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Finance questions




Question;Question 1;Evaluate;the following Cash Flows using the criteria in parts a-f and MARR. Parts a-d;should use a 6-year time span. Indicate;for each part whether the proposal should be accepted or rejected.;MARR=10%;Year 0 1 2 3 4 5 6;Cash;Flow ($80,000) $13,200 $19,800 $22,100;$25,000 $25,000 $20,000;a Present;Worth (PW);b Future;Worth (FW);c Annual;Worth (AW);d Internal;rate of Return (IRR);e Discounted;Payback by end of year (EOY) 4;f Traditional;Payback (no discounting) by end of year;(EOY) 4;Question2;Three alternatives have been proposed;with the investment and forecasted annual cash flows shown below. Salvage;values should be ignored. A MARR of 12.5% and a four year time-span is to be;used. Resources are available for only;one of the three alternatives.;Determine;which one should be selected usingonly the internal rate of return;criterion.;Enhancement;Annual cash flow;Investment;A1;$17,50,000;$50,00,000;A2;$15,50,000;$44,00,000;A3;$13,00,000;$37,00,000;Enhancement;Annual;cash flow;Investment;A1;$17,50,000;$50,00,000;A2;$15,50,000;$44,00,000;A3;$13,00,000;$37,00,000;Question 3;Third-in-Line, LLC had sales and costs as shown below in;2012..;a What was;the profit in 2012;b What is;the break even quantity?;c If the;price, fixed cost and the variable cost;per unit stay the same as in 2012, what will the quantity sold have to be to increase profits to $1 million;in the coming year?;d If the;sales quantity, price, and fixed cost stay the same as in 2012, what would the;unit variable cost need to be to increase profits to $1 million in the coming;year?;2012;Sold;units 50,000;Total;Revenue $25,00,000;Total;Variable cost $12,00,000;Total;Fixed Cost $5,00,000;Question4;Anthony and Sons;Inc. is evaluating a proposal for a new robotic assembly machine that is expected to need replacing after 6;years of use. The new machine will;reduce direct labor, and with the lower price that this enables, will increase;sales. The problem is that it is;expensive. Using the data below;construct the Income statement part of a financial analysis. Show all;subtotals.;Purchase price of Robotic Assembly;Machine (RAM);$100,00,000;year 0;Present annual sales;$100,00,000;constant for all years;Forecasted annual sales increase;20%;in year 1 and then constant at this;level for the remaining years;Present COGS;40%;of sales;Forecasted COGS;25%;of sales;S.G. & A without depreciation;$25,00,000;annually and not changed by proposal;Depreciation MACRS;5;years;Proposal life span;6;years;Income tax;18%;annually;MARR;10%;annually;1;2;3;4;5;6;MACRS 5-year;20.00%;32.00%;19.20%;11.52%;11.52%;5.76%;Question 5;Modern Medical Mechanics (M3) is going to replace a machines;that cannot be repaired economically with a new identical machine. They need to evaluate the alternatives of leasing versus buying.;The old machine is fully depreciated and will be discarded (no salvage;value on it). The replacement machine;being identical, will not affect revenues nor;costs (all maintenance for both alternatives will be done in-house). The;new machine, with either option, will last four years and then be replaced. The;purchased machine only will have the salvage value listed below. From a financial perspective, document and;make a recommendation of which alternative should be adopted.;Purchase price;$42,000;year 0;Salvage value;$10,000;EOY 4;Lease expense;$12,000;annually paid at the beginning of;each year;Depreciation;5;MACRS years;Time span;4;years;Income tax rate;20.00%;Capital gains tax rate;10.00%;MARR;12.50%;Question 6;Josephine is trying to get a new company up and;running. She needs to prepare financial;documents to submit to a bank for a loan (line of credit) to cover the working;capital requirements. She has a;potential angel investor for the investment in machines and equipment so that;is not part of the line of credit loan amount.;The estimated working capital needed for each of the first;two years is shown below and the year 2 values are expected to be constant at;the year 2 level in the future.;Interest on this line of credit should be ignored.;The revenue COGS, Gross margin and S.G.