Capital Budgeting Techniques

As a financial consultant, you have contracted with Wheel Industries to evaluate their procedures involving the evaluation of long term investment opportunities.  You have agreed to provide a detailed report illustrating the use of several techniques for evaluating capital projects including the weighted average cost of capital to the firm, the anticipated cash flows for the projects, and the methods used for project selection.  In addition, you have been asked to evaluate two projects, incorporating risk into the calculations.

You have also agreed to provide an 8-10 page report, in good form, with detailed explanation of your methodology, findings, and recommendations.

 

Company Information

Wheel Industries is considering a three-year expansion project, Project A.  The project requires an initial investment of $1.5 million. The project will use the straight-line depreciation method. The project has no salvage value. It is estimated that the project will generate additional revenues of $1.2 million per year before tax and has additional annual costs of $600,000.  The Marginal Tax rate is 35%.

Required:

  • Wheel has just paid a dividend of $2.50 per share. The dividends are expected to grow at a constant rate of six percent per year forever. If the stock is currently selling for $50 per share with a 10% flotation cost, what is the cost of new equity for the firm? What are the advantages and disadvantages of using this type of financing for the firm?
  • The firm is considering using debt in its capital structure. If the market rate of 5% is appropriate for debt of this kind, what is the after tax cost of debt for the company? What are the advantages and disadvantages of using this type of financing for the firm?
  • The firm has decided on a capital structure consisting of 30% debt and 70% new common stock. Calculate the WACC and explain how it is used in the capital budgeting process.
  • Calculate the after tax cash flows for the project for each year. Explain the methods used in your calculations.
  • If the discount rate were 6 percent calculate the NPV of the project. Is this an economically acceptable project to undertake? Why or why not?
  • Now calculate the IRR for the project. Is this an acceptable project? Why or why not? Is there a conflict between your answer to part C? Explain why or why not?

Wheel has two other possible investment opportunities, which are mutually exclusive, and independent of Investment A above.  Both investments will cost $120,000 and have a life of 6 years. The after tax cash flows are expected to be the same over the six year life for both projects, and the probabilities for each year’s after tax cash flow is given in the table below.

Investment B
Investment C
Probability After Tax

Cash Flow

Probability After Tax

Cash Flow

0.25 $20,000 0.30 $22,000
0.50   32,000 0.50   40,000
0.25   40,000 0.20   50,000

    • What is the expected value of each project’s annual after tax cash flow? Justify your answers and identify any conflicts between the IRR and the NPV and explain why these conflicts may occur.
  • Assuming that the appropriate discount rate for projects of this risk level is 8%, what is the risk-adjusted NPV for each project? Which project, if either, should be selected? Justify your conclusions.

The Cost of Capital

Assume that you are a member of an aerospace company’s newly formed executive committee that has been given the role of reviewing requests for major capital expenditures.  The committee chairman has laid the groundwork for approving requests that managers of various organizational units have submitted by reminding the group that their charge is to approve the investment opportunities that will best meet the company’s financial objective of maximizing shareholder wealth.

One of the more outspoken individuals on the committee vigorously pushed the concept that the best way to maximize shareholder wealth would be to accept all of the projects that promise a return that is higher than the long-term interest rates on bonds or bank loans. This same committee member is also insistent that  the company  turn to borrowed funds as needed to augment existing funds so that all of the projects that are attractive to the committee,  and that promise a return that is higher than the borrowing rate,  can be accepted.

Other committee members expressed concern about that approach but the time scheduled for adjourning the meeting arrived before the disagreement was resolved. You have been assigned to examine the issue and, in the spirit of taking advantage of a teaching moment, circulate a report that will bring all committee members to a common understanding of the decision criteria that should be adopted by the committee.  The chairman asked that your report address the following questions that seemed to be present during the committee meeting.

  1. Why would the suggested approach of using the cost of new debt as the hurdle rate probably not result in maximizing the shareholders wealth?
  2. What role does the cost of capital play in the committee’s work?
  3. How might a company’s WACC be affected by changes in the size of its capital budget?
  4. When and why would it be inappropriate to use the firm’s cost of capital as calculated on its existing capital structure to evaluate new investment opportunities?
  5. In what situations would it be appropriate to use the firm’s cost of capital as calculated on its existing capital structure to evaluate new investment opportunities?
  6. For the situations in which it would be inappropriate to use the firm’s cost of capital as calculated on its existing capital structure to evaluate new investment opportunities, what are the alternatives that might be used instead as the hurdle rate?

Capital Budgeting and Dividend Policies

Cramer Industries has identified several investment opportunities that will become available over the next three years and would like you to evaluate these projects.  They have asked that you use the NPV and IRR methods to determine if these independent projects are acceptable.  Each of these investments will occur one year apart and the cash flows will start one year after the investment is made.

