Business
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. 1) Prepare the NPV profile graph, clearly showing the IRR point using relevant discount rates. Does there appear to be a problem of multiple IRRs? Show excel working (3 Marks) 2) Forecasting future cash flows involves a high degree of uncertainty. Financial analysts often resort to sensitivity analysis, scenario analysis, simulation analysis and decision-tree analysis to obtain a better understanding of how errors in forecasting could affect the viability of a project. As such the investment committee could argue that the annual unit sold may go up or down by 25 per cent from its base forecast. How may these two scenarios affect the decision? (2 Marks)
A comparative balance sheet and income statement is shown for Cruz, Incorporated.CRUZ, INCORPORATEDComparative Balance SheetsAt December 31 2021 2020Assets Cash $ 63,600 $ 15,900Accounts receivable, net 27,400 33,700Inventory 57,400 63,300Prepaid expenses 3,500 2,900Total current assets 151,900 115,800Furniture 70,500 82,200Accumulated depreciationFurniture (10,900) (6,200)Total assets $ 211,500 $ 191,800Liabilities and Equity Accounts payable $ 10,000 $ 14,100Wages payable 6,000 3,300Income taxes payable 1,000 1,800Total current liabilities 17,000 19,200Notes payable (long-term) 20,700 47,800Total liabilities 37,700 67,000Equity Common stock, $5 par value 153,600 124,000Retained earnings 20,200 800Total liabilities and equity $ 211,500 $ 191,800CRUZ, INCORPORATEDIncome StatementFor Year Ended December 31, 2021Sales $ 328,400Cost of goods sold 211,300Gross profit 117,100Operating expenses (excluding depreciation) 60,000Depreciation expense 25,300Income before taxes 31,800Income taxes expense 11,600Net income $ 20,200 Required:Use the indirect method to prepare the operating activities section of Cruzs statement of cash flows.
Waterways Corporation is preparing its budget for the coming year, 2020. The first step is to plan for the first quarter of that coming year. The company has gathered information from its managers in preparation of the budgeting process. Sales Unit sales for November 2019 112,000Unit sales for December 2019 102,000Expected unit sales for January 2020 114,000Expected unit sales for February 2020 114,000Expected unit sales for March 2020 116,000Expected unit sales for April 2020 126,000Expected unit sales for May 2020 136,000Unit selling price $12Waterways likes to keep 10% of the next months unit sales in ending inventory. All sales are on account. 85% of the Accounts Receivable are collected in the month of sale, and 15% of the Accounts Receivable are collected in the month after sale. Accounts receivable on December 31, 2019, totaled $183,600. Direct MaterialsDirect materials cost 80 cents per pound. Two pounds of direct materials are required to produce each unit. Waterways likes to keep 5% of the materials needed for the next month in its ending inventory. Raw Materials on December 31, 2019, totaled 11,400 pounds. Payment for materials is made within 15 days. 50% is paid in the month of purchase, and 50% is paid in the month after purchase. Accounts Payable on December 31, 2019, totaled $103,740. Direct LaborLabor requires 12 minutes per unit for completion and is paid at a rate of $6 per hour. Manufacturing OverheadIndirect materials 30 per labor hourIndirect labor 50 per labor hourUtilities 40 per labor hourMaintenance 30 per labor hourSalaries $41,000 per monthDepreciation $18,500 per monthProperty taxes $2,900 per monthInsurance $1,200 per monthMaintenance $1,400 per monthSelling and AdministrativeVariable selling and administrative cost per unit is $1. 60. Advertising $16,000 a monthInsurance $1,600 a monthSalaries $73,000 a monthDepreciation $2,400 a monthOther fixed costs $3,100 a monthOther InformationThe Cash balance on December 31, 2019, totaled $103,000, but management has decided it would like to maintain a cash balance of at least $800,000 beginning on January 31, 2020. Dividends are paid each month at the rate of $2. 30 per share for 4,800 shares outstanding. The company has an open line of credit with Romneys Bank. The terms of the agreement requires borrowing to be in $1,000 increments at 6% interest. Waterways borrows on the first day of the month and repays on the last day of the month. A $520,000 equipment purchase is planned for February. For the first quarter of 2020, prepare a cash budget. (Round answers to 0 decimal places, e. G. 2,520. )
Exam Practice - Analysis of Path-goal theory case studyYou are assigned by the Managing Director of Faxxcom, a mobile phone production company to look into the problems. You have talked to three managers. The first one is Bob, A departments manager, and has a set of leadership challenges. Bob is a supportive leader as seen through his interactions with workers. He remembers his followers birthdays, takes them out for lunch, and praises their performance. However, this approach does not suit their task characteristics as outlined in the path-goal model. Often times, his workers are unsure what and how to do their work. They seem to have ambiguous targets to achieve and have to work under a lot of pressure. Their work environment transforms on a regular basis, so they require a supervisor who can explain the targets. Additionally, these workers feel insecure since they do not know how to cope with the changes which is shown in the way they complain to each other about their work. This scenario requires a directive leader who will provide structure and guide them in their daily tasks. Bob ought to get more involved in his subordinates tasks so as deal with this challenge.The second manager is Arthur who is Department Bs manager, and he has different leadership challenges. His employees are dull and uninterested to work. They also know their tasks inside out. The path goal theory states that directive leadership is suitable to dogmatic subordinates who have unclear, complex and ambiguous tasks. However, B departments workers are already confident about their ability to complete tasks. Additionally, they seem to have an internal locus of control. Therefore, the last thing they need is a directive leader, yet Arthur has selected the directive leadership style. His behaviour is incompatible with his employees and well as their work environment. Thus, Arthur needs to minimize his level of involvement in the workers work. He should behave more like Bob by dealing with his subordinates human needs. Arthur ought to work on his interpersonal relationship by relating to his subordinates. These workers need a human touch because they prefer affiliation and interpersonal relationship, which is the perfect scenario for supportive leadership.Lastly, Carol, is a part-time assistant manager who comes to support the factory of Faxxcom during the peak production seasons for departments A & B, seems to have mastered her situation and her employees quite well. She is a participative leader in certain circumstances, a supportive leader at other times, and an achievement-oriented supervisor in certain circumstances. She knows when to solicit for ideas or when to support workers. Carol represents the ultimate path-goal leader; she works on employees personal needs while focusing on the ultimate goal in the enterprise. She also eliminates obstacles and clarifies path in the way that the matter has been described in the theory.QuestionsWhat are the leadership problems for departments A & B under Bobs and Arthur? (explain it in detail)
