Business
Products reported a write-down loss of for one of its plant assets on 31,. The asset is currently held for disposal. At 31, , the fair value of the asset increased by. Can record a recovery? Prepare the journal entry to record the recovery if it is permitted. Determine whether can record the recovery. Can cannot can record the recovery since the asset is held for disposal, but only up to the previously recognized write-down. Because U. S. GAAP does not permit firms to reverse write-down losses on assets held for disposal. Because it exceeds the prior period write-down loss. For the total increase in fair value since the asset is held for disposal. Since the asset is held for disposal, but only up to the previously recognized write-down. Now, prepare the journal entry to record the recovery if it is permitted as of 31,. (Record debits first, then credits. Exclude explanations from any journal entries. If no entry is required, enter "No entry required" on the first account line and leave the remaining cells blank. Check your spelling carefully and do not abbreviate. ) Account December 31, 2019
3G Incorporation, an American company deals in digital products. Due to recent competition in the market, the company has been experiencing decreasing revenues in the past three years. The situation led the company to push its engineers to develop a unique and profitable digital product that could compete in the market. In the last company meeting, the design committee, unveiled this unique product prototype called "Smart Help". This product uses sophisticated built-in technology to function.The marketing department's surveys showed that this product would be a success and could secure a good market share if the company offered a competitive price. The survey results showed great demand for this product at the end of both customers, retailers and even wholesalers. It took almost three years to develop the prototype and test the product before marketing it in various exhibitions. The product passed all the required safety and quality standards. The company had not yet started fully producing this product because the newly appointed CEO was very conservative in her approach. The CEO wants the design team to present a comprehensive feasibility report of this product to the firm's investment committee chaired by you, an experienced product manager. After the committee's approval, the CEO will approve the product's full production. The feasibility report must include all the estimates of revenues, related costs, and acceptable documentation. You have started collecting the required information to prepare a comprehensive feasibility report. Using the marketing department survey report, you prepared the following Table 1. Table 1: Forecasted Unit Sales and expected Price of Smart HelpYear Forecasted Unit Sales Expected Unit Price ($)1 32,000 1,0502 33,000 9503 30,500 950 4 28,500 800 5 25,000 7506 22,500 650Using the data supplied by the marketing department, you prepared Table 1, presenting the forecasted unit sales of the product over its expected economic life of six years. Table 1 also shows the expected unit's selling price. Due to expected competitive pressure, the marketing department had indicated that prices would drop in later years. It is also the market phenomenon that market players (competitors) start producing similar products after some time. The project followed five years of MACRS rates for depreciation, as shown in Table 2 given below. Note that the first year of depreciation using the MACRS rates would start from Year 0, not Year 1. Table 2: MACRS Depreciation Rates The cost of equipment required for production was estimated to be $20 million. The equipment was expected to be sold at a market price of $5.5 million after six years. It was indicated that the product's manufacturing would occur in an existing unoccupied company plant. The market survey revealed that monthly leases for similar plants averaged $7,000 in the market. The variable costs of production per unit were estimated to be $550. The expected fixed costs were $12,500,000 annually. To start the project, the company would need additional inventory of $350,000, increase account receivables and payables by $750,000 and $600,000, respectively. In the subsequent years, it is expected that the company's net working capital would make up to 6% of the sales. The average cost of capital, after tax of the company is 14 per cent. It was estimated that the corporate tax would remain constant at 35%. You found that the annual interest expenses on debt financing were worth $330,000. Required: 1) Prepare the pro forma statement of the Smart Help project's annual cash flows, showing clearly the annual free cash flow generated for the project life cycle. (4 Marks)2) As a preliminary step in analysing the project, the design team has decided to evaluate the projects anticipated discounted payback period. What is the Smart Help projects expected discounted payback period. The CEO has questioned the use of discounted payback period as it ignores the cash flows over many years beyond the payback period. She wanted to know what useful information the discounted payback period method provided. If you were an analyst, how would you respond to the CEO. (3 marks)3) What are the NPV and IRR of the project? What does the NPV indicate about the potential value created by the project? Briefly elaborate how IRR helps in the evaluation of the project. (3 Marks)