Table-1:

Project

Cash Flows/Year

(in thousands)

Length of Project

Cost and Date when Cost is incurred

A  $ 2,300.00 5 years  $ 12,000.00 @t=1
B  $ 3,000.00 5 years  $ 17,000.00 @t=2
C  $ 2,800.00 5 years  $ 13,000.00 @t=3
D  $ 2,100.00 5 years  $ 15,000.00 @t=4

Cramer currently has 2,000,000 shares outstanding and pays a dividend of $2 per share.

With a high degree of certainty, Cramer has projected their income for the next four years as follows, which includes the annual cash flows from the investments selected above:

Table-2:

Year

Income After Taxes

1

 $6,000.00

2

 $8,000.00

3

 $5,000.00

4

 $7,000.00

Questions:

  1. What is the NPV for each project at the time the investment would be made? Explain your findings.
  2. What is the IRR for each project at the time the investment would be made?  Explain your findings
  3. Which investments should be selected?  Justify your conclusions.
  4. What will the dividends per share and the external financing required, if the current dividend per share is maintained?  Justify your conclusions.
  5. What will the dividends per share and the external financing required, if the dividend per share payout ratio of 50% is maintained?  Explain your answers.
  6. If the dividend policy is considered a residual decision, what will be the dividends per share and external financing requirement in each year?  Explain your answers.
  7. Under which policy will external financing be minimized?  Justify your conclusions.

Financial System

A basic requirement for an effective financial system is a monetary system that performs which of the following financial functions?

Question 1

  1. A basic requirement for an effective financial system is a monetary system that performs which of the following financial functions?

Answer

formation and transferring of money

storing gold and silver to back up money

creating jobs

transferring real assets

2 points

Question 2

____________________ in business involves making decisions relating to the efficient use of financial resources in the production and sale of goods and services.

Answer

Financial management

Financial economics

Investment management

Asset allocation

2 points

Question 3

An area of finance that refers to the physical locations or electronic forums that facilitate the flow of funds among investors, businesses, and governments is called:

Answer

financial management

investments

financial institutions

financial markets

2 points

Question 4

The financial environment:

Answer

encompasses the financial markets and global interactions that contribute to an efficiently operating economy.

encompasses the financial institutions and financial markets that contribute to an efficiently operating economy.

encompasses the financial system, financial institutions, financial markets, business firms, individuals, and global interactions that contribute to an efficiently operating economy.

none of the above.

2 points

Question 5

The theory of ___________________ implies that information is quickly embedded in prices making it difficult for investors to “beat the market.”

Answer

stock investing

efficient markets

portfolio management

asset allocation

2 points

Question 6

________________ involves making decisions relating to issuing and investing in stocks and bonds.

Answer

Financial economics

Financial management

Investment management

Asset allocation

2 points

Question 7

The primary goal of the financial manager of a profit-seeking organization is to:

Answer

maximize market share

maximize the owners’ wealth

increase sales and profit

have healthy cash flow

2 points

Question 8

An area of finance that involves the study of organizations or intermediaries that help the financial system operate efficiently and transfer funds from savers and investors to individuals, businesses, and governments that seek to spend or invest the funds in physical assets (inventories, buildings, and equipment) is called:

Answer

financial management

investments

financial institutions

financial markets

2 points

Question 9

____________________ provide the record-keeping mechanism for showing ownership of the financial instruments used in the flow of financial funds between savers and borrowers and record revenues, expenses, and profitability of organizations that produce and exchange goods and services.

Answer

Financial Managers

Accountants

Operations Managers

Statisticians

2 points

Question 10

Rational investors would consider an investment in a risky business venture only if they feel the expected return is high enough to justify the

Answer

greater risk.

higher cost.

longer useful life.

more complex designs.

2 points

Question 11

The U.S. bimetallic standard was based on:

Answer

gold and platinum

silver and gold

gold and copper

silver and copper

2 points

Question 12

The only paper money of significance in the economy today is:

Answer

silver certificates

demand deposits

greenbacks

Federal Reserve notes

2 points

Question 13

_____________ is a promise of future payment issued by a firm and guaranteed by a bank that is used to finance international trade with typical maturities ranging from one to six months.

Answer

A negotiable certificate of deposit (NCD)

A repurchase agreement

Commercial paper

A banker’s acceptance

2 points

Question 14

When it is a means of paying for goods and services and discharging debts, money is referred to as a:

Answer

store of purchasing power

medium of exchange

standard of value

liquid asset

2 points

Question 15

Inflation is:

Answer

an increase in the purchasing power of money

a decrease in the quality of goods and services

an increase in the prices of goods and services not offset by increases in the quality of those goods and services

a measure of the money supply

2 points

Question 16

The supply of a currency in international markets depends largely on the:

Answer

Federal Reserve System

imports of the issuing country

amount of exports that currency will buy from the issuing country

confidence of market participants in the restraint and ability of the monetary authority issuing the currency

2 points

Question 17

Paper money fully backed by a precious metal and issued by the government is called:

Answer

fiat money

representative full-bodied money

full-bodied money

credit money

2 points

Question 18

Deposit money is backed by:

Answer

Gold

Silver

creditworthiness of the issuer

creditworthiness of the depository institution

2 points

Question 19

Which of the following describes the basic function of money?

