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Assignment 2 is made up of seven questions. Read the requirements for each question thoroughly




Question;Assignment;2;Assignment 2 is made up of seven questions. Read;the requirements for each question thoroughly, and plan your responses;carefully. Ensure that you answer each of the required components as concisely;and completely as possible. If supporting calculations are required, present;them in good form.;Case 1 10 marks;Case 1.;Two businesses, Web Services and PC Providers, have sought business loans from;you. To decide whether to make the loans, you have requested their balance;sheets.;Evaluating;business operations, using financial statements;Required;1. Using;only these balance sheets, to which entity would you be more comfortable;lending money? Explain fully, citing specific items and amounts from the;respective balance sheets.;2. Is;there other financial information you would consider before making your;decision? Be specific.;C10-37 15 marks;C10-37 Use;cash flow data to evaluate potential investments;Your;company has some excess cash and would like to invest it in the stock of;another company. You investigate several different stocks and are trying to;decide which stock would be the best investment for your company. One factor;you investigate is each company?s cash flow. The summaries of the cash flow;statements for your three top stock choices follow;Although;you will look at many other criteria in your stock purchase recommendation;what can you tell about each of the three companies listed? Based solely on;cash flow, which stock appears to be better?;C11-44 15 marks;C11-44 Investment;recommendation;Take the;role of an investment analyst at Prudential Bache. It is your job to recommend;investments for your clients. The only information you have are some ratio;values for two companies in the pharmaceuticals industry.;Write a report to Prudential Bache?s investment;committee. Recommend on of the company?s stock over the other. State the;reasons for your recommendation.;C12-72 15 marks;C12-72. Prepare;cash budgets under two alternatives;Each;autumn, as a hobby, Suzanne De Angelo weaves cotton placemats to sell at a;local crafts shop. The mats sell for $20 per set of four. The shop charges a;10% commission and remits the net proceeds to De Angelo at the end of December.;De Angelo has woven and sold 25 sets each of the last two years. She has enough;cotton in inventory to make another 25 sets. She paid $7 per set for the;cotton. De Angelo uses a four-harness loom that she purchased for cash exactly;two years ago. It is depreciated at the rate of $10 per month. The accounts;payable relate to the cotton inventory and are payable by September 30.;De Angelo;is considering buying an eight-harness loom so that she can weave more;intricate patterns in linen. The new loom costs $1,000, it would be depreciated;at $20 per month. Her bank has agreed to lend her $1,000 at 18% interest, with;$200 principal plus accrued interest payable each December 31. De Angelo;believes she can weave 15 linen placemat sets in time for the Christmas rush if;she does not weave any cotton mats. She predicts that each linen set will sell;for $50. Linen costs $18 per set. De Angelo?s supplier will sell her linen on;credit, payable December 31.;De Angelo;plans to keep her old loom whether or not she buys the new loom. The balance;sheet for her weaving business at August 31 is as follows;Requirements;1. Prepare;a combined cash budget for the four months ending December 31, for two;alternatives: weaving the placemats in cotton using the existing loom and;weaving the placemats in linen using the new loom. For each alternative;prepare a budgeted income statement for the four months ending December 31, and;a budgeted balance sheet at December 31.;2. On;the basis of financial considerations only, what should De Angelo do? Give your;reason.;3. What;nonfinancial factors might De Angelo consider in her decision?;C13-77 15 marks;C13-77. Calculate;efficiency variances;Assume;that you manage your local Marble Slab Creamery ice cream parlour. In addition;to selling ice cream cones, you make large batches of a few flavours of milk;shakes to sell throughout the day. Your parlour is chosen to test the company?s;?Made-for-You? system. The system allows patrons to customize their milk shakes;by choosing different flavours.;Customers;like the new system and your staff appears to be adapting, but you wonder;whether this new made-to-order system is as efficient as the old system where;you made just a few large batches. Efficiency is a special concern because your;performance is evaluated in part on the restaurant?s efficient use of materials;and labour. Assume that your superiors consider that efficiency variances;greater than 5% are unacceptable.;You;decide to look at your sales for a typical day. You find that the parlour used;390 kilograms of ice cream and 72 hours of direct labour to produce and sell;2,000 shakes. Assume that the standard quantity allowed for a shake is 0.2 kg;of ice cream and 0.03 hours (1.8 minutes) of direct labour. Further, assume;that standard costs are $1.50 per kilogram for ice cream and $8.00 an hour for;labour.;Requirements;1. Compute;the efficiency variances for direct labour and direct materials.;2. Provide;likely explanations for the variances. Do you have reason to be concerned about;your performance evaluation? Explain.;3. Write;a memo to Marble Slab Creamery?s national office explaining your concern and;suggesting a remedy.;C14-64 15 marks;C14-64. Apply;time value of money to a personal decision;Samer;Almasri, a second-year business student at the University of Ottawa, will;graduate in two years with an accounting major and a Spanish minor. Almasri is;trying to decide where to work this summer. He has two choices: work full-time;for a bottling plant or work part-time in the accounting department of a;meat-packing plant. He probably will work at the same place next summer as;well. He is able to work 12 weeks during the summer.;The;bottling plant would pay Almasri $600 per week this year and 7% more next;summer. At the meat-packing plant, he would work 20 hours per week at $10.00;per hour. By working only part-time, he would take two accounting courses this;summer. Tuition is $225 per hour for each of the four-hour courses. Almasri;believes that the experience he gains this summer will qualify him for a;full-time accounting position with the meat-packing plant next summer. That;position will pay $750 per week.;Almasri;sees two additional benefits of working part-time this summer. First, he could;reduce his studying workload during the fall and spring semesters by one course;each term. Second, he would have the time to work as a grader in the;university?s accounting department during the 15-week fall term. Grading pays;$50 per week.;Requirements;1. Suppose;that Almasri ignores the time value of money in decisions that cover this time;period because it is so short. Suppose also that his sole goal is to make as;much money as possible between now and the end of next summer. What should he;do? What non-quantitative factors might Samer consider? What would you do if;you were faced with these alternatives?;2. Now;suppose that Almasri considers the time value of money for all cash flows that;he expects to receive one year more in the future. Which alternative does this;consideration favour? Why?;C15-45 15 marks;C15-45 Collect;and analyze division data;Colgate-Palmolive;operates two product segments. Using the company?s website, locate segment;information for 2008 in the company?s 2008 annual report. (Hint: Look;under investor relations.) Then, look in the financial statement footnotes.;Requirements;1. What;are the two segments (ignore geographical subsets of the one product segment)?;Gather data about each segment?s net sales, operating income, and identifiable;assets.;2. Calculate;ROI for each segment.;3. Which;segment has the highest ROI? Explain why.;4. If;you were on the top management team and could allocate extra funds to only one;division, which division would you choose? Why?


Paper#38035 | Written in 18-Jul-2015

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