By following the matching principle all of the costs associated with a particular product, not just its wholesale price, is expensed when the item is sold. Requirement 2 - A Generally, the lower of cost or market method is used to value inventory in order to “avoid reporting inventory at an amount greater than the benefits it can provide” (Spiceland, Sepe, & Nelson, 2013, p. 476). According to Spiceland, Sepe, and Nelson (2013) the “change in replacement cost usually is a good indicator of the direction of change in selling price” (p. 477). When the change in replacement cost is negative the LCM method allows companies to apply the conservatism principle. The conservatism principle involves “recognizing expenses and liabilities as soon as possible when there is uncertainty about the outcome, but to only recognize revenues and assets when they are assured of being received” (The conservatism principle).
Since debt and equity levels are closely related there is an analysis called the “DuPont model” that systematically breaks ROE into components so that each can be evaluated. ROE = NI x EBT x EBIT x Sales x Total assets EBT EBIT Sales Total assets Common equity EBT = earnings before taxes. The first ratio measures the proportion of earnings before tax that is kept by the company. EBIT = earnings before interest and taxes. The second ratio measures the effect of interest; it indicates the proportion of earnings before interest and tax that is retained after paying interest.
They first compute the likely forecasts through formulas and statistics, then they talk about it and arrange according to managers’ feelings. They finally use historical forecast errors to correct forecasts, assuming there should be approximately the same level of error on the same category of items from one year to another. 2. What item costs and revenues are relevant to the decision of how many units of that item to stock? Cost of overage, cost of underage, mean and standard deviation of sales are useful to compute the optimal service level.
By putting different values for r3, we can get a number of lost revenues by simulation method. 4. Putting it together We will put all the random variables and calculated values together and then we have to find the cumulative number of weeks from the values for weeks which we have found in intervals between breakdowns. Now, we have to take that much values of r2 till the cumulative number of weeks reached at 52 or near about 52 such that if we will take one more value for r2 then cumulative number exceeds to 52. We are taking 52 weeks as an upper limit here because we have to find the lost revenue over the period of 1 year and 1 year contains 52
All remaining inventory is valued at the lower of cost on a first-in, first-out (“FIFO”) basis or market value. The FIFO cost of inventory approximates replacement or current cost. The Company performs physical counts of perishable inventory in stores every four weeks and nonperishable inventory in stores and all distribution centers twice a year. The Company uses a combination of the retail inventory method and cost method to determine the cost of its inventory before any LIFO reserve is applied. The Company records an inventory shrink adjustment upon physical counts and also provides for estimated inventory shrink adjustments for the period between the last physical inventory and each balance sheet
HILL COUNTRY SNACK FOODS CO. March 30 2013 This report analyses and estimates the effects of a recommended leveraged of 20%, 40%, and 60% debt-to-capital recapitalization for Hill Country Snack Foods Co. Fundamental conclusions include: • Relevant theories infer that by incorporating debt to a firm’s capital structure, significant tax savings can be made, but financial distress and signaling factors need to be considered. • Hill Country’s Weighted Average Cost in Capital is estimated to decrease after recapitalization. • It revealed that 20% debt-to-capital result is the optimal (lowest) WACC and maximizes the company’s value. • Significant debt issue is a concern as it is risky and in conflict with the company’s culture and managerial of low-risk attitude.
Debt to assets ratio $1,202,134 (total debt) / $1,404,726 (total assets) = 87.4% B.) ROA is a measure of profitability or effectiveness of resource usage calculated by expressing a company’s net income as a percentage of total assets. As for Sepracor, its ROA is 4.5%. This means that Sepracor created 4.5 cents of earnings from each dollar of assets. The ROE for Sepracor is 33.07%, which means that 33.07 cents of assets are created for each dollar that was originally invested.
QUESTIONS 1. Table 1 contains the complete cash flow analysis based on GP Manufacturing’s basic information. Explain the inputs into 1) the net initial investment outlay at year 0, 2) the depreciation tax savings in each year of the project’s economic life, and 3) the project’s incremental cash flows? 1. Net initial investment outlay is $302,040.
(Hint: be sure to enter a sentinel value for end of file processing later.) Part B: Using a separate algorithm, use the monthly_Sales.dat file as input to determine the company’s annual profit. Be sure to THINK about the logic and design first (IPO chart and or pseudocode), then code the Visual Logic command line processing. Rubric: When completed staple the following documents together neatly in 1,2,3,4 order: 1) This instruction sheet first 2) The IPO Chart, second 3) The Pseudocode, third 4) The Flowchart and output example last. Point distribution for this application: Annual Profit | Document: | Points possible: | Points received | Part A | 10 | | Part B | 10 | | Total Points | 20 | | IPO Chart A: Input | Processing | Output | | | | Pseudocode: Start Display “Begin writing to file: monthly_Sales.txt Display “Data for 12 months has been written to the monthly_Sales.txt file.” Declare sales = 10000 FOR month From 1 To
Book value determines a company’s value by using the figures in balance sheet. The book value can be defined as the company’s total assets minus total liabilities or which means equity expressed in the value of the total shares. In other words, it shows how much would be left if a company is closed and sell all assets and pays all liabilities immediately. The market capitalization of a company is another indicator to show the value of a company. It equals the present share price times the number of shares outstanding.