Answer

store of purchasing power

standard of value

medium of exchange

liquidity

2 points

Question 20

A ____________ is a short-term debt instrument issued by commercial banks in denominations of $100,000 or more with typical maturities ranging from one month to one year that have an active secondary market that allows short-term investors to easily match their cash or liquidity needs when they arise.

Answer

negotiable certificate of deposit (NCD)

A repurchase agreement

government bond

money market security

 

 

The Time Value of Money

The Time Value of Money

One of the most important topics presented in this course is the time value of money. Part of the time value of money calculation concerns the use of an interest rate, often referred to as a discount rate. This basic concept applies to all areas of financial planning.

Using the readings of this module and the Argosy University online library resources, respond to the following:

  • How does the current market rate of interest impact time value of money calculations?
  • How can this aspect alter your current spending, savings, and budgeting patterns?
  • How have you previously used the time value of money in your own personal financial planning and/or will plan to use it in the future?

Managerial Accounting

5-35 Comprehensive Cash Budget (CMA adapted) (LO 4) Grow Master Products,a rapidly growing distributor of home gardening equipment, is formulating its plans for the coming year. Carol Jones, the firm’s marketing director, has completed the following sales forecast.

Month Sales Month Sales

January $ 900,000 July $1,500,000

February $1,000,000 August $1,500,000

March $ 900,000 September $1,600,000

April $1,150,000 October $1,600,000

May $1,250,000 November $1,500,000

June $1,400,000 December $1,700,000

Phillip Smith, an accountant in the Planning and Budgeting Department, is responsible for preparing the cash flow projection. He has gathered the following information.

  • All sales are made on credit.
  • Grow Master’s excellent record in accounts receivable collection is expected to continue,with 60 percent of billings collected in the month after sale and the remaining 40 percent collected two months after the sale.
  • Cost of goods sold, Grow Master’s largest expense, is estimated to equal 40 percent of sales dollars. Seventy percent of inventory is purchased one month prior to sale and 30 percent during the month of sale. For example, in April, 30 percent of April cost of goods sold is purchased and 70 percent of May cost of goods sold is purchased.
  • All purchases are made on account. Historically, 75 percent of accounts payable have been paid during the month of purchase, and the remaining 25 percent in the month following purchase.
  • Hourly wages and fringe benefits, estimated at 30 percent of the current month’s sales, are paid in the month incurred.
  • General and administrative expenses are projected to be $1,550,000 for the year. A breakdown of the expenses follows. All expenditures are paid monthly throughout the year, with the exception of property taxes, which are paid in four equal installments at the end of each quarter.

Salaries and fringe benefits $ 324,000

Advertising 372,000

Property taxes 136,000

Insurance 192,000

Utilities 180,000

Depreciation 346,000

Total $1,550,000

  • Operating income for the first quarter of the coming year is projected to be $320,000. Grow Master is subject to a 40 percent tax rate. The company pays 100 percent of its estimated taxes in the month following the end of each quarter.
  • Grow Master maintains a minimum cash balance of $50,000. If the cash balance is less than $50,000 at the end of the month, the company borrows against its 12 percent line of credit in order to maintain the balance. All borrowings are made at the beginning of the month,and all repayments are made at the end of the month (in increments of $1,000). Accrued interest is paid in full with each principal repayment. The projected cash balance on April 1 is $50,000.
  • Required
  1. Prepare the cash receipts budget for the second quarter.
  2. Prepare the purchases budget for the second quarter.
  3. Prepare the cash payments budget for the second quarter.
  4. Prepare the cash budget for the second quarter.

6-30 Comprehensive flexible budgets and variance analysis (LO 1, 2, 3, 4, 5,6, 7, 8) Lexi Belcher picked up the monthly report that Irvin Santamaria left on her desk.

She smiled as her eyes went straight to the bottom line of the report and saw the favorable variance for operating income, confirming her decision to push the workers to get those last250 cases off the production line before the end of the month.

But as she glanced over the rest of numbers, Lexi couldn’t help but wonder if there were errors in some of the line items. She was puzzled how most of the operating expenses could be higher than the budget since she had worked hard to manage the production line to improve efficiency and reduce costs. Yet the report, shown below, showed a different story.

