[SOLVED] MT480M1-1: Analyze financial statements to measure the financial performance of a business entity
Please use the template for better guidance
In this assessment, you will be assessed based on the following Outcome:
MT480M1-1: Analyze financial statements to measure the financial performance of a business entity.
You will complete this part of the assessment on the template provided.
The assessment questions present the opportunity to assess and build upon your knowledge for the concept of the primary relationship between income and its effects on cash flow. The questions will present the opportunity to assess and build upon your knowledge for the more technical concepts regarding incremental cash flows, the rules for incremental after-tax free cash flow calculations, and why cash flows stated in nominal (real) dollars should be discounted using a nominal (real) discount rate. You will be assessed on your understanding of equivalent unit costs, variable costs, and fixed costs in the role of forecasting income. The problems will further your understanding of how income statement transactions influence cash flows.
The assessment contains 8 problems. A good rule of thumb is to complete the 8 problems then review the Competency Assessment Rubric to find out what you may have missed. If any missed problems fall within a competency criteria they must be corrected to move past this module. If missed problems fall within a mastery criteria, correct necessary ones for your desired assessment score. Once you have achieved your desired assessment score, please upload a file with a note to your professor requesting that they grade your assessment in the Dropbox.
1.You are starting a family pizza parlor and need to buy a motorcycle for delivery orders. You have two models in mind. Model A costs $9,600 and is expected to run for 6 years; Model B is more expensive, will a price of $13,800, and has expected life of 9 years. The annual maintenance costs are $790 for Model A and $690 for Model B. Assume that the opportunity cost of capital is 10 percent.
Calculate equivalent annual costs (EAC) of each model. (Do not round the discount factor. Round intermediate calculations and final answers to 2 decimal places, e.g. 15.25.)
EAC of Model A is $_____________
EAC of Model B is $_____________
2. Pharoah, Inc., is considering investing in a new production line for eye drops. Other than investing in the equipment, the company needs to increase its cash and cash equivalents by $10,000, increase the level of inventory by $42,000, increase accounts payable by $5,000 at the b3eginning of the project. Pharoah will recover these changes in working capital at the end of the project 12 years later. Assume the appropriate discount rate is 10 percent. What are the present values of the relevant investment cash flows? (Do not round intermediate calculations. Round answer to 2 decimal places, e.g. 15.25.)
Present Value $______________ (Enter the present value in round to 2 decimal places.)
3. Given the soaring price of gasoline, Ford is considering introducing a new production line of gas-electric hybrid sedans. The expected annual unit sales of the hybrid cars is $29,000; the price is $21,000 per car. Variable costs of production are $9,000 per car. The fixed overhead including salary of top executives is $80 million per year. However, the introduction of the hybrid sedan will decrease Ford’s sales of regular sedans by 8,000 cars per year; the regular sedans have a unit price of $20,000, a unit variable cost for $12,000, and fixed costs of $250,000 per year. Depreciation costs of the production plant are $45,000 per year. The marginal tax rate is 40 percent. What is the incremental annual cash flow from operations?
Incremental annual cash flow from operations $___________________
4. Oriole Company is considering buying a new farm that it plans to operate for 10 years. The farm will require an initial investment of $12.10 million. This investment will consist of $2.00 million for land and $10.10 million for trucks and other equipment. The land, all trucks, and all other equipment are expected to be sold at the end of 10 years for a price of $5.00 million, which is $2.40 million above book value. The farm is expected to produce revenue of $2.05 million each year, and annual cash flow from operations equals $1.85 million. The marginal tax rate is 35 percent, and the appropriate discount rate is 10 percent. Calculate the NPV of this investment. (Do not round factor values. Round final answer to 2 decimal places, e.g. 15.25.)
NPV $_________________ Enter the NPV in dollars rounded to 2 decimal places
5. Wildhorse, Inc., is launching a new store in a shopping mall in Houston. The annual revenue of the store depends on the weather conditions in the summer in Houston. The annual revenue will be $224,400 in a sizzling summer, with a probability of 0.3, $91,500 in a cool summer with a probability of 0.2, and $132,500 in a normal summer with a probability of 0.5.
Expected annual revenue $______________ Enter the Expected annual revenue in dollars.
6. You are considering opening another restaurant in the Texas Burgers chain. The new restaurant will have annual revenue of $328,200 and operating expenses of $164,100. The annual depreciation and amortization capital expenditure of $11,000 will be required to offset wear-and-tear on the assets used in the restaurant, but no additions to working capital will be required. The marginal tax rate will be 40 percent.
Calculate the incremental annual after-tax free cash flow for the project.
Incremental Annual after-tax free cash flow $___________ Enter the Incremental annual after-tax free cash flow in dollars.
7. Oriol Manufacturing, Inc., needs to purchase a new central air-conditioning system for a plant. There are two choices. The first system costs $66,000 and is expected to last 10 years, and the second system costs $67,000 and is expected to last 15 years. Assume that the opportunity cost of capital is 10 percent. (Round answers to 2 decimal places, e.g. 5,275.25.)
8. Crane Manufacturing management is considering overhauling their existing line, which currently has both a book value and a salvage value of $0. It would cost $380,000 to overhaul the existing line, but this expenditure would extend its useful life to five years. The line would have a $0 salvage value at the end of five years. The overhaul outlay would be capitalized and depreciated using MACRS over three years. The tax rate is 35 percent, the opportunity cost of capital is 15 percent. The PNV of the new production line is $-363,000. (Do not round discount factor. Round your intermediate calculations and final answer to the nearest dollar, e.g. 5,275.)
MACRS Depreciation Schedules by Allowable Recovery Period
The MASCRS schedule lists the tax depreciation rates that firms use for assets placed into service after
The Tax Reform Act of 1086 went into effect. The table indicates the percentage of the cost of the asset
That can be depreciated in each year during the period that it is being used. Year 1 is the year which
The asset is first placed into service.
Year 3-Year 5-Year 7-Year 10-Year 15-Year 20-Year
1 33.33% 20.00% 14.29% 10.00% 5.00% 3.75%
2 44.45% 32.00 24.49 18.00 9.50 7.22
3 14.81 19.20 17.49 14.40 8.55 6.68
4 7.41 11.52 12.49 11.52 7.70 6.18
5 11.52 8.93 9.22 6.93 5.71
6 5.76 8.92 7.37 6.23 5.29
7 8.93 6.55 5.90 4.89
8 4.46 6.56 5.90 4.52
9 6.55 5.91 4.46
10 3.28 5.90 4.46
11 5.91 4.46
12 5.90 4.46
13 5.91 4.46
14 5.90 4.46
15 5.91 4.46
16 2.95 4.46
Total 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
NPV of renovating old line $_________________
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