Finance -AW-Q51 Online Services
QPM SHIPPING COMPANY
In April 2008, the controller of QPM Shipping Company, located near Pittsburgh, has delivered a recommendation to the board regarding the feasibility of repairing one of the company’s diesel riverboats (“Cargo Master”) or replacing the Cargo Master with a new turbo-diesel powered boat. The Cargo Master, a 12-year-old diesel boat now in dry-dock, requires immediate rehabilitation or replacement. Based upon a consulting firm’s analysis the controller has recommended that the Cargo Master be rehabilitated as soon as possible. Your boss, a board member has asked you to prepare to one to three page memo indicating which option is preferable and why with exhibits that he can use at the next board meeting. Your boss has provided you the following background information.
QPM Shipping is engaged in the transportation of coal from nearby mines to the steel mills, public utilities, and other industries in the Pittsburgh area. The company’s diesel boats also on occasion carried cargo on long hauls. All the boats owned by QPM Shipping are diesel-powered. All their boats are between 7 and 18 years old. The Cargo Master has been out of operation for about seven months. A consulting firm was engaged to prepare a feasibility study with the purpose of recommending the rehabilitation of the Cargo Master or replace her with a new turbo-diesel. QPM Shipping has been losing business for the past several months, as their current fleet of five operating diesel boats (excluding the Cargo Master in dry-dock) does not have the capacity to meet current and expected cargo demands.
The consultant’s report ended with a financial summary indicating an expected return from both alternatives exceeded the firm’s current average return on equity of 17%. The financial summary indicates that rehabilitating the Cargo Master is the better alternative given its materially higher expected rate of return and its lower cash outlay.
The consulting firm concluded that the Cargo Master would have a useful life of 15 years after rehabilitation. The consulting company estimated the rehabilitation costs for the Cargo Master to be $430,000. Spare parts from a retired boat with a book value of $86,500 are available for use in the rehabilitation of the Cargo Master. Use of these parts would in effect decrease the immediate rehabilitation costs from $430,000 to $343,500. It was believed that if these parts were sold on the market they would bring only around $60,000. They could not be used on any of the other QPM Shipping diesel boats. QPM is not depreciating the Cargo Master as the ship is not currently in use.
The controller estimated that the cost of dismantling and scrapping the Cargo Master at the end of its useful life after the overhaul would be offset by the value of the scrap and used parts taken off the boat.
The consulting firm’s report indicates that with the Cargo Master rehabilitated QPM’s operating revenue would increase by about $985,000 per year resulting in gross profits increasing $235,000 given the firm’s mix of fixed and variable costs. General and administrative costs would increase $65,000 with the additional boat. Details of the increase in operating costs are shown on Table A. A major shareholder is planning to lend the company up to $150,000 for the rehabilitation. The loan would have a 7-year duration and have an 8.25% Interest rate. The balance would come from cash reserves and the firm’s credit line. The rehabilitation will take about 6 months.
Acquiring A Turbo-Diesel
An alternative to rehabilitating the Cargo Master is to purchase a turbo-diesel powered boat with a six month delivery time. The book value of the Cargo Master was $279,000, but the controller believed that if the company sold the boat, it would bring only around $75,000. The Krasner Company, a local boat manufacturer, had introduced the turbo-diesel about two years ago. The cost of the boat was $1,725,000. An additional $125,000 for a basic parts inventory would be necessary to service the boat. The turbo-diesel powered boat would be purchased with seller-financed 15 year 7.50% loan of $900,000 with the balance paid with funds raised by issuing shares to family members at $135 per share. The useful life of a turbo-diesel-powered boat was estimated to be 15 years; at the end of that time the boat would most likely be scrapped. A general overhaul of the engines, costing $120,000 at current prices, would be expected after 10 years of operation.
You can read more about our case study assignment help services here.
How it Works
How It works ?
Step 1:- Click on Submit your Assignment here or shown in left side corner of every page and fill the quotation form with all the details. In the comment section, please mention Case Id mentioned in end of every Q&A Page. You can also send us your details through our email id email@example.com with Case Id in the email body. Case Id is essential to locate your questions so please mentioned that in your email or submit your quotes form comment section.
Step 2:- While filling submit your quotes form please fill all details like deadline date, expected budget, topic , your comments in addition to Case Id . The date is asked to provide deadline.
Step 3:- Once we received your assignments through submit your quotes form or email, we will review the Questions and notify our price through our email id. Kindly ensure that our email id firstname.lastname@example.org and email@example.com must not go into your spam folders. We request you to provide your expected budget as it will help us in negotiating with our experts.
Step 4:- Once you agreed with our price, kindly pay by clicking on Pay Now and please ensure that while entering your credit card details for making payment, it must be done correctly and address should be your credit card billing address. You can also request for invoice to our live chat representatives.
Step 5:- Once we received the payment we will notify through our email and will deliver the Q&A solution through mail as per agreed upon deadline.
Step 6:-You can also call us in our phone no. as given in the top of the home page or chat with our customer service representatives by clicking on chat now given in the bottom right corner.
We use best scientific approach to solve case study as recommended and designed by best professors and experts in the World. The approach followed by our experts are given below:
The first step in solving any case study analysis is to define its problem carefully. In order to do this step, our experts read the case two three times so as to define problem carefully and accurately. This step acts as a base and help in building the structure in next steps.
The second step is to define structure to solve the case. Different cases has different requirements and so as the structure. Our experts understand this and follow student;s university guidelines to come out with best structure so that student will receive best mark for the same.
Research and Analysis
This is the most important step which actually defines the strength of any case analysis. In order to provide best case analysis, our experts not only refer case materials but also outside materials if required to come out with best analysis for the case.
Conclusion & Recommendations
A weak conclusion or recommendations spoil the entire case analysis. Our expert know this and always provide good chunks of volume for this part so that instructors will see the effort put by students in arriving at solution so as to provide best mark.
- Physics Assignment Help
- Chemistry Assignment Help
- Engineering Assignment Help
- Psychology Assignment Help
- Online exam Help
- Marketing Assignment Help
- Arts Assignment Help
- Sociology Assignment Help
- Project Management Assignment
- Case Study Help
- Nursing Assignment Help
- Research Assignment Help
- Operations Management Assignment help
- Accounting Assignment Help
- Biology Assignment Help
- Mathematics Assignment Help
- English Assignment Help
- Business Plan Help
- Essay Writing Help
- Human Resource Assignment Help
- Accounting Homework Help
- Computer Science Assignment Help
- Finance Assignment Help
- Economics Assignment Help
- Statistics Homework Help
- Management Assignment Help
- Strategy Management Assignment Help
- Auditing Assignment Help
- Information Management Assignment Help
- Online Assignment Writing help
- Humanities Assignment help
- Taxation Homework Help
- Corporate Finance Assignment Help
- Financial Management Assignment Help
With the acquisition of a turbo-diesel revenue is expected to grow by $1,175,000 in 2005 due to a larger cargo capacity and the additional speed of the turbo-diesel boat. The consultants concluded that given QPM Shipping’s mix of fixed and variable costs, gross profits of $376,000 would be generated based upon expected operating costs that are shown on Table B. General and administrative costs would be expected to increase by $65,000.
ANNUAL OPERATING COSTS FOR THE CARGO MASTER AND ITS CREW
Wages (crew of 7) $383,000
Commissary supplies 50,000
Repairs and maintenance 75,000
Miscellaneous service and supplies 30,000
ANNUAL OPERATING COSTS FOR
Wages (crew of 6) $328,000
Commissary supplies $43,000
Repairs and maintenance 115,000
Miscellaneous service and supplies 50,000
Cargo Master Turbo-Diesel
Additional Revenue $ 985,000 $ 1,175,000
Additional Operating Costs $ 750,000 $ 799,000
Additional General & Administrative Costs $ 65,000 $ 65,000
Additional interest expense $ 7,500 $ 67,500
Estimated increase in Pre-tax Profits $ 162,500 $ 243,500
Estimated taxes @ 30% $ 48,750 $ 73,050
Estimated Increase in After-tax Profits $ 113,750 $ 170,450
Estimated Out of Pocket Cash $ 243,000 $ 550,000
Expected Return on Equity Investment 47% 31%
($119 / $243) ($170.45 / $550)
2005 2006 2007 2008
Revenue 4,124,000 4,575,160 4,882,549 4,246,828
Operating Expenses 3,139,457 3,504,220 3,739,333 3,247,409
Gross Profit 984,543 1,070,940 1,143,216 999,419
23.9% 23.4% 23.4% 23.5%
General & Administration 520,920 535,753 589,387 603,356
12.63% 11.71% 12.07% 14.21%
Interest Expense 62,159 66,280 71,619 72,852
Earnings Before Taxes 401,465 468,907 482,209 323,210
Taxes 116,425 140,672 147,074 95,994
Earnings After Taxes 285,040 328,235 335,135 227,217
HISTORICAL FINANCIAL STATEMENTS
2005 2006 2007 2008
Cash 100,000 103,090 155,210 158,489
A/R 600,000 629,815 663,425 614,680
Prepaid Assets 250,000 257,025 258,538 267,491
Tot Current Assets 950,000 989,930 1,077,173 1,040,660
Plant Prop. & Equip. 6,110,000 6,617,942 6,865,303 7,010,541
Accum. Depreciation 4,200,000 4,424,831 4,530,645 4,546,570
Net Fixed Assets 1,910,000 2,193,111 2,334,658 2,463,971
Total Assets 2,860,000 3,183,041 3,411,831 3,504,631
Accounts Payable 350,000 335,320 416,130 433,372
Other Current Liabilities 200,000 253,416 287,599 250,212
Current Portion LTD 75,000 88,773 141,315 161,870
Income Tax Payable 60,000 65,572 73,480 104,400
Total Current Liabilities 685,000 743,081 918,524 949,854
Long Term Debt 875,000 924,219 953,281 951,563
Common Stock (21,000 Sh. Out) 100,000 100,000 150,000 150,000
Retained Earnings 1,200,000 1,415,741 1,390,026 1,453,214
Total Liabilities & Equity 2,860,000 3,183,041 3,411,831 3,504,631
Product Code-Finance -AW-Q51
Looking for Finance -AW-Q51 online ,please click here