Actual Budget Variance

Cases produced and sold 10,250 10,000 250 F

Sales revenue $1,947,500 $1,870,000 $77,500 F

Less variable expenses

Direct material 561,000 550,000 11,000 U

Direct labor 267,650 260,000 7,650 U

Variable manufacturing overhead 285,012 280,000 5,012 U

Variable selling expenses 93,130 90,000 3,130 U

Variable administrative expenses 41,740 40,000 1,740 U

Total variable expenses 1,248,532 1,220,000 28,532 U

Contribution margin 698,968 650,000 48,968 F

Less fixed expenses

Fixed manufacturing overhead 111,000 110,000 1,000 U

Fixed selling expenses 69,500 70,000 (500 F)

Fixed administrative expenses 129,800 130,000 (200 F)

Total fixed expenses 310,300 310,000 300 U

Operating income $ 388,668 $ 340,000 $48,668 F

Lexi picked up the phone and called Irvin. “Irvin, I don’t get it. We beat the budgeted operating income for the month, but look at all the unfavorable variances on the operating costs. Can you

help me understand what’s going on?” “Let me look into it and I’ll get back to you,” Irvin replied.

Irvin gathered the following additional information about the month’s performance.

  • Direct materials purchased: 102,000 pounds at a total of $561,000
  • Direct materials used: 102,000 pounds
  • Direct labor hours worked: 26,500 at a total cost of $267,650
  • Machine hours used: 40,950

Irvin also found the standard cost card for a case of product.

Standard Price Standard Quantity Standard Cost

Direct materials $5.50 per pound 10 pounds $ 55

Direct labor $10.00 per DLH 2.6 DLH 26

Variable overhead $7.00 per MH 4 MH 28

Fixed overhead $2.75 per MH 4 MH 11

Total standard cost per case $120

Required

  1. Calculate the direct materials price variance for the month.
  2. Calculate the direct materials quantity variance for the month.
  3. Calculate the direct labor rate variance for the month.
  4. Calculate the direct labor efficiency variance for the month.
  5. Calculate the variable overhead spending variance for the month.
  6. Calculate the variable overhead efficiency variance for the month.
  7. Calculate the fixed overhead spending variance for the month.
  8. Prepare a performance report that will assist Lexi in evaluating her efforts to control production costs.
  1. Based on your review of the performance report you prepared, do you think Lexi did a good job of controlling production expenses during the month? Why or why not?

Finance

Using the information from the Comprehensive Case Template, first Written Case,
Financial Forecast, as well as your understanding of the principles covered in the
text and lecture relating to valuation and forecasting, prepare a 1 page
(maximum) written case for each of the following modules which answers these
questions about your opinions on Costco Wholesale:
PART 4a
Modules Assignment
12 Use the Dividend Discount Model to estimate the value of a share of company stock.
 How does it compare to the price in the market?
 What do you believe to be the reasons for the difference?
 What investment decision is suggested from your results?

 

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Jetblue

What is your assessment of JetBlue’s financial performance during fiscal years 2003-2007? Use the various financial ratios available in Module 2 to guide your assessment of the company’s financial statements. The purpose of this assignment is to assess your Accounting ability, and it will be scored, based on these criteria, using the Critical Reasoning rubric. Does the company’s recent financial performance support the board’s decision to replace top management?

Do the strategy and changes to operating practices initiated in 2008 seem well-matched to industry conditions and the company’s internal situation? What recommendations would you make to help speed JetBlue’s turnaround and revive its growth in revenues and earnings?

 

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Finance

You have just been hired by KM Energy as a financial analyst right out of college. KM
Energy is an IPP based in the Northeast U.S. Over the last twenty years, your company has
become a major producer of electricity in the Northeast and Mid-Atlantic markets and
currently operates a fleet of almost 12,000 MW of generation. KM Energy prefers to focus on natural gas fueled power plants because of the relatively low technology risk and the easier permitting process. As a new member of their Development Group, you have been assigned to review the options for a new generation station project to serve the New York City market.There are several locations under consideration and different plant configurations that are feasible for each site. You will need to construct a detailed financial model for each of the site and plant configuration combinations that are being considered. Your group will be assigned a specific set of plant configuratio ns and locations.

Your financial model needs to:

1. Properly calculate the expected MWh output of each option giving
consideration to overall plant configuration, turbine efficiency and
expected degradation, and forced outage rates;
2. Provide a proforma Income Statement and simple Cash Flow analysis for a
20-year period plus construction years. Consideration should be given to all
expected revenues and expenses for each project, as well as any upfront
capital costs, depreciation schedules, or taxes assoc iated with each.

 

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Critical Review

You are required to write a critical review of not more than 1,000 words on an article or book chapter which you believe is relevant to the module. Ideally this should be a source which you have used in preparing your section of the wiki site as this will save you work but if your work on the wiki does not provide a suitable source you can use an alternative source. In this review you should say briefly what are the key conclusions of this and how they link to the broader themes discussed in the module. You should also set out any problems which you feel there are with the analysis in each source or any important issues relating to the topic being discussed which you feel have been omitted in the source being analysed. Please note that it is your responsibility here to choose sources which have enough content within them to allow for a good critical review – very brief sources (for example newspaper articles) may have enough content but you need to think carefully about this before making your selection of sources. 

