Volunteer Company Finance Assingment Help With Solution

Posted on April 13, 2017

Volunteer Company Finance Assingment Help With Solution

 

  1. The Dawson Corporation uses customers served as its measure of activity. During January, Dawson budgeted for 32,000 customers. However, it actually served 35,000 customers. Dawson uses the following revenue and cost formulas in its budgeting where “Q” is the number of customers served.

 

Revenue: ($4.20) (Q)

Wages & Salaries: $33,900 + ($1.40) (Q)

Supplies: $0.60 (Q)

Insurance: $10,000

Miscellaneous: $7,200 + ($0.40) (Q)

 

Dawson reported the following actual results for January:

 

Revenue………………………..$146,400

Wages & Salaries……………….$80,000

Supplies………………………….$19,700

Insurance………………………….$9,900

Miscellaneous……………………$20,200

 

Required:

Calculate the January 31 month ending Net Operating Income for the following situations:

 

  1. The Planning Budget
  2. The Flexible Budget
  3. The Actual Results

 

Note: Use the following formula to calculate Net Operating Income:

Net Operating Income = Revenue less Total Expenses

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  1. Direct labor standards at Marvel Manufacturing Company allow 5 direct labor-hours for every unit produced. The standard direct labor rate is $12.00 per hour. During the month of February, Marvel incurred 35,000 direct labor-hours and recorded a $15,000 favorable labor efficiency variance.

 

Required:

How many units did Marvel produce during February? (Hint: use formulas from pages 460-466 of the Noreen text).

 

CONTINUED

  1. Selected operating data for two branches of Carolina Electrical Supply are provided below:

 

ItemWilmington, NC BranchCharleston, SC Branch
Sales$4,000,000$7,000,000
Average operating assets$2,000,000$2,000,000
Net operating income$360,000$420,000
Property, plant and equipment, net$950,000$800,000

Required:

 

  1. Calculate the rate of return for each branch using the return on investment (ROI) formula stated in terms of margin and turnover. (Hint: Use the formula at the top of page 504 in the Noreen text).

 

  1. Which Branch Manager seems to be doing the better job? Discuss

 

  1. Consider the following two cash flows:

 

YearCash Flow “A”Cash Flow “B”
1$1,000$3,000
25,0004,000
35,0005,000
44,0005,000
53,0001,000
Total$18,000$18,000

 

Required:

 

Question A: Is there a difference in the present value of the preceding cash flows?

 

Question B: If there is a difference, which investment decision has the greatest present value?

(Note: Your instructor has not provided an interest rate)

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Question A

The present value of a given amount decreases as the number of years over which it is to be discounted also decreases.

True—False

Question B

You have deposited $21,618 into a special account that has a guaranteed interest rate of 18% per year. If you are willing to completely exhaust the account, what is the maximum amount that you could withdraw at the end of the next 9 years? Select the amount below that is closest to your answer. (Ignore income taxes) Show your work.

(a) $5,024

(b) $7,080

(c) $2,402

(d) $2,834

Question C

You have just deposited $5,188 into a special account that has a guaranteed interest rate. If you withdrew $1,400 at the end of each year for 7 years, you will completely exhaust the balance in the account. The guaranteed interest rate is closer to: (Ignore income taxes), Show your work.

(a) 13%

(b) 27%

(c) 19%

(d) 89%

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  1. Margin and turnover are important concepts in understanding how a manager can affect ROI. Consider that the sales of the Omega Branch of the Reed Company’s sales for the year 2012 totaled $150,000 and its return on investment (ROI) was 12%. If the Company’s turnover was 3, then its margin (Net operating income) in terms of dollars for the year 2012 was what amount? (Hint: Read the section “Understanding ROI”, pp. 502-504in the Noreen Text)

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  1. The following data pertain to an investment that is being considered by the management of Bayou Electrical Supply:

Discount Rate 10%

Project Life 10 years

Cost of the Investment $1,200,000

Annual Cash Inflows $240,000

Estimated Salvage Value 0

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Question A:
What is the net present value of this investment? (Show your work)

 

Question B:
What is the payback period for this investment? (Show your work)

_______________________________________________________

  1. The Volunteer Company (VC) produces electrical switching components and is considering manufacturing a new component that will require new equipment. The production of this component will require $1,500,000 in net working capital to start and additional net working capital investments each year equal to 15 percent of the projected sales increases for the following year. Total fixed costs are $1,350,000 per year, variable production costs are $225 per unit and the units are priced at $345 each. The equipment needed to begin production has an installed cost of $23,000,000. The equipment is considered to qualify as seven-year MACRS property. In five years, the equipment can be sold for 20 percent of its acquisition cost. VC is in the 35 percent marginal tax bracket and has a required return on all its projects of 18 percent. Based on the preceding project estimates, answer the following questions:

 

Questions

  1. What is the total cash flow of the project for Year 3?

 

  1. What is the NPV of the project?

 

  1. What is the IRR of the project?

 

  1. Should VC begin this project? Explain

 

Note: An income statement must be prepared for each year. Beginning with the initial cash flow at time zero, the project will require an investment in equipment. The project will also require an investment in net working capital. The Net Working capital investment will be 15 percent of next year’s sales. In this case, it will be Year 1 sales. To assist in your calculation, total sales per year are provided. To calculate depreciation, use the original equipment cost of $23 million times the appropriate MACRS depreciation each year. To determine the after-tax salvage value, the book value of the equipment must be determined. Book value for each year is the purchase price of the equipment ($23 million) less accumulated depreciation. As a check, ending book value for year 5= $5,131,300. Also the capital spending for year 5= (equipment cost x 20% = $4.6 million). After-tax salvage value = $4,600,000 + ($5,131,300 – 4,600,000) (.35) = $4,785,955.

 

Increase in Net Working Capital for Year 1 = .15($43,815,000 – $37,260,000) =$983,250; this increase is negative given the increase in sales for year 2. Net Working Capital Increases for the remaining years are positive because sales are declining.

 
required cash flow at the beginning of the project:

Equipment purchase price = $23,000,000

Change in Net Working Capital = 1,500,000

Total cash flow (out) = $24,500,000

 

Use the following format to calculate the total cash flow. Enter the missing values

(Your instructor has provided certain calculations to get you started)

 

Year12345
 Ending book value$19,713,300 $5,131,300
       
 Sales$37,260,000$43,815,000$39,675,000$33,810,000$28,980,000
 Variable costs24,300,000    
 Fixed costs1,350,000    
 Depreciation3,286,700    
 EBIT8,323,300    
 Taxes2,913,155    
 Net income5,410,145    
 Depreciation3,286,700    
 Operating cash flow$8,696,845$10,999,945$9,500,445$7,771,945$6,393,365
       
 Net cash flows     
 Operating cash flow$8,696,845    
 Change in NWC–983,250621,000   
 Capital spending00004,785,955
 Total cash flow$7,713,595   $11,437,320

 

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