Jaunty Ltd manufactures and sells fridges. The company is deciding whether to replace an existing manufacturing plant which it uses to produce fridges.
The old machine can be used for 5 more years and would generate cash inflows of $4,000 per year. It would cost Jaunty Ltd $1,500 in wages per year and $500 electricty per year to run the machine. Alternatively, it can be sold now for $10,000 which is its carrying amount recorded in the books (there is no gain or loss).
The new machine would cost $145,000 as a one off cash payment. Because of its increased efficiency, the new machine would generate cash inflows of $32,000 per year for the next 5 years and would cost $3000 in wages per year and $500 electricity per year. These are not incremental cash flows. After 5 years of operation it can be sold for $5000.
Jaunty requires a 10% return on similar investments.
Ignore depreciation and taxes for this question.
Required:
a) Draw a timeline showing the cash inflows and outflows relating to this investment. You may use Excel tools to do this or use another program such as MS Paint and then copy paste your image into the space provided.
b) Calculate the NPV of purchasing the new machine. Use the space provided. You can use any approach you like (i.e. by using an Excel function or by just showing the calculation).
c) Calculate the IRR of this project. Use the IRR Excel function to complete this task. You will have to do a bit of research on how to do this. Try this website but please ignore step 6:
https://www.techwalla.com/articles/how-to-calculate-irr-in-excel
d) What is the payback period of this project?
e) Should Jaunty accept or reject the project? Explain why
A company’s share price is $8.20. The company has just paid an annual dividend of $0.70 per share, and the dividend is expected to grow by 3.5% into the foreseeable future. The next annual dividend will be paid in one year’s time.
Compute the cost of equity
Utilities (Services Business) hold 10 percent of total assets in current assets; retail trade industries hold 60 percent of total assets in current assets. Explain how industry characteristics account for this difference.
| Using a 14% cost of capital, calculate the NPV for each of the projects shown in the following table and indicate whether or not each is acceptable. | |||||
| (Show your work. Label $ and decision. Two decimal places required.) |
8. A financial ratio by itself tells us little about a company because financial ratios vary a great deal across industries. There are two basic methods for analyzing financial ratios for a company: time trend analysis and peer group analysis. Why might each of these analysis methods be useful? What does each tell you about the company’s financial health? Why do you think most long-term financial planning begins with sales forecasts? Put differently, why are future sales the key input? Consider the ratio EBITD/Assets. What does this ratio tell us? Why might it be more useful than ROA in comparing two companies?
Determine the future values utilizing a time preference rate of 9 per cent: (i) The future value of Rs 15,000 invested now for a period of four years. (ii) The future value at the end of five years of an investment of Rs 6,000 now and of an investment of Rs 6,000 one year from now. (iii) The future value at the end of eight years of an annual deposit of Rs 18,000 each year. (iv) The future value at the end of eight years of annual deposit of Rs 18,000 at the beginning of each year. (v) The future values at the end of eight years of a deposit of Rs 18,000 at the end of the first four years and withdrawal of Rs 12,000 per year at the end of year five through seven
FIN 317 Week 7 Assignment 3 More of the Basics and Beyond Assignment 3: More of the Basics and Beyond Due Week 7 and worth 200 points Using the same business you started in Assignment 1, you will continue to build a financial plan for the business. Write a four to five (4-5) page paper in which you: Prepare a pro forma balance sheet for the first twelve (12) months of your business. Include the assumptions on which it is based. Justify your balance sheet. Prepare a pro forma income statement for the first twelve (12) months of your business. Include the assumptions on which it is based. Justify your income statement. Prepare a pro forma cash budget for the first twelve (12) months of your business. Include the assumptions that you have made when creating the budget. Justify your budget. Scrutinize the costs (both tangible and intangible costs) of obtaining financial capital for your business start-up to determine whether the costs justify implementation of the funding source. Your business is five (5) years old and running profitably. You are now ready to look outward five (5) more years to take the business to the next level. Determine the specific details that would make the equity approach to valuing your business worthwhile. Provide a rationale with your response. 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- name, the professor- name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length. The specific course learning outcomes associated with this assignment are: Apply the fundamentals of entrepreneurial financing. Perform fundamental analysis of a business. Examine the equity approach to valuing a new venture. Use technology and information resources to research issues in financing entrepreneurships. Write clearly and concisely about financing entrepreneurships using proper writing mechanics
1. In 1988, Abraham Company completed the construction of a building at a cost of €1,900,000 and first occupied it in January 1989. It was estimated that the building will have a useful life of 40 years and a residual value of €60,000 at the end of that time. Early in 1999, an addition to the building was constructed at a cost of €470,000. At that time it was estimated that the remaining life of the building would be, as originally estimated, an additional 30 years, and that the addition would have a life of 30 years and a residual value of €20,000. In 2017, it is determined that the probable life of the building and addition will extend to the end of 2048, or 20 years beyond the original estimate.
Instructions
(a) Using the straight-line method, compute the annual depreciation that would have been charged from 1989 through 1998.
(b) Compute the annual depreciation that would have been charged from 1999 through 2016.
(c) Prepare the entry, if necessary, to adjust the account balances because of the revision of the estimated life in 2017.
(d) Compute the annual depreciation to be charged beginning with 2017
Aaron Furniture builds high-end hand-made dining tables. Attacus Simmons, the company’s owner, has developed the following sales forecast for 2022.
| 1st quarter | 2nd quarter | 3rd quarter | 4th quarter | |
| Forecasted sales (tables) | 2,700 | 3,000 | 2,800 | 1,900 |
Because of the time needed to create each table, Aaron maintains an ending Finished Goods Inventory of 20% of the following quarter’s budgeted sales. Aaron has been following this inventory policy for several years. The company ended 2021 with 475 tables on hand.
The standard cost card for a table is as follows:
| Standard | Standard | Total Standard Cost | |||
| Quantity | Price | ||||
| American cherry wood | 20 board feet | $4/board foot | $80 | ||
| American cherry turning square (legs) | 4 squares | $8/square | 32 | ||
| Direct labor | 8 DLH | $15/DLH | 120 | ||
| Variable overhead | 8 DLH | $45/DLH | 360 | ||
| Fixed overhead | 8 DLH | $12/DLH | 96 | ||
| $688 |
Required:
1. Prepare Aaron’s production budget for 2022. Assume that the desired ending inventory for 2022 is 500 tables. (3)
2. Aaron maintains inventory of American cherry wood equal to 5% of the following quarter’s production needs. On December 31, 2021, Aaron’s physical inventory count showed 4,800 board feet of American cherry. Due to an anticipated price increase in 2023, managers want to have 5,000 board feet of American cherry wood in inventory on December 31, 2022. Prepare Aaron’s 2022 direct materials purchases budget for the American cherry wood. (3)
Prepare Aaron’s direct labor budget for 2022.
Your cousin is currently 12 years old. She will be going to college in 6 years.Your aunt and uncle would like to have $100,000 in a savings account to fundher education at that time. If the account promises to pay a fixed interest rateof 4% per year, how much money do they need to put into the account todayto ensure that they will have $100,000 in 6 years?ii) You are planning to invest $5000 in an account earning 9% per year forretirement.a. If you put the $5000 in an account at age 23, and withdraw it 42 years later,how much will you have?b. If you wait 10 years before making the deposit, so that it stays in the accountfor only 32 years, how much will you have at the end?iii) Your grandfather put some money in an account for you on the day you wereborn. You are now 18 years old and are allowed to withdraw the money forthe first time. The account currently has $3996 in it and pays an 8% interestrate.a. How much money would be in the account if you left the money there