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1. The assessment criteria for the individual element of assignment two are as follows, each allocated equal weight 
o •? Justification of the choice of source 
o •? Explanation of the contribution of the source 
o •? Quality of critical discussion of the source 
Please choose one of the sources choose the one that best suites you: 

The Economist. (2013). Crash course. Available: http://www.economist.com/news/schoolsbrief/21584534-effects-financial-crisis-are-still-being-felt-five-years-article. Last accessed November 5th 2014.

Ben S. Bernanke. (2005). The Global Saving Glut and the U.S. Current Account Deficit. Available: http://www.federalreserve.gov/boarddocs/speeches/2005/200503102/. Last accessed November 5th 2014
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Cristiano Perugini and Jens Ho ?lscher and Simon Collie. (2013). Inequality, credit expansion and financial crises. Available: http://mpra.ub.uni-muenchen.de/51336/1/MPRA_paper_51336.pdf. Last accessed November 8th 2014

Marc Labonte. (2014). Monetary Policy and the Federal Reserve: Current Policy and Conditions. Available: http://fas.org/sgp/crs/misc/RL30354.pdf. Last accessed November 5th 2014.

The Economist. (2009). Shelter, or burden. Available: http://www.economist.com/node/13491933. Last accessed November 7th 2014.

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What are interest groups?

What are interest groups? Explain. •What are the various types of interest groups? Explain. •What are the types of activities that are conducted by interest groups? •How are interest groups connected to the average citizen, if at all? Provide examples of average citizens’ involvement in interest groups. •What types of public policies might interest groups influence that impact government at the federal, state or local level? Explain in detail and provide examples. •What significant issues do you think exist with regard to interest groups? How might interest groups promote corruption in government? Explain.

 

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Online Payment Systems

With the increasing use of digital payments and the decreasing use of cash payments, enhanced digital security and tracking of financial transactions have become significant aspects of many businesses. The executive director of operations of Centervale Apparel has asked you to research this issue and prepare a presentation for the executive committee to educate them on these issues. You remember hearing that the National Automated Clearing House Association (NACHA) is a leader in this field and would be a good place to start your research.

Review the following:NACHA – The Electronic Payments Association. (2011). News headlines. Retrieved from www.nacha.org

Using the online library resources as well as NACHA’s Web site article to complete the following:Describe NACHA and its role.Examine and explain the Automated Clearing House (ACH), its role, and how it relates to NACHA.List and explain the key participants in an ACH e-payment.Describe the key initiatives currently underway at ACH.Identify and analyze at least four digital payment concerns Centervale Apparel might want to consider in light of what you have learned from NACHA.Use the Notes function in Microsoft PowerPoint to prepare detailed speaker’s notes for your formal presentation to the executive committee.

 

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Financial Information

These are the corporations that you have to choose from: Exon Mobil, Chevron, Wal-mart Stores, Berkshire Hathaway

You will select a company from this list, and you will analyze the company?s financial performance, highlighting accounting principles and methods learned in this course. This project requires you to present, review, and analyze the organization?s published annual reports and related footnotes for the last 2 years. Specifically, your paper will cover the following:

?Discuss methods used to account for assets, liabilities, and shareholder equity, and explain how the company?s inventory valuation method affects reported results.Explain the company?s approach to internal controls, and assess its compliance with Sarbanes-Oxley.Prepare and interpret the results of horizontal and vertical analyses of the financial statements.Prepare and interpret the results of at least 5 ratios, 1 from each of the following categories: ?Profit Ratios,Debt Ratios

?Efficiency Ratios

?Equity Ratios

?Liquidity Ratios

Assess the company?s overall financial performance and the integrity of its internal controls.Discuss how various stakeholders?internal and external?use information contained in the financial statements for decision making.Include the last 2 years of published financial statements as Appendices to your report. Do not include the entire Annual Reports.Present your findings as a Word document of 5?6 pages formatted in APA style.Submitting your assignment in APA format means, at a minimum, you will need the following:

Title page: Remember the running head and title in all capital letters.Body: The body of your paper begins on the page following the title page and it must be double-spaced between paragraphs. The typeface should be 12-pt. Times Roman or 12-pt. Courier in regular black type. Do not use color, bold type, or italics except as required for APA level headings and references. The deliverable length of the body of your paper for this assignment is 5?6 pages. In-text academic citations to support your decisions and analysis are required. A variety of academic sources is encouraged.Reference page: References that align with your in-text academic sources are listed on the final page of your paper. The references must be in APA format using appropriate spacing, hang indention, italics, and upper- and lower-case usage as appropriate for the type of resource used. Remember, the reference page is not a bibliography, but it is a further listing of the abbreviated in-text citations used in the paper. Every referenced item must have a corresponding in-text citation.Appendices: Include the last 2 years of the company?s published financial statements.

