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Final Exam Spring 2013




Question;Question 1 Score 0;Ann and Marie have created an online business re-selling;tablet computers for the elderly that have been retrofitted to be extremely;easy to use yet contain the basic needed functions. The sales price and quantity sold in their;first year of business are shown below.;Although they did not keep very good records, they estimate their costs;and expenses in the coming year will be;as follows.;Data Block;Sales;price $500 each;Quantity;sold 100;Tablet;purchase $350 each;Apps $25 each;Labor $25 each;Marketing $80,000 annual;Equipment;and Facilities $50,000 annual;a What was;the profit per tablet that was sold last year using the costs listed above?;b What is;the breakeven quantity with the above data?;c What;would they have to charge for each retrofitted tablet next year to break even;if 1,000 are sold?;Question 2;Best Biotechnology Corporation (BBC) has a new potential;product developed by their research group;that they are considering migrating from the lab into production. The expected cash flow is shown below.;IF BBC evaluates proposals using a discounted payback period;approach where projects of this size must have a discounted payback in 4 years;with a MARR of 16%. Should the product;be put into production based on this data?;Year;0;1;2;3;4;5;Free;Cash Flow;($80.0);($30.0);$5.0;$50.0;$100.0;$200.0;MARR;16%;Question 3;Precision Parts Manufacturing (PPM), is going to install a;network server for all their machine tools and robots. They can either purchase the;hardware/software, or lease it with monthly (end of month) payments for 4 years;from the vendor. In addition to the cost;of the hardware/software, depreciable upfront implementation costs will be;incurred for both the leasing and purchasing alternatives, and will be;performed in the same year as purchased or leased.;The data is shown below where no change in working capital;is expected. A MACRS 3-year deprecation;schedule will be used. If PPM uses a;MARR of 15%, a tax rate of 20% for both Income and Capital gains, and a 4-year times span for evaluating;proposals, should the networking system be purchased or leased using a present;worth criterion.;MACRS;Rates(%);1 2 3 4 5 6;3-Year 33.33% 44.45% 14.81% 7.41%;5-year 20.00% 32.00% 19.20% 11.52% 11.52% 5.76%;Price Hardware/software;$6,50,000;Installation (depreciable);$3,00,000;Lease Payments;$6,000;monthly;Salvage value in year 4;$50,000;MARR;15%;Tax rates;20%;Question 4;The investment Committee for the Herrera Hedge Fund (HHF);has 5 proposals from which to choose to;be funded with $10 billion in capital that they have recently raised. Assume any funds not invested will earn 0%;interest. Their only criteria for;investments at Herrera is the internal rate of return with the minimal;acceptable rate of return being 20%.;Which alternative(s) should be funded if the projects have the following;forecasted cash flows. All values are in;billions of dollars although adding all the zeroes will not change the answer.;Question 5;Bob, the new Chief Marketing Officer at the XYZ company has proposed an expansion of the companies;marketing efforts. He claims that an;investment of $1,000,000 in marketing research this year, and following this;with an increase in marketing expenditures of $250,000 a year will increase;sales by 10% each year over the sales forecasted without the marketing;program. The sales forecasts and costs;are shown below. The market research;study is not depreciable but should be considered as an investment in year 0.;Should Bob's plan be;approved using the PW and IRR criteria using a 4-year analysis.;Question 6;The CEO of Quality Pharmaceuticals Inc. (QPI) is getting;pressure from the Board of Directors to reduce costs. It has been suggested that production be;moved off shore to save costs. Data has;been collected concerning the off-shore alternative and the costs presently;being incurred with domestic;production. The relevant costs are shown;below. There would not be any investment;involved and revenues are not expected to change. Inventory is expected to increase, but no;change is expected in accounts receivable and payable. Using a five year time span and based on an;Annual Worth criterion, what is the annual equivalent savings by the Offshore;alternative.;Data Block;Tax Rate;25%;MARR;15%;Domestic Production;Year;0;1;2;3;4;5;COGS;$10,000;$11,000;$12,000;$13,000;$14,000;S.G.& A.;$8,500;$9,000;$9,500;$10,000;$10,500;Inventory;$7,000;$7,000;$7,000;$7,000;$7,000;$7,000;Off Shore Production;COGS;$6,000;$5,000;$5,000;$5,000;$5,000;S.G.