Group assignment Due on August 15, 2024 Chapter 5: Profit Planning and Decision Making 1. What is the difference between direct costs and indirect costs? Give an example of each. 2. Differentiate between fixed and variable costs. Give an example of each. 3. The Millers are thinking of introducing a new product line in their store. For this exercise, assume the following: Total fixed costs for the line are estimated at $15,000. Total number of units they expect to sell are 10,000, based on a market study. Total variable costs are $20,000. Unit selling price is $4.50. Based on the information, answer the following questions: i. What is the break-even point in units? ii. What is the break-even point in revenue? iii. Should they go ahead with their plan? 4. Use the following information to calculate CompuTech's- i. profit before taxes, ii. contribution margin, and iii. PV ratio. Purchases (cost of sales) $205,000 Salaries (administration) $38,000 Freight-in (cost of sales) 4,000 Revenue 420,000 Salaries (distribution) 60,000 Depreciation/amortization 40,000 Commissions 3,000 Leasing 7,000 Travel 3,000 Finance costs 14,000 Advertising 5,000 Chapter 6: Working Capital Management 1. Explain the meaning of working capital and how it can be measured. 2. Discuss the flow of cash via the cash conversion cycle. 3. Using the information below, Calculate the net working capital of Millers Inc.- Buildings $100,000 Cash 5,000 Trade receivables 25,000 Trade and other payables 40,000 Inventories 50,000 Cost of sales 150,000 Land 500,000 Wages payable 10,000 Prepaid expenses 12,000 Goodwill 50,000 4. With the following information, calculate ABC Co.'s days of working capital (DWC) for 2023. 2023 2022 Profit for the year $ 225,000 176,000 Depreciation/amortization 70,000 55,000 Trade receivables 385,000 360,000 Inventories 490,000 450,000 Trade and other payables 440,000 400,000 Revenue 2,500,000 2,200,000 5. With the following information, calculate the Home Design Co.'s- i. inventory conversion period ii. trade receivables conversion period iii. cash conversion cycle revenue ($2,800,000) inventories ($400,000) trade and other payables ($180,000) trade receivables ($230,000) cost of sales ($2,000,000) Chapter 10: Time-Value-of-Money Concept 1. Explain the financial tools used to solve time-value-of-money problems. 2. Differentiate between future values of single sums and future values of annuities. 3. If you invest $10,000 at 8%, how much will your investment be worth at the end of the following time periods? i. 5 years ii. 10 years 4. Evelyn Kent's projected statement of income for 2013 is as follows: In dollars Revenue 600,000 Cost of sales (400,000) Gross profit 200,000 Administration expenses (50,000) Distribution expenses (75,000) Depreciation (25,000) Total expenses (150,000) Profit before taxes 50,000 Income tax expense (15,000) Profit for the year 35,000 Prepare Evelyn Kent's projected statements of income for 2014, 2015, and 2016 based on the following annual inflation rates: revenue (3%), cost of sales (2.5%), administrative expenses (2.0%), and distribution costs (3.0%). The income tax rate is 30%. 5. The Millers are considering a $200,000 expansion for their existing retail outlet. The expansion would generate $35,000 in cash each year over the next 10 years. Calculate CompuTech's payback period. 6. A retailer is interested in selling a retail business to the Millers for $1 million. This includes all physical assets, working capital, and goodwill. Based on the company's historical financial statements, the Millers estimate that the annual cash inflows would be around $195,000. Calculate the project's payback reciprocal. Assuming that Miller's weighted average cost of capital is 8%, calculate the project's net present value. 7. If you invest $10,000 at 8%, how much will your investment be worth at the end of the following time periods? i. 15 years ii. 20 years iii. 8. A company wants to invest $500,000 in a new facility. The project will generate $120,000 in cash each year over the next 10 years. Calculate the project's payback period by using the traditional approach. 9. Assume that the company was able to sell the project for $500,000 in year 10. Calculate the project's return on investment by using the payback reciprocal method. Calculate the project's net present value, with the assumption that the cost of capital is 9%. 10. Su Mei's projected statement of income for 2013 is as follows: In dollars Revenue 600,000 Cost of sales (400,000) Gross profit 200,000 Administration expenses (50,000) Distribution expenses (75,000) Depreciation (25,000) Total expenses (150,000) Profit before taxes 50,000 Income tax expense (15,000) Profit for the year 35,000 Prepare Su Mei's projected statements of income for 2014, 2015, and 2016 based on the following annual inflation rates: revenue (3%), cost of sales (2.5%), administrative expenses (2.0%), and distribution costs (3.0%). The income tax rate is 30%. Chapter 11: Capital Budgeting 1. Differentiate between a capital investment and an expense investment. 2. Why are capital projects critical? 3. What are compulsory investments and opportunity investments? Give several examples. 4. What are the critical steps involved in the capital budgeting process? 5. Comment on the key elements used to judge capital projects. 6. XYZ Inc. wants to invest $1 million in a capital project that would generate $300,000 in savings each year. The physical life of the project is 10 years, and the cost of capital is 10%. Using the above information, calculate the following: i. Payback period ii. Net present value 7. You have some cash and the opportunity to buy a small retail store downtown for $700,000. This price includes all physical assets in the retail store and the inventories. You also have the option of buying $700,000 of mutual funds that pay 14% interest. The annual cash flow from the retail store operations is expected to be $115,000. In 20 years you plan to retire, and you feel that the store will be sold then for $2 million. If you wanted to make the same return on your investment as you would with the investment securities, would you buy the retail store? To answer this question, calculate the following: a) Payback period b) Net present value