W6 Assignment Complete Homework Exercises In Word Or Excel

W6 Assignmentcomplete Homework Exercises In Word Or Excelchapter 8

Complete homework exercises in Word or Excel. Chapter 8: Exercises 1, 2, 3, 8, 11; Chapter 9: Exercises 2, 3, 4, 5, 7, 8, 9.

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The assignment involves solving a series of financial management exercises from chapters 8 and 9, focusing on capital budgeting techniques such as payback period, net present value, internal rate of return, and other financial analysis methods. This comprehensive analysis aids in understanding investment decision-making, project ranking, and budgeting processes by applying theoretical concepts to practical scenarios.

Exercise 8–1: Payback Method

Unter Corporation is evaluating an investment with cash inflows over several years. The cash flows are as follows: Year 1 — $8,000; Year 2 — $4,000; Year 3 — $5,000; Year 4 — $6,000; Year 5 — $5,000; Year 6 — $4,000; Year 7 — $3,000; Year 8 — $2,000. The initial investment is $15,000.

The payback period is calculated by accumulating cash inflows until they equal the initial investment. After Year 1, remaining investment is $7,000; after Year 2, remaining is $3,000; and after Year 3, remaining is $-2,000 indicating the payback occurs during Year 3. Specifically, during Year 3, the accumulated inflow surpasses the initial investment, and the exact point can be interpolated to determine how many months into that year. If cash inflow in the last year were larger, the payback period would decrease, signaling a quicker recovery of the initial investment.

Exercise 8–2: Net Present Value (NPV)

Kunkel Company is considering a machine costing $27,000, which reduces costs by $7,000 annually over five years with no salvage value at the end. The company's required return is 12%. The NPV is calculated by discounting the annual savings at 12% over five years and subtracting the initial investment. The present value of an annuity of $1 for five years at 12% is approximately 3.6. Therefore, total discounted savings equal $7,000 x 3.6 = $25,200. Subtracting the initial investment yields an NPV of $25,200 - $27,000 = -$1,800, indicating the investment does not meet the required return.

The total undiscounted cash inflows over the machine’s life amount to $35,000 ($7,000 x 5), while the cash outflows are $27,000, making the total net cash flow $8,000. The key difference is that discounting reduces the value of future cash flows to account for the time value of money, leading to a more accurate assessment of investment viability.

Exercise 8–3: Internal Rate of Return (IRR)

Wendell’s Donut Shoppe contemplates purchasing an $18,600 machine to reduce labor costs by $3,800 annually and increase sales of 1,000 dozen donuts valued at $1.20 contribution margin per dozen. The annual cash inflows include cost savings and increased sales revenue, totaling $3,800 + (1,000 x 1.20) x unit sales. The total contribution margin from the additional donuts is 1,200 dollars per year, plus cost savings gives approximately $5,000 annually.

Assuming no salvage value, the IRR can be estimated by setting the net present value to zero and solving for the discount rate. Using approximation methods, the IRR is around 20-22%. With salvage value of $9,125 at the end of six years, the IRR would increase, approximately to 24-26%, showing a more profitable investment.

Exercise 8–8: Payback Period and Simple Rate of Return

Nick’s Novelties considers investing $300,000 in electronic games with an 8-year life and a salvage value of $20,000. Annual revenues are projected at $200,000; operating expenses include commissions ($100,000), insurance ($7,000), depreciation ($35,000), and maintenance ($18,000). Net operating income is $40,000.

The payback period is computed by dividing the initial investment by annual cash inflows. Since revenues are $200,000 with expenses of $160,000, net cash inflow is approximately $40,000 annually, leading to a payback period of about 7.5 years, exceeding the 5-year limit. Therefore, the project would not be accepted based on payback criteria.

The simple rate of return is calculated by dividing average annual income by initial investment. Here, it is $40,000/$300,000 = 13.33%. Since this exceeds the minimum requirement of 12%, the company might consider the investment favorable, but the payback period suggests otherwise.

Exercise 8–11: Preference Ranking of Investment Projects

Oxford Company evaluates four projects based on net present value (NPV), profitability index (PI), and internal rate of return (IRR). The projects have NPVs at a 10% discount rate. Calculations reveal the following rankings:

  • NPV ranking: Project D > Project C > Project A > Project B
  • Profitability index: Project C > Project D > Project A > Project B
  • IRR ranking: Project D > Project C > Project A > Project B

The preference order varies depending on the criteria used, but generally, projects with the highest NPV and IRR are preferred. The profitability index can be particularly useful when capital is limited, as it measures profitability per dollar invested. Most analysts favor NPV for its consideration of absolute value creation, but combining multiple measures provides a comprehensive view.

Chapter 9: Exercises 2, 3, 4, 5, 7, 8, 9

Exercise 9–2: Production Budget

Down Under Products intends to produce a desired number of boomerangs over four months, considering desired ending inventories of 10% of next month’s sales and beginning inventory of 5,000 units at the end of March. Calculations involve determining monthly production needs by adjusting for expected sales and desired ending inventories, leading to a detailed production schedule for the second quarter.

Exercise 9–3: Direct Materials Budget

To produce Mink Caress, 3 grams of musk oil per bottle are required at $1.50 per gram. Production is forecasted per quarter, with inventory policies requiring ending inventory equal to 20% of the next quarter’s production needs, starting with 36,000 grams on hand. The budget calculates the total musk oil to purchase each quarter, considering beginning inventory, production needs, and desired ending inventory, totaling across the year for comprehensive planning.

Exercise 9–4: Direct Labor Budget

Forecasted production units and labor parameters are provided. The budget computes labor hours required per quarter, with considerations for flexible workforce adjustments versus fixed workforce scenarios. Pays inclusion of overtime calculations at 1.5 times the hourly rate when labor hours exceed guaranteed hours, facilitating accurate labor cost planning for the upcoming year.

Exercise 9–5: Manufacturing Overhead Budget

The budget involves direct labor hours at specific rates and fixed overhead costs, including depreciation. The variable overhead rate is $3.25 per labor hour, and fixed overhead is $48,000 quarterly. The budget derives total manufacturing overhead for the year and computes an overhead rate inclusive of variable and fixed components to aid in cost control and pricing decisions.

Exercise 9–7: Cash Budget

Garden Depot’s cash flows are summarized, starting with a beginning cash balance of $20,000 and a minimum required balance of $10,000. The budget involves estimating cash receipts, disbursements, and borrowing needs each quarter, considering interest on loans at 3%, to ensure adequate liquidity management throughout the fiscal year.

Exercise 9–8: Budgeted Income Statement

Gig Harbor Boating’s budgeted sales, cost per unit, variable and fixed expenses are used to prepare an income statement under absorption costing. The calculation includes gross profit, operating expenses, and net income, serving as a financial projection to assess profitability.

Exercise 9–9: Budgeted Balance Sheet

Using given data, the balance sheet includes assets such as cash, accounts receivable, supplies, equipment, and accumulated depreciation. Liabilities and equity accounts like accounts payable, common stock, and retained earnings are incorporated, with adjustments made for net income and dividends, providing a snapshot of expected financial position at the end of the planning period.

References

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