.8 O c. Long Put with a strike price of 120 and a premium of $30.75. O d. Short Call with a strike price of 120 and a premium of 3.12
The best hedging strategy that would guarantee the firm avoids bankruptcy is option c. long put with a strike price of 120 and a premium of $30.75.
A long put option gives the holder the right, but not the obligation, to sell an asset at a specified price (the strike price) within a specified period of time.
In this case, the firm can buy a put option with a strike price of $120 and a premium of $30.75.
This means that if the spot price of oil falls below $120 at the end of the year, the firm can exercise the option and sell their oil at $120, avoiding any losses greater than $30 per barrel.
The premium of $30.75 is the cost of buying the option, and it is the maximum amount the firm can lose on the trade.
Therefore, option c is the best hedging strategy for the firm because it guarantees that they will not lose more than $30 per barrel, which is the amount they can afford to lose without going bankrupt.
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PreparationIn this assignment, we’ll return to Sun City Boards and the management challenges they face. With your advice, Tom Wilson (the owner) has continued to make strategic planning progress, but you and Tom realize that a new organizational structure is needed for the company to grow as you envision. Plans include expanding beyond a single store/manufacturing shop and reaching new markets via an Internet presence and e-commerce. The following is a summary of the current staff and loose descriptions of job functions:Owner/CEO—Tom Wilson (Designs the boards, sets their selling price, and establishes sales channels with local surf shops)Bookkeeper—Sarah Balanced (Sarah also doubles as order-taking clerk, cash register attendant, and customer complaint listener)Board Maker—Jack Ovalltrades (If Tom invents it, Jack can make it!)Board Making Assistants—Jill, Jane, & Judy (Assignments change almost daily as Jack decides what needs to be done next)Sales Associate—Kelly Dude (Named after famed surfer Kelly Slater and a business icon for Sun City Boards; visits surf shops and occasionally closes a sale)Part-time Associates—Hired as needed for inventory management (cleanup), promotional events, etc.Module 5 Organizational Structure and Processes Learning UnitLinks to an external site. provides examples of organizational structures. As Tom’s advisor, your assignment now is to select one of the organizational structures presented in the Learning Unit, describe how it works, chart the future structure for Sun City, and explain why you prescribe it. The following steps will help you prepare for your written assignment:Thoroughly read Module 5 Organizational Structure and Processes Learning UnitLinks to an external site..Carefully consider the various organizational structures, their key structural components, and organizational timing relevant for Sun City. Consider the internal and external environmental factors, as well as current trends.Your TaskSelect one of the Organizational Structures from your reading for Sun City.Create a Future State Organizational Chart for Sun City. You may use a presentation tool of your choice. There are numerous organizational chart format inserts available in popular software. Microsoft Word and PowerPoint have Hierarchy charts found on the Insert tab under SmartArt. Your organization chart should contain the title of the job function, even if no Sun City employee currently fills that role. You may also recommend a reporting structure for the existing employees within the new structure.Write at least two paragraphs describing your chosen structure and why you selected it. Your written explanation must include three properly referenced and defined terms from the module reading. For example, if you select a functional structure, explain each relevant function.
The recommended organizational structure for Sun City Boards is the divisional structure. This structure is suitable for the company because it allows for the creation of separate divisions for different products or services, such as a division for manufacturing, a division for retail sales, and a division for online sales. Each division can have its own manager who is responsible for the division's performance and can make decisions based on the needs of the division.
The Future State Organizational Chart for Sun City Boards would include the following positions:
- Owner/CEO: Tom Wilson
- Manufacturing Division Manager: Jack Ovalltrades
- Retail Sales Division Manager: Kelly Dude
- Online Sales Division Manager: New Hire
- Bookkeeper: Sarah Balanced
- Manufacturing Assistants: Jill, Jane, & Judy
- Sales Associates: Hired as needed
- Part-time Associates: Hired as needed
The divisional structure allows for each division to have its own manager who is responsible for the division's performance and can make decisions based on the needs of the division. This structure also allows for the creation of separate divisions for different products or services, which is important for Sun City Boards as they expand beyond a single store and into new markets. Additionally, the divisional structure allows for greater flexibility and adaptability, as each division can respond to changes in the market or customer needs without affecting the entire company. Overall, the divisional structure is the best fit for Sun City Boards as they continue to grow and expand their business.
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Case:
After finishing your BBA at EU Business School, you are looking forward to find a job that suits with your interests, studies and capabilities, after attending several meetings you see an email from your brother.
