Susan Corporation started the year expecting to produce and sell 117,000 units of its super-insulating coffee mugs, but it ended theyear having produced and sold even more than that-129,000 units. Needless to say, owners Eli and his sister Anna were thrilled tohave exceeded sales goals for the year. By the end of the third quarter, results looked promising. They were even more excited to seethe final year-end financial statements and share the great news with their crew. The actual results, along with the original masterbudget for the year, are as follows.SalesVariable costs:DMDLVariable-MOHVariable SG&AContribution marginFixed costs:Fixed-MOHFixed SG&AOperating incomeActual Income$2,560,650389,064621.264268,320122,5501,159,452442,728436,500$280,224Flexible BudgetMaster Budget$2,357,550351,000561,600210,600111,1501,123,200421,200409,000$293,000In addition to seeing total actual results, the owners would like a more thorough analysis of many of these accounts. Conduct a detailed variance analysis for all product costs (price, efficiency, and volume variances), taking the following details into consideration.●The company purchased and used 268,320 pounds of DM.36,120 DL hours were used.Price varianceEfficiency variancePrice varianceVolume variance$$$$21528DMFavorableUnfavorableFixed-MOHUnfavorableFavorable$DLUnfavorableFavorable$$Variable-MOHUnfavorableUnfavorable

Variance analysis is the method of evaluating and studying the deviation that arises while comparing…

Answered: Susan Corporation started the year…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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V Energy Tech Ltd. has just had a very profitable year as rising energy costs have driven a rapid increase in sales of its solar power cells. The firm also developed a new process which has lowered its manufacturing costs significantly. V Energy Tech believes that this new process will give it a major advantage over its competitors, which it estimates will last for three years. It expects to enjoy high profits during this period, estimating profit growth over the next three years to be 18%, 16% and 13% respectively, before returning to constant industry growth pattern of 6% per year in year 4. V Energy Tech Ltd. has just paid a dividend of $2.50 per share and expects that the dividend will grow at the same rate as its profits. The firm’s cost of capital is 9%. a. What is the firm’s share price today (P0)? b. What is the expected share price next year (P1)? c. Calculate the dividend yield for year 2. d. Calculate the current capital gains yield (year 1).
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Tom Scott is the owner, president, and primary salesperson for Scott Manufacturing. Because of this, the company's profits are driven by the amount of work Tom does. If he works 45 hours each week, the company's EBIT will be $555,000 per year; if he works a 55-hour week, the company's EBIT will be $635,000 per year. The company is currently worth $3.25 million. The company needs a cash infusion of $1.35 million and can issue equity or issue debt with an interest rate of 7 percent. Assume there are no corporate taxes. a. What are the cash flows to Tom under each scenario? (Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) b. Under which form of financing is Tom likely to work harder? a. Debt issue and 45-hour week a. Debt issue and 55-hour week a. Equity issue and 45-hour week a. Equity issue and 55-hour week b. Which form of financing is Tom likely to work harder?
I would like to expand my business by creating a new production line. Today, I hired a consultant to plan the project, at a cost of 200,000. In the first year, I spent $800,000 on new machinery. In the second year, I made $125,000. In the third year, I made $200,000. In the fourth year, I made $ 360,000. In the fifth year, I made $620,000. During years 6-8, I made $540,000 each year. Assuming a discount rate of 7.1%, what was the NPV of this project? Question $973,179 $1,242,275 None of these $1,042,275
5. Your company has been doing well, reaching $1.15 million in earnings, and is considering launching a new product. Designing the new product has already cost $466,000. The company estimates that it will sell 756,000 units per year for $2.94 per unit and variable non-labor costs will be $1.03 per unit. Production will end after year 3. New equipment costing $1.07 million will be required. The equipment will be depreciated to zero using the 7-year MACRS schedule. You plan to sell the equipment for book value at the end of year 3. Your current level of working capital is $306,000. The new product will require the working capital to increase to a level of $378,000 immediately, then to $396,000 in year 1, in year 2 the level will be $354,000, and finally in year 3 the level will return to $306,000. Your tax rate is 21%. The discount rate for this project is 9.8%. Do the capital budgeting analysis for this project and calculate its NPV. Note: Assume that the equipment is put into use in…
Environmental Designs, Inc., produces and installs energy-efficient window systems in commercial buildings. During the past ten years, sales revenue has increased from $25 million to $65 million. (A) Calculate the company's growth rate in sales using the constant growth model with annual compounding. (B) Derive a five-year and a ten-year sales forecast. 3
Big Boom Ltd. has developed new manufacturing technology that has given it a competitive advantage over its competitors. This, it expects will increase its profitability until its rivals can develop their own technological answers. The firm thinks that its advantage will last for three years, and estimates that its growth in profits and dividends will be 12% for the first year, 11% for the second and 9% the third year, before decreasing to a constant 5% starting in the fourth year. Cost of capital is expected to be 7%, and its last dividend was $1.65. (i) What is the stock’s terminal value? (ii) What is the current share price (P0)? (iii) What is the expected share price for the following year (P1)?
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EBI Solar uses a high-tech process to turn silicon wafers into tinysolar panels. These efficient and inexpensive panels are used topower low-energy, hand-held electronic devices. Last year, EBISolar turned their inventory 4.5 times and had a cost of goodssold of $2.5 million. Assuming 52 business weeks per year: a. Express last year’s average inventory in weeks of supply.b. After several supply chain improvement initiatives, in-ventory investment has dropped across all inventorycategories. While EBI’s cost of goods sold is not expected to change from last year’s level, the value of raw materialshas dropped to $100,500; work-in-process to $25,800; andfinished goods to $16,200. Assuming 52 business weeksper year, express EBI’s current total inventory level inweeks of supply and inventory turns.
V Energy Tech Ltd. has just had a very profitable year as rising energy costs have driven a rapid increase in sales of its solar power cells. The firm also developed a new process which has lowered its manufacturing costs significantly. V Energy Tech believes that this new process will give it a major advantage over its competitors, which