 

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Finance for Healthcare

David Jones, the new administrator for a surgical clinic, was trying to determine how to allocate his indirect expenses. His staff was complaining that the current method of taking a percentage of revenues was unfair. He decided to try to allocate utilities based on square footage of each department, administration based on direct costs, and laboratory based on tests. Use the information in the chart below to answer problems 1, 2, and 3.Square Footage Direct

Expenses Lab Tests
Utilities $200,000
Administration 2,000 500,000
Laboratory 2,000 625,000
Day-op Suite 3,000 1,400,000 4,000
Cystoscopy 1,500 300,000 500
Endoscopy 1,500 600,000 500
Total 10,000 $ 3,375,000 5,000

What are the Day Op Suite’s total expenses?What are the Cystoscopy Department’s total expenses? What are the Endoscopy Department’s total expenses?Use the following information for questions 4, 5, and 6.Your hospital has been approached by a major HMO to perform all their MS-DRG 470 cases (major joint procedures). They have offered a flat price of $10,000 per case. You have reviewed your charges for MS-DRG 470 during the last year and found the following profile:

Average Charge $15,000
Average LOS 5 Days
Cost/Charge Variable Cost %
Routine Charge $3,600 0.80 60

Operating Room 2,657 0.80 80
Anesthesiology 293 0.80 80
Lab 1,035 0.70 30
Radiology 345 0.75 50
Medical Supplies 4,524 0.50 90
Pharmacy 1,230 0.50 90
Other Ancillary 1,316 0.80 60
Total Ancillary $11,400 0.75 50

In the above data set, assume that the hospital’s cost to charge ratio is 0.80 for routine services and 0.75 for all other ancillary services. Using this information, what would the average cost of MS-DRG 470 be?Estimate the variable cost per MS-DRG 470 using the departmental cost/charge ratios and variable cost percentages.The HMO in the above example has indicated that their doctors use less expensive joint implants. If this less expensive implant is used, your medical supply charges would be reduced by $2,000. What is the estimated reduction in variable cost?

 

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Financial Question

By creating financial statements using Generally Accepted Accounting Principles, financial managers ensure that the financial statements for their companies are comparable to other companies’ statements. In what ways may companies distinguish their performance within the context of audited financial statements?Minimum of 100 words

 

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Financial Question

What is the uniform annual amount (over the same time frame) that is equivalent to the following series of cash flows at the end of each year if the interest
rate is 7% compounded annually?

 

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Financial Question

Your corporation has $10 million in assets and $10 million in liabilities and equity. Its assets generate net income of $1.6 million and the company’s cost of capital is 13%.
Suppose that through better asset management and operational efficiencies, the company manages to reduce its need for assets by $1 million without affecting its income. Management decides to reinvest the $1 million into a new venture that generates $200,000 in profits.
Calculate and briefly explain the effect of these events on the company’s overall financial performance.

 

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Financial

Looner Industries is considering investing in a new manufacturing plant. The plant requires an item of equipment that costs $200,000. In addition, Looner will
spend $10,000 on shipping costs and $30,000 on installation charges. The equipment will be housed in a building currently owned by the company. The building
was bought at a cost of $75,000 five years ago, but it could be sold now for $125,000. Similar buildings in the area are leasing for $5,000 per month.

You estimate that if the new plant is constructed, the company will increase its inventories by $25,000, while accounts payable also will rise by $5,000. New
sales from the plant are estimated to be 120,000 units per year, at a price of $3.50 per unit. Variable costs are expected to total 60% of sales, while fixed
costs are estimated at $20,000 per year. The plant has an estimated economic life of 4 years, after which time it will be scrapped for $25,000 (excluding the
building). Depreciation will be calculated using the 3-year MACRS rates of 33%, 45%, 15%, and 7% for the first through the fourth year, respectively. Looner
Industries%u2019 marginal tax rate is 40%, and its cost of capital is 10%. Should the plant be built?

 

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Business’ financing needs

To avoid any uncertainty regarding his business’ financing needs at the time when such needs may arise, Cyrus Brown wants to develop a cash budget for his latest venture: Cyrus Brown Manufacturing (CBM). He has estimated the following sales forecast for CBM over the next 9 months:
March $100,000
April $275,000
May $320,000
June $450,000
July $700,000
August $700,000
September $825,000
October $500,000
November $115,000
He has also gathered the following collection estimates regarding the forecast sales:
• Payment collection within the month of sale = 25%
• Payment collection the month following sales = 55%
• Payment collection the second month following sales = 20%
Payments for direct manufacturing costs like raw materials and labor are made during the month that follows the one in which such costs have been incurred. These costs are estimated as follows:
March $187,500
April $206,250
May $375,000
June $337,500
July $431,250
August $640,000
September $395,000
October $425,000
Additional financial information is as follows:
• Administrative salaries will approximately amount to $35,000 a month.
• Lease payments around $15,000 a month.
• Depreciation charges, $15,000 a month.
• A one-time new plant investment in the amount of $95,000 is expected to be incurred and paid in June.
• Income tax payments estimated to be around $55,000 will be due in both June and September.
• And finally, miscellaneous costs are estimated to be around $10,000 a month.
• Cash on hand on March 1 will be around $50,000, and a minimum cash balance of $50,000 shall be on hand at all times.
To receive full credit on this assignment, please show all work, including formulas and calculations used to arrive at the financial values.
Group Project Guidelines:
• As a group, prepare a monthly cash budget for Cyrus Brown Manufacturing for the 9-month period of March through November.
o Use Microsoft Excel to prepare the monthly cash budget.
• Based on your cash budget findings, answer the following questions:
o Will the company need any outside financing?
o What is the minimum line of credit that CBM will need?
o What do you think of CBM’s cash position during the budget period? Do you see any concerns for the company in this regard?
o If you were a bank manager, would you want CBM as your client? Why or why not?
• It is up to the members of the group to divide the assignment tasks evenly. You will be graded on group participation
Your submitted Group Project (200 points) must include the following:
• 100 Points. A Microsoft Excel spreadsheet that contains your group’s monthly cash budget for Cyrus Brown Manufacturing.
• 100 Points. A double-spaced Word document of 1–2 pages that contains your answers to the questions listed in the Assignment Guidelines.
Grading:
You will be graded on the accuracy of your monthly cash budget and your demonstrated understanding