& A.;$11,000;$11,000;$11,000;$11,000;$11,000;Inventory;$7,000;$14,000;$14,000;$12,000;$12,000;$12,000;Question 7;Latest Motor Electronics (LME) is evaluating a proposal to;create a new automated production process for a new product line. In the past year (year -1) $1 million has;been spent researching this capability and it look promising. The proposal is to purchase machinery and install it this year (year 0). Next;year (year 1) will be spent developing the capability (experimenting;debugging and training).;Shipments of products are expected to start in the following;year (year 2) starting with $3,500,000 in revenues in that year and with a 25%;growth annually in the years thereafter.;COGS are forecasted to be 30% of revenues. Using a present worth criteria in a 5-year;analysis, determine if it is financially justified to proceed with this;project.;S.G.& A. are expected to be a constant $900,000 annually;during the revenue years. In the;development year, S.G. & A. is included in the Development estimate.;Investments should be depreciated using MACRS over 7 years;and will have two components, one for the Machinery purchase and installation;and the other starting a year later for the Development investment. The depreciation starts in the year;following when the investment is made.;The salvage value is zero.;Ignore any Working Capital considerations.;Using the present worth criterion in a 5-year analysis;(development year plus 4 revenue years), determine if it is financially;justified to proceed with this project.;Data Block;Past Research;$10,00,000;Machinery Purchase & Installation;$36,50,000;Installation;$6,50,000;Development;$15,00,000;Revenue (starting year);$35,00,000;Annual Revenue Growth;25%;COGS;30%;S.G.&A.;$9,00,000;Depreciation years;10;MARR;12%;Income Tax Rate;25%;Question;Question 8;Score;0;Maryland Technical Acumen (MTA) is considering a new product;line which will require an investment in production equipment and facilities;in the current year.;Below is an Income and cash flow;statements that management has approved.;(If there are errors or oversights, that is their problem, not;yours).;a;Determine the how the present worth;would be affected by prices of $47, $49, $51 and $53 with a quantity sold of;55,000. Briefly state how you;determined this.;b;Determine the quantity that would;need to be sold to attain the MARR (PW = 0) for prices of $47, $49, and;$51. Briefly state how you determined;this.;Price each;$50;Fixed COGS;$3,00,000;Quantity;55,000;Variable COGS;$17.00;Income tax rate;35%;G.S.& A.;$8,00,000;annual;Capital Gains Tax rate;0%;Depreciation MACRS;5;20.00%;32.00%;19.20%;11.52%;11.52%;5.76%;Working capital;no;change;salvage;$0;in year 5;MARR;15%;Investment;$18,00,000;Income Statement;0;1;2;3;4;5;Sales revenue;$27,50,000;$27,50,000;$27,50,000;$27,50,000;$27,50,000;Cost of goods sold;($13,36,292);($13,36,292);($13,36,292);($13,36,292);($13,36,292);Gross Margin;$14,13,708;$14,13,708;$14,13,708;$14,13,708;$14,13,708;General, Sales and Admin.;($8,00,000);($8,00,000);($8,00,000);($8,00,000);($8,00,000);Depreciation;($3,60,000);($5,76,000);($3,45,600);($2,07,360);($1,03,680);EBIT;$2,53,708;$37,708;$2,68,108;$4,06,348;$5,10,028;Income tax;($88,798);($13,198);($93,838);($1,42,222);($1,78,510);Net income;$1,64,910;$24,510;$1,74,270;$2,64,126;$3,31,518;Cash Flow Statement;Net Income;$1,64,910;$24,510;$1,74,270;$2,64,126;$3,31,518;Add depreciation;$3,60,000;$5,76,000;$3,45,600;$2,07,360;$1,03,680;Investment;-18,00,000;Salvage;$0;Tax on gain;$0;Cash flow;($18,00,000);$5,24,910;$6,00,510;$5,19,870;$4,71,486;$4,35,198;Present;Worth =;($61,716);Question 9;Due to the budget sequester, the bridge;department had their repair budget;reduced for the coming year. The cost;of repair for several bridges needing repair are shown below. Also shown is the average number of cars;per day that travel over each bridge, and an estimated cost per car to detour;if the bridge becomes unusable. The benefits of repairing a bridge are;evaluated as the cost avoidance of a bridge becoming unusable for 90 days.;If the new budget if $7,500,000, which bridges;should be repaid from a benefit and cost perspective?;Bridge;Repair;Costs;Average;Cars per day;Cost;per car per day to detour;Washington;$24,00,000;1500;$25;Adams;$27,00,000;1400;$28;Jefferson;$23,00,000;1640;$10;Madison;$22,40,000;1600;$20;Monroe;$15,00,000;1300;$40;Jackson;$16,00,000;1440;$23;Question 10;How can financial analysis assist companies to in the;justification of new technologies, or the opposite of help to resist new;technologies? What is the role of an IT specialist in this decisionmaking;process? Provide an example of ths interaction. Answer below or in a MS Word;document.


Paper#49743 | Written in 18-Jul-2015

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