04 Jun Question Question 1 Score 0 Awesome Gadget, INC is considering making
Question
Question 1 Score 0
Awesome Gadget, INC is considering making an additional investment in its production capabilities. It has collected data on the past year’s (year 0) revenue, costs and quantity sold. Future Sales quantities are forecasted to be as shown in the data block below.
The price per unit will be increased $2.50 annually (year-1 unit price = year-0 unit price + $2.50, year-2 price = Year-1 price + $2.50, etc.)
COGS per unit produced is forecast to decrease 5% annually (cost per unit in year-1 to be 5% less than the year-0 unit cost, year-2 unit cost will be 5% less than year-1, etc.)
Fixed cost (S.G. & A.) excluding depreciation will be constant for all years. Depreciation for each year is to be as shown in the data block (does not have to be calculated).
Using this data, prepare a three year proposal income statement (only) for years 1-3 using items from the following data block as needed. The income statement must be in the standard accounting sequence and format with appropriate totals.
Years 0 1 2 3
Revenue in year 0 $3,211,000.00
COGS – year 0 $2,281,500.00
Quantity produced/sold 84,500
Forecasted sales quantities 95,100 106,400 100,000
Working capital $750,000.00 $720,000.00 $690,000.00 $650,000.00
Depreciation $540,000.00 $510,000.00 $460,000.00 $400,000.00
Investment $350,000.00
S.G. & A. $1,258,000.00
Income Tax rate 14.00%
MARR 20.00%
Unit price increase $2.50 annually
Unit COGS decrease 5.00% annually
Question 2 Score 0
An investment committee has narrowed down their investment decision to three proposals. Further information was collected on these three proposals and the investment amounts, estimated annual cash flows, and estimated salvage values are shown below. A MARR of 15% and a six year time-span is to be used. The committee only uses the IRR criterion.
Determine which one maximizes the financial worth of the company using the internal rate of return criterion.
Proposal Investment Annual cash flow Salvage in last year
A1 ($1,750,000) $510,000 $80,000 19.38%
A2 ($1,550,000) $480,000 $30,000 21.44%
A3 ($2,250,000) $670,000 $75,000 20.06%
MARR Years
15.0% 6
Question 3 Score 0
Customers-R-Us,INC is considering a $5 million investment that will have a useful life of 8 years, and sold in the eighth year for $750,000. It will be depreciated using 10-year MACRS (table is below).
a Determine the depreciation for each year of the eight year life of the investment
b Determine the book value at the end of the eight years.
c Determine the capital gain or loss when sold in the eighth year.
d If the capital gain tax rate is 10%, what will be the capital gains tax?
0 1 2 3 4 5 6 7 8 9 10 11
10 year MACRS 10.00% 18.00% 14.40% 11.52% 9.22% 7.37% 6.55% 6.55% 6.56% 6.55% 3.28%
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