 

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Term Financial Management

Assume that a company has $20 million in revenue and its cost of goods sold is 70% of its sales. Additionally, the firm has $3 million of inventories, $2 million in payables, and $2 million in receivables. What’s the firm’s cash conversion cycle (CCC)? What does this indicate (be sure to includes details, not just 1 or 2 sentences)? Do you think that the company should improve its CCC (be sure to includes details, not just 1 or 2 sentences)? ? If so, what are some ways that it can do that (be sure to includes details, not just 1 or 2 sentences)? If not, why do you think that’s the case (be sure to includes details, not just 1 or 2 sentences)?

Assume that a firm has a payables deferral period of 40 days, an inventory conversion period of 62 days, and an average collection period of 29 days.
1. What’s the firm’s cash conversion cycle? ( be sure to includes details, not just 1 or 2 sentences)?
2. Assume that all of the firm’s sales are on credit. If the firm has annual sales of $4 million, what’s the accounts receivable investment (be sure to includes details, not just 1 or 2 sentences)?
3. How many times a year will the firm turn over its inventory? ( be sure to includes details, not just 1 or 2 sentences)?
Assignment Expectations
You are expected to:
• Describe the purpose of the report and provide a conclusion. An introduction and a conclusion are important because many busy individuals in the business environment may only read the first and the last paragraph. If those paragraphs are not interesting, they never read the body of the paper.
• Answer the Case Assignment question(s) clearly and provide necessary details.
• Write clearly and correctly—that is, no poor sentence structure, no spelling and grammar mistakes, and no run-on sentences.
• Provide citations to support your argument and references on a separate page. (All the sources that you listed in the references section must be cited in the paper.) Use APA format to provide citations and references.

 

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Finance Management

Imagine that you are a financial manager researching investments for your client that align with its investment goals. Use the Internet to research any U.S. publicly traded company that you may consider as an investment opportunity for your client. (Note: Please ensure that you are able to find enough information about this company in order to complete this assignment. You will create an appendix, in which you will insert related information.)

The assignment covers the following topics:
– Rationale for choosing the company for which to invest
– Ratio analysis
– Stock price analysis
– Recommendations

Write a ten to fifteen (10-15) page paper in which you:
1. Provide a rationale for the U.S. publicly traded company that you selected, indicating the significant factors driving your decision as a financial manager.
2. Determine the profile of the investor for which this company may be a fit, relative to that potential investor’s investment strategy. Provide support for your rationale.
3. Select any five (5) financial ratios that you have learned about in the text. Analyze the past three (3) years of the company’s financial data, which you may obtain from the company’s financial statements. Determine the company’s financial health. (Note: Suggested ratios include, but are not limited to, current ratio, quick ratio, earnings per share, and price earnings ratio.)
4. Based on your financial review, determine the risk level of the company from your investor’s point of view. Indicate key strategies that you may use in order to minimize these perceived risks.
5. Provide your recommendations of this stock as an investment opportunity. Support your rationale with resources, such as peer-reviewed articles or material from the Library.
6. Use at least five (5) quality academic resources in this assignment. Note: Wikipedia and other Websites do not qualify as academic resources.

Your assignment must follow these formatting requirements:
– Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; citations and references must follow APA or school-specific format. Check with your professor for any additional instructions.
– Include a cover page containing the title of the assignment, the student’s name, the professor’s name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length.

 

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Finance

At a recent networking event in the Dublin Chamber of Commerce, you met Peter Matthews and John Wilkes, two successful UK resident entrepreneurs based in London. They have worked together on a number of projects and they are the majority shareholders in an Irish incorporated car insurance company NoXS Limited (“NoXS”) which is based in Grand Canal Dock. They act as non-executive directors to NoXS and travel over to Dublin three times a year to attend board meetings. Due to the recent media attention about Irish corporation tax rates and potential changes to the Irish legislation, they are concerned that NoXS might not be considered to be an Irish resident company for corporation tax purposes as both men are UK residents and controlling shareholders.

