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Five Accounting Problems Set

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Question;Question 1 Awesome Gadget, INC is considering making an additional investment of in its production capabilities. It has collected data on the current year's (year 0) revenue, costs and quantity sold. The price per unit will be decreased 10% annually (year-1 unit price will be 10% less than the present (year 0) price, etc.) COGS per unit produced is forecast to decrease 5% annually (cost per unit in year-1 will be 5% less than the present unit cost, etc.) Fixed costs will increase due to a new salaried technician in all years. No other change is forecast for S.G.& A. Depreciation and working capital for each year are to be as shown in the data block. Using this data, prepare a three year proposal income statement (only) for years 1-3 using items from the following data block as needed. The income statement must be in the standard accounting sequence and contain appropriate subtotals and totals. Question 2 An investment committee has narrowed down their investment decision to three proposals. Further information was collected on these three proposals and the investment amounts, estimated annual cash flows, and estimated salvage values are shown below. Determine which one maximizes the financial worth of the company using the internal rate of return criterion only. Use a MARR of 15% and a three year time horizon The committee only considers the IRR criterion. Question 3 Customers-R-Us, LLC had sales and costs as shown below in 2013. Any data that is not listed should be considered as zero. Note that the parts are produced in lots of 10,000, so the setup costs are incurred each time that 10,000 parts needs to be produced. a What total costs (variable plus fixed) will be incurred in 2013? b What profit will be achieved in 2013 c What is the break even quantity in 2013? d If the quantity, fixed cost and the variable costs stay the same and only the price is changed, what price would have to be charged to earn profits of \$250,000? Question 4 Awesome Gadget, Inc. is considering a new internal quality improvement program called ISO-9001. A proposal income statement and some additional data are shown below. Benefits are expected in three area. The ISO-9001 registration should increase sales. Total COGS is expected to stay constant even though sales increases. And the improved quality will enable a decrease in inventory. These are defined below. This proposal with require a one-time investment in record keeping software, added staff in all years, and substantial training expenses in year 1 and smaller amounts in later years. The software is to be depreciated using straight line depreciation over 3 years (salvage value and book value in year 3 is zero). The other costs of the implementation will be expensed as S.G.& A. The expected balances for the various working capital categories are listed below. The Income statement is shown below. Determine the present worth and internal rate of return for the ISO-9000 proposal. Question 5 Medical Miracles, INC. (MMI), a medical products distributor, is considering a proposal to make an acquisition of another company for \$50 million. This acquisition would increase their gross margin by 40% over their present gross margin. SG&A would increase by 30% with the acquisition. A one time increase in working capital of \$1,250,000 would immediately be needed (year 0). Assets worth \$30 million that came with the acquisition could be depreciated using 10-year MACRS. The income and cash flow statements without the acquisition are shown below. To simplify things a little, assume that the book value and salvage value at the end of year 5 are zero. (therefore there would be no gain to be taxed). Determine if the proposal is financially justified using the following data and a 5-year time horizon. Price of company \$50,000,000 Depreciable assets \$30,000,000 of purchased company Gross Margin increase 40% in all years S.G.& A. Increase 30% in all years Working Capital Increase \$1,250,000 year 0 Income Tax Rate 13.5% MARR 15%

Paper#39267 | Written in 18-Jul-2015

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