You had not seen him for a long period, you are excited to hear from him. His email was explaining that he was thinking about investing in a new project and he wanted to receive your input and advice regarding the project.
He wants you to prepare projected financial statements to have an idea of the profitability of the project and how could the project be structured.
Following we have the data that your brother Peter has delivered to you:
Sales: The expected sales are 1.000.000 units for the first year, 2.000.000 in the second year, 2.750.000 in the third year, 3.250.000 in the fourth year and a 3% growth in units from the fourth year to the fifth year.
The sales price per unit is 10€ per unit on the first two years, but once the product has been introduced in the market, the sales price will increase to 11€ for the years 3, 4 and 5.
Cost of goods sold: The recipe of the product explains that COGS will have a cost of 6€ per unit, and no change is expected during the rest of the project.
Production labor: The first year the plant needs 6 technicians with a cost of 40000€ per person per year, 70 production workers with an annual cost of 30.000€ per employee per year, and 1 manager with a cost of 90.000€ per person per year. The next years the production labor will increase, due to the fact that the production of the plant will also be increasing. The year 2 the cost will be 50% higher than year 1, the year 3 the cost will be 60% higher than year 1, the year 4 the cost will be 75% higher than year 1 and in year 5 the cost will be 80% higher than year 1.
Investment: the required investment is 3.500.000€, of which 2.000.000 will be depreciated over a period of 10 years and the rest will be depreciated over a period of 4 years. No more investments will be required during the years 2 until 5.
Utilities expense: We expect a cost of 0.20€ per unit on the first year, as the energy seems to have price pressure in the future, we believe that the energy cost per unit will be increasing a 5% year over year until year 5.
Maintenance cost: it will be outsourced, and we expect a cost of 0.3€ per unit in average for the first year. As the machinery gets older, we expect the maintenance costs to increase, we believe that the average cost per unit will grow at a 5% rate year over year.
General and administration costs are expected to be 200.000€ for the first year, 210000 for the second year, and for the following years the cost should increase in line with the sales volume growth, so if the sales in units grow a 10%, then the G&A cost should also grow a 10% from the previous period.
The days to collect accounts receivable are 90, the days to pay suppliers are 30.
The company will need an inventory of 30 days.
After receiving all of this information, you realize that you have no idea about how your brother is going to finance this project, so you send an email requesting for this information. The answer from Peter is not concrete, he says "I have 2.000.000€ that I could invest, the rest you will have to convince the banks to give us a loan, as I am not willing to chare the property of the company with other investors."
You know that the tax rate is 25% and the interest rate is 5%.
So now is your turn to show everything you have learned and
prepare a Profit & loss account for the next 5 years and a balance sheet for the same period.
Calculate Return on Equity, return on sales and debt to assets ratio.
Explanation:
Financial projections for investment.

Case: After finishing your BBA at EU Business School, you are looking forward to find a job that suits with your interests, studies and capabilities, after attending several meetings you see an email from your brother. You had not seen him for a long period, you are excited to hear from him. His email was explaining that he was thinking about investing in a new project and he wanted to receive your input and advice regarding the project. He wants you to prepare projected financial statements to have an idea of the profitability of the project and how could the project be structured. Following we have the data that your brother Peter has delivered to you: Sales: The expected sales are 1.000.000 units for the first year, 2.000.000 in the second year, 2.750.000 in the third year, 3.250.000 in the fourth year and a 3% growth in units from the fourth year to the fifth year. The sales price per unit is 10€ per unit on the first two years, but once the product has been introduced in the market, the sales price will increase to 11€ for the years 3, 4 and 5. Cost of goods sold: The recipe of the product explains that COGS will have a cost of 6€ per unit, and no change is expected during the rest of the project. Production labor: The first year the plant needs 6 technicians with a cost of 40000€ per person per year, 70 production workers with an annual cost of 30.000€ per employee per year, and 1 manager with a cost of 90.000€ per person per year. The next years the production labor will increase, due to the fact that the production of the plant will also be increasing. The year 2 the cost will be 50% higher than year 1, the year 3 the cost will be 60% higher than year 1, the year 4 the cost will be 75% higher than year 1 and in year 5 the cost will be 80% higher than year 1. Investment: the required investment is 3.500.000€, of which 2.000.000 will be depreciated over a period of 10 years and the rest will be depreciated over a period of 4 years. No more investments will be required during the years 2 until 5. Utilities expense: We expect a cost of 0.20€ per unit on the first year, as the energy seems to have price pressure in the future, we believe that the energy cost per unit will be increasing a 5% year over year until year 5. Maintenance cost: it will be outsourced, and we expect a cost of 0.3€ per unit in average for the first year. As the machinery gets older, we expect the maintenance costs to increase, we believe that the average cost per unit will grow at a 5% rate year over year. General and administration costs are expected to be 200.000€ for the first year, 210000 for the second year, and for the following years the cost should increase in line with the sales volume growth, so if the sales in units grow a 10%, then the G&A cost should also grow a 10% from the previous period. The days to collect accounts receivable are 90, the days to pay suppliers are 30. The company will need an inventory of 30 days. After receiving all of this information, you realize that you have no idea about how your brother is going to finance this project, so you send an email requesting for this information. The answer from Peter is not concrete, he says "I have 2.000.000€ that I could invest, the rest you will have to convince the banks to give us a loan, as I am not willing to chare the property of the company with other investors." You know that the tax rate is 25% and the interest rate is 5%. So now is your turn to show everything you have learned and prepare a Profit & loss account for the next 5 years and a balance sheet for the same period. Calculate Return on Equity, return on sales and debt to assets ratio.
