Accounting homework help

Cost Estimation & Financial Analysis

General Information and Instructions

Test Value and Point Structure

It is graded on a 100-point scale.

General

1. Read every question carefully.

a. Your work should be submitted as two attachments (as indicated above). Your answers should be presented in report format as a .pdf document and include all work, analysis, and conclusions. You should clearly state where assumptions are being made. You must also include the spreadsheets that SHOW all your equations/calculations/work.

Formatting

1. There are no page limitations. Make your point concisely, precisely, & convincingly

2. Use a 12-point font for ease of reading

3. Use graph/charts/tables to clearly convey a point

4. Be sure to clearly state your assumptions & conclusions

Note on grading & partial credit

Grading is primarily based on the materials that you present in the report (i.e. provided in your text document). The spreadsheets are necessary to provide partial credit.

Cumulative Errors: This exam may require you to reference your own work as you progress through the problem (for example, your own cost estimations may be used to build projected cash flows). All attempts will be made to grade in such a manner that mistakes made early in the assignment do not impact later work – which makes clearly organized spreadsheets critical to quickly assess where mistakes arise.

Legibility and organization of work: It is imperative that your report & spreadsheets be of professional quality . You are all in professional careers and the quality of your work is assessed immediately. Your work must be clear and easy to follow. This is particularly important for your spreadsheets. I will deduct points for badly written reports. I cannot give credit for work I cannot follow or comprehend.

Point Weighting: Points are assigned to each problem/sub-problem. Ensure you address all requested criteria and answer all questions to be eligible to receive full credit.

Due Diligence

It is your responsibility to demonstrate knowledge of the concepts, theories, and techniques being tested. You should apply that knowledge to critically analyze and answer the problems.

Requirements

Submit your results in the form of a well-supported report. This means that every table, calculation, number needs to be included. Use diagrams, etc. to synthesize your findings where appropriate.

Submit an Excel spreadsheet that contains all working calculations/formulas. The spreadsheet should be tidy and clear. You will forfeit points and incur progressive or cumulative errors if your spreadsheet is not easy to navigate, clearly labeled, or otherwise poorly organized.

Question #1

A. Using the below account entries, prepare a Balance Sheet (BS) for years 2016 thru 2020 (10 points):

	2016	2017	2018	2019	2020
Accounts Payable	$286	$372	$484	$630	$819
Accounts Receivable	$305	$342	$384	$431	$483
Accrued Liabilities	$126	$134	$143	$152	$162
Cash	$572.00	$470.00	$386.00	$317.00	$260.00
Common Stock	$228	$263	$303	$349	$402
Furniture and Fixtures	$316	$323	$330	$337	$344
Inventories	$217	$283	$368	$479	$623
Land/Buildings	$2,177	$2,243	$2,311	$2,381	$2,453
Accumulated Depreciation	$2,056	$2,249	$2,460	$2,691	$2,943
Long-Term Debt	$798	$998	$1,248	$1,560	$1,950
Machinery/Equipment	$1,789	$1,879	$1,973	$2,072	$2,176
Marketable Securities	$51	$55	$59	$63	$67
Notes Payable	$99	$119	$143	$172	$207
Other Fixed Assets	$96	$97	$98	$99	$100
Preferred Stock	$109	$118	$128	$139	$151
Retained Earnings	$2,145	$1,828	$1,467	$1,047	$546
Vehicles	$324	$389	$467	$561	$674

B. Once you have completed your BS in Part A above, convert your BS to a “Common Size BS” for each year (2016 thru 2020) (5 points):

C. Utilizing the Common Size BS, you developed in Part B, identify five (5) trends that indicate the company may be struggling (5 points):

1)
2)
3)
4)
5)

Question #2

The ABC Company produced the following sales. Determine the monthly cash in-flows for January thru June 2020 using the following terms of sale: (6 points)

Cash 60%

Net 30 30%

Net 60 10%

	Jan-20	Feb-20	Mar-20	Apr-20
Sales	$150,000	$200,000	$275,000	$400,000

4 points:

You want to incentivize your customers to pay cash. You do so by giving customers who pay cash a 2% discount on that month’s cash payment (discount applied to cash payment portion only, not the entire sale).

a) Scenario1: How much does that discount cost you in lost revenue, in total, if payment behaviors do not change?

b) Scenario2: As a result of the discount, all customers take advantage of the discount, and pay all cash. For example, the following terms are realized:

Cash 100%

Net 30 0%

Net 60 0%

How much does the discount now cost you in lost revenue?

c) Give two reasons why this discount is a good idea and considered successful in the case of scenario2?

d) Give one reason why this discount is a bad idea?