& A. (does not;include depreciation) is shown below.;Prepare an Income Statement and Cash Flow Statement for years 0-2 that can be;submitted to the bank (meaning that all subtotals should be shown). All available data is shown below. Assume that the company will continue with;Josephine as the owner beyond year 2.;Investment;in year 0 $10,00,000 Assume this entire amount is;depreciable;Forecasted revenues, cost and expenses not including;depreciation.;0 1 2;Revenue $6,50,000 $13,00,000;COGS ($2,60,000) ($5,20,000);SG&A ($1,80,000) ($2,40,000);Depreciation;(MACRS) 5 year 20.00% 32.00% 19.20% 11.52% 11.52% 5.76%;Accounts;Receivable $0 $2,50,000 $4,00,000;Accounts;Payable $20,000 $1,80,000 $1,80,000;Wages;Payable$5,000 $50,000 $65,000;Inventory $10,000 $1,00,000 $1,50,000;Income;Tax rate 20%;Capital;Gains Tax rate 12%;Question 7;Below is an Income and cash flow statements that management;has approved. (If there are errors or;oversights, that is their problem, not yours).;Column E contains the original starting values in case you need to get;back to them.;a Determine;the sensitivity of the present worth to four changes in COGS: a 20% decrease, a;10% decrease, a 10% increase, and a 20% increase.;b Determine;the Unit Price that would achieve the MARR (PW = 0) when the unit COGS is;$16.00. Explain how you determined this.;c If the investment was increased to $2,000,000 to;reduce the COGS each to $12.50, what would the unit price have to be to achieve;a cash flow of $500,000 in year 1?;Explain how you determined this.;Question 8;The Town of Greenburg has spent $1.5 million in the past;year making its facilities more energy efficient. The next step is to evaluate alternative;methods of heating. They presently use;coal. The alternatives being evaluated;are to switch to either natural gas, solar, or geothermal. The forecasted data below has been gathered;for one building to make an evaluation.;(Data are fictitious);Perform a financial analysis to determine and indicate which;one is preferred over coal.;Time span 10 years;MARR 7%;Investment Annual Fuel Cost Annual Operating Cost;Coal $0 $80,000 $18,000;Natural Gas $35,000;$80,000 $3,000;Solar $1,00,000 $2,000 $5,000;Geothermal $90,000;$1,000 $7,000;Question 9;The Retired Entrepreneurs Association for People (REAP) is;funding projects for improving the grain supply in countries with food;shortages. Their staff has obtained;proposals as follows. Each proposal has;a upfront investment, estimated costs per year, and an estimated tons of food;that would be produced. Using a 10 year;time span and a discount rate (MARR) of 7%, create a priority order in which;the proposals should be funded. REAP;will then attempt to raise funds for as many as possible.;Proposal;Upfront;Investment;Annual;Costs;Annual;Tons of food produced;P1;$140,00,000;$24,00,000;1,50,000;P2;$200,00,000;$27,00,000;1,40,000;P3;$170,00,000;$23,00,000;1,64,000;P4;$250,00,000;$22,40,000;1,55,000;P5;$100,00,000;$19,00,000;1,30,000;P6;$120,00,000;$20,00,000;1,44,000;Question 10;Your company was bought by a large corporation and you are;now one of seven plants vying for investment funds. You are preparing a;financial analysis for the adoption of a;complex proposal to submit to a corporate investment committee. Prior to being purchased, your plant just;summed the estimated labor savings and divided investment by it. The corporate policy states that a 5-year;present worth analysis of cash flow is needed for investment proposals, of;which your plant manager knows nothing.;There will be other competing proposals at the corporate level, and;your plant manager's support and signature are needed. Write an explanation to the busy plant;manager as to why the present worth approach should be used. This can be posted below or in a word;document. Limit your answer to 300;words.


Paper#44076 | Written in 18-Jul-2015

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