#3.5 Brandywine Homecare Brandywine Homecare, a not-for-profit business, had revenues of $12 million in 2007. Expenses other than depreciation totaled 75 percent of revenues, and depreciation expense was $1.5 million. All revenues were collected in cash during the year and all expenses other than depreciation were paid in cash. A. Construct Brandywine’s 2007 income statement. Brandywine Homecare Income statement Month ending December 31, 2007 Revenue $12,000,000 Total revenue $12,000,000 Expenses: Depreciation $ 1,500,000 Other 12,000,000 x 75/100 = 9,000,000 Total expenses= Depreciation + Other expenses= 1,500,000+ 9,000,000= $10,500,000 Total revenue – total expenses = Net income or Profit - 12,000,000- 10,500,000= 1,500,000 B.
What are the earnings after interest? Firm A Firm B EBIT $3,000.00 $3,000.00 Interest 0 500 $3,000.00 $2,500.00 c. If sales increase by 10 percent to 11,000 units, by what percentage will each firm’s earnings after interest increase? To answer the question, determine the earnings after taxes and compute the percentage increase in these earnings from the answers you derived in part b. Firm A Firm B Sales Revenue: 11,000 x $2.50= $27,500.00 $27,500.00 Variable Cost: 11,000 x $1= $11,000.00 $11,000.00 Fixed Cost: $12,000.00 $12,000.00 EBIT $4,500.00 $4,500.00 Interest: 0 500 $4,500.00 $4,000.00 50% 60% Increases d. Why are the percentage changes different? The percentage changes are different because of the interest Firm B is paying on their debt interest.
What was the change of Retained Earnings from the year 2010 to 2011? And what was the Net Income for the year 2011? Is that right that the Net Income in 2011 should be equivalent to the increase of Retained earnings from 2010 to 2011? Why they are not equivalent in this case? 5.
ALTERNATIVE PROBLEMS AND SOLUTIONS ALTERNATIVE PROBLEMS 11- 1A. (Individual or Component Costs of Capital) Compute the cost for the following sources of Financing: a. A bond that has a $1,000 par value (face value) and a contract or coupon interior rate of 12%. A new issue would have a flotation cost of 6% of the $1,125 market value. The bonds mature in 10 years.
Given the following cash flow stream at the end of each year: Year 1: $4,000 Year 2: $2,000 Year 3: 0 Year 4: -$1,000 Using a 10% discount rate, the present value of this cash flow stream is: a. $4,606 b. $3,415 c. $3,636 d. Other 8. Consider a 10-year annuity that promises to pay out $10,000 per year, given this is an ordinary annuity and that an investor can earn 10% on her money, the future value of this annuity, at the end of 10 years, would be: a. $175,312 b.
For financial reporting purposes, the two most popular methods of accelerated depreciation are the declining balance method and the sum-of-the-years’ digits method. For tax purposes, the allowable methods of accelerated depreciation depend on the tax law that the taxpayer is subject to. In the United States, the two currently allowable depreciation methods for tax purposes are both accelerated depreciation methods (ACRS and MACRS). As a simple example, a company buys a generator that costs $1,000 that is expected to last for 10 years. Under the most simple form of depreciation, the company might allocate $100 of the cost of the generator to its expenses every year, until the $1000 capital expense has been "used up."
Question 1. a) How many parts should you purchase each time you place an order? R=800- ORDERING COST Annual carrying cost of capital= 20% .20 lost per dollar R= 50000 H= .80 r= .20 cost per dollar C= unit cost H=rC Qo= √2RS/H= √(2(50,000)(800)/.8) = 10,000 10,000 parts should be purchased each time an order is placed. (b) To satisfy annual demand, how many times per year will you place orders for this part? R/Qo= 50,000/10,000= 5 times per year Question 2: (a) Determine BIM’s total annual cost of production and inventory control. Q= 4 weeks supply = 1600 units R= 400 units a week= 20000 units/ year C= purchase cost per unit= $1250 X (1-.20)= 1,000 H= holding cost= rC= $200 per unit / year S= setup cost= 2000 + 93.75 = $2,093.75 Setups per year= R/Q= 20000/1600= 12.5 Annual setup cost= (R/Q)(S)=12.5X $2,093.75= $26,172 Annual Holding cost= (q/2)(H)= (1600 /2)X $200= $160,000 Total Annual Cost= Annual Setup Cost+ Annual Holding Cost Total Annual Cost= 26,172+160,000 BIM’S Total Annual Cost= $186,172 (b) Compute the economic batch size and the resulting cost savings.
Chapter 2. 2-14 a. Cumberland Industries' most recent sales were $455,000,000; operating costs (excluding depreciation) were equal to 85% of sales; net fixed assets were $67,000,000; depreciation amounted to 10% of net fixed assets; interest expenses were $8,550,000; the state-plus-federal corporate tax rate was 40% and Cumberland paid 25% of its net income out in dividends. Given this information, construct Cumberland's income statement. Also calculate total dividends and the addition to retained earnings. The input information required for the problem is outlined in the "Key Input Data" section below.
They sell their t-shirts for $10. What is the least number of t-shirts they must sell to make a profit? 19. You have $12,000 to invest in two accounts. One account earns 6% interest a year, while a second, riskier account earns 10%.
The annual growth rate is I in the following equation: $1(1 + I)10 = $2. We can find I in the equation above as follows: Using a financial calculator input N = 10, PV = -1, PMT = 0, FV = 2, and I/YR = ? Solving for I/YR you obtain 7.18%. Viewed another way, if earnings had grown at the rate of 10% per year for 10 years, then EPS would have increased from $1.00 to $2.59, found as follows: Using a financial calculator, input N = 10, I/YR = 10, PV = -1, PMT = 0, and FV = ?. Solving for FV you obtain $2.59.