Question #3

A. ABC Company accountants generated the following data. Prepare an Income Statement (IS) for years 2016 thru 2020: (5 points)

	2016	2017	2018	2019	2020
Cost of Goods Sold (COGS)	$1,999	$2,399	$2,879	$3,455	$4,146
Depreciation Expense	$223	$201	$181	$163	$147
General & Administrative Expense	$187	$193	$199	$205	$211
Interest Expense	$91	$91	$91	$91	$91
Lease Expense	$31	$31	$31	$31	$31
Preferred Stock Dividends	$10	$10	$10	$10	$10
Sales Revenues	$3,529	$3,882	$4,270	$4,697	$5,167
Selling Expense	$108	$124	$143	$164	$189
Taxes	$264	$250	$221	$173	$103

B. What is the primary reason ABC Company’s Net Income has continued to decrease each year, despite increasing sales? (2 points)

C. You are the CFO; give your best recommendation to the CEO that you believe would change the negative trend and improve profits? In 50 words or more, explain how it could be effective. (3 points) (Note: your recommendation must be feasible, logically related to the primary reason identified in part B, and reasonably expected to be effective).

Question #4

As part of the initial outlays to get the ABC Company up & running, they needed to purchase $925,000 in equipment. It also cost $12,356 for delivery of the equipment and $62,644 in installation costs.

A. Develop a depreciation table for the asset(s) utilizing the 7-year MACRS schedule found in Table A-1 of IRS Pub 946 (5 points):

B. What is the “Book Value” of the asset(s) at the end of year 5 (5 points)?

C. If ABC Company decides to sell the assets for Book Value at the end of year five (5), how much taxes would ABC Company have to pay as a result of this transaction? (5 points)

Assumptions:

· ABC Company breaks-even that year (realizing a profit of $0) before the sale (so the tax paid by ABC will be a result of this sale only)

· Capital Gains Tax Rate is 15%

· Ordinary Tax Rate is 30%

Question #5

A. Develop a Loan Amortization Table for each of the following loans (8 points):

B. Calculate the total “interest paid” over the life of each loan (5 points):

	Loan #1	Loan #2
Loan amount:	$2,500,000	$2,500,000
Annual Interest Rate	2.500%	15.000%
Duration/Terms	30 Years of annual payments	5 Years of monthly payments

C. Which loan involves the most interest over the life of the loan? (2 points)

Loan #1 or Loan #2

Question #6 Cash Flow Statements

A. Answer the following True/False questions (10 points):

[Utilize BOLD TEX T to indicate the correct answer]

1. An increase in merchandise inventory will be shown as a reduction in cash flow	True False
2. The purchase of a delivery truck will cause a decrease in cash from investing activities	True False
3. A decrease in Accounts Payable will be shown as an increase in cash flow	True False
4. The proceeds from the issuance of common stock will be reported as an increase in cash from financing activities	True False
5. The proceeds from the sale of equipment formerly used in the business has a positive effect on cash flow	True False

B. Indicate which part of the Cash Flow Statement will be effected by the following scenarios (10 points):

1. Decrease in accounts payable	Operating Investing Financing
2. Payment of dividends	Operating Investing Financing
3. Proceeds from the sale of long-term assets	Operating Investing Financing
4. Increase in inventory	Operating Investing Financing
5. Decrease in depreciation	Operating Investing Financing

Question #7

You are the owner of a small business. An opportunity to expand into a new market niche arose. It requires an initial equipment investment of $500,000. You will finance the entire amount with a 5-year loan at 2.2% interest rate (annual payments).

Depreciation will follow MACRS-3

Sales projections look very promising as shown below:

· $245,000 in first year’s projected sales

· Sales growth is expected to increase by 25% over the previous year’s sales (with a high level of confidence)

· COGS is expected to remain at 20% of each years’ sales

· Operating Expenses are $20,000 the first year and increase by 20% over the previous year’s Operating Expense.

Business ordinary tax rate is 29%

A. Develop the following for years 1 thru 5:

1. Loan amortization table (2 points)

2. Depreciation table (2 points)

3. Income Statement (2 points)

4. Cash Flow Statement (2 points)

B. Based on the information provided in the above statements, would you pursue the opportunity? In ~50 words, explain why or why not. (2 points) (Note: your assessment must be rational & reasonable and your explanation should be supported by facts within the statements to earn full credit)

Note: In your Income Statement, if Net Earnings (AKA EBT) is negative, no tax is charged/assessed.

Question #8 (Extra Credit) 2 points

You must pay federal income tax. Using the graduated tax table below, what is the total taxes you pay the IRS if your taxable income was $433,000?

Tax rates on ordinary income
	over	to
10%	$0	$9,700
12%	$9,701	$39,475
22%	$39,476	$84,200
24%	$84,201	$160,725
32%	$160,726	$204,100
35%	$204,101	$410,300
37%	$410,301