To prepare the financial statements, we need to analyze the information provided and make some assumptions to complete missing data.
Projected Income Statement for the Next 5 Years:
Year12345Sales10,000,00022,000,00030,125,00039,312,50040,462,500Cost of Goods Sold6,000,00013,200,00018,075,00023,587,50024,324,375Gross Profit4,000,0008,800,00012,050,00015,725,00016,138,125Production Labor2,558,0004,129,6006,606,40011,563,50011,930,680Utilities Expense200,000440,000634,375793,125841,282Maintenance Cost300,000660,000950,6251,190,7811,263,413General and Admin Expenses200,000210,000231,000254,100269,790EBITDA1,741,0003,560,4004,627,000
To prepare the projected financial statements and calculate the required ratios, we need to use the given information and apply the relevant formulas. Here are the steps to follow:
1. Calculate the projected sales revenue for each year by multiplying the expected sales units by the sales price per unit.
2. Calculate the projected cost of goods sold (COGS) for each year by multiplying the expected sales units by the COGS per unit.
3. Calculate the projected production labor cost for each year by adding up the cost of the technicians, production workers, and manager, and multiplying by the relevant percentage increase for each year.
4. Calculate the projected depreciation expense for each year by dividing the investment amount by the depreciation period (10 years for 2,000,000€ and 4 years for 1,500,000€).
5. Calculate the projected utilities expense for each year by multiplying the expected sales units by the utilities cost per unit, and multiplying by the relevant percentage increase for each year.
6. Calculate the projected maintenance cost for each year by multiplying the expected sales units by the maintenance cost per unit, and multiplying by the relevant percentage increase for each year.
7. Calculate the projected general and administration (G&A) cost for each year by using the given amounts for the first two years, and multiplying by the relevant percentage increase for the following years.
8. Calculate the projected earnings before interest and taxes (EBIT) for each year by subtracting the COGS, production labor cost, depreciation expense, utilities expense, maintenance cost, and G&A cost from the sales revenue.
9. Calculate the projected interest expense for each year by multiplying the loan amount (1,500,000€) by the interest rate (5%).
10. Calculate the projected earnings before taxes (EBT) for each year by subtracting the interest expense from the EBIT.
11. Calculate the projected income tax expense for each year by multiplying the EBT by the tax rate (25%).
12. Calculate the projected net income for each year by subtracting the income tax expense from the EBT.
13. Prepare the projected profit & loss account for the next 5 years by listing the sales revenue, COGS, production labor cost, depreciation expense, utilities expense, maintenance cost, G&A cost, EBIT, interest expense, EBT, income tax expense, and net income for each year.
14. Prepare the projected balance sheet for the next 5 years by listing the assets (accounts receivable, inventory, and fixed assets), liabilities (accounts payable and loan), and equity (owner's investment and retained earnings) for each year.
15. Calculate the return on equity (ROE) for each year by dividing the net income by the equity.
16. Calculate the return on sales (ROS) for each year by dividing the net income by the sales revenue.
17. Calculate the debt to assets ratio for each year by dividing the total liabilities by the total assets.
By following these steps, you can prepare the projected financial statements and calculate the required ratios for the next 5 years.
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