NoXS owns 100% of the shares in Bankfin Services Limited (“Bankfin”), an Irish resident company, which was profitable for the first time in 2014 and paid a dividend of €350,000 to NoXS. As this is the first time a subsidiary company of NoXS has paid a dividend, they are unsure of how to treat the dividend receipt from a tax perspective.
NoXS has been approached by a rival company looking to acquire the full shareholding in Bankfin which would result in a profit of €2 million. Bankfin is not considered to be part of the core business model for NoXS and they have agreed in principal to the disposal as it will provide them with much needed funding for a new venture they are taking on. Makeit Limited (“Makeit”) was incorporated in February 2015 and is a 100% subsidiary of NoXS. They are a manufacturing company and are only expected to generate a profit in the region of €100,000 in 2015. Peter and John recall that they were able to obtain relief from Irish corporation tax on a new company they set up in 2013 and would like to avail of this relief again if possible.
Upon the incorporation of Makeit, Peter and John were advised that they should also register the company for VAT. As the services provided by NoXS were exempt from VAT, the finance team have not had much exposure to VAT. Makeit will purchase raw materials from America and will sell goods to customers in Ireland and the EU.
NoXS had an exceptional year of trading in 2013 and incurred a tax liability of €270,000. The preliminary tax instalment had been sufficient to cover the tax liability however they recently received a letter from Revenue informing them that they had not filed a CT1 return for 2013. The matter is currently being investigated by the finance team however Peter and John aren’t too concerned as the correct tax liability has been paid. Prior to 2013, the tax liabilities for NoXS didn’t exceed €100,000 and the tax liability for 2014 was calculated to be €190,000.
Peter Matthews phoned you when he got back to London and asked you to prepare tax advice in relation to the above issues.
Requirement:
Write a letter to Peter and John addressing the tax issues for NoXS and Makeit covering the following points:
Marks
(a) Outline the criteria for a company to be considered Irish resident and if NoXS meets this criteria (12)
(b) Explain the tax treatment of the dividends received by NoXS from Bankfin (10)
(c) Outline the tax treatment on the potential sale of Bankfin and any reliefs that NoXS may be able to obtain (12)
(d) Advise them on the potential Irish corporation tax exemption for start-up companies (12)
(e) Outline the pay and file requirements for NoXS for 2014 (10)
(f) Advise Peter and John on the implications of filing a CT1 form late (10)
(g) Explain to Peter and John when does a charge to VAT occur (10)
(h) Advise on the VAT treatment of purchases made from outside the EU by Makeit (12)
(i) Outline the VAT treatment on sales made to Irish and EU customers (12)

 

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The Financial Plan

The Financial Plan” Please respond to the following:Based on the e-Activities, assess and explain the restrictions placed on state and local government debt in your state. Provide examples to support your answer. (Provide the Websites’ URLs in your discussion.)Identify at least two methods needed to avoid restriction limits.Budget Decisions” Please respond to the following:Discuss the major challenges that you believe the public will encounter as a result of the proposed budget. Justify your answer with examples.Speculate on the optimal stage during the budget decision making these challenges could be minimized. Justify your answer with examples.

 

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Term Financial Management

Assume that a company has $20 million in revenue and its cost of goods sold is 70% of its sales. Additionally, the firm has $3 million of inventories, $2 million in payables, and $2 million in receivables. What’s the firm’s cash conversion cycle (CCC)? What does this indicate (be sure to includes details, not just 1 or 2 sentences)? Do you think that the company should improve its CCC (be sure to includes details, not just 1 or 2 sentences)? ? If so, what are some ways that it can do that (be sure to includes details, not just 1 or 2 sentences)? If not, why do you think that’s the case (be sure to includes details, not just 1 or 2 sentences)?

Assume that a firm has a payables deferral period of 40 days, an inventory conversion period of 62 days, and an average collection period of 29 days.What’s the firm’s cash conversion cycle? ( be sure to includes details, not just 1 or 2 sentences)?Assume that all of the firm’s sales are on credit. If the firm has annual sales of $4 million, what’s the accounts receivable investment (be sure to includes details, not just 1 or 2 sentences)?How many times a year will the firm turn over its inventory? ( be sure to includes details, not just 1 or 2 sentences)?

• Describe the purpose of the report and provide a conclusion. An introduction and a conclusion are important because many busy individuals in the business environment may only read the first and the last paragraph. If those paragraphs are not interesting, they never read the body of the paper.
• Answer the Case Assignment question(s) clearly and provide necessary details.
• Write clearly and correctly—that is, no poor sentence structure, no spelling and grammar mistakes, and no run-on sentences.
• Provide citations to support your argument and references on a separate page. (All the sources that you listed in the references section must be cited in the paper.) Use APA format to provide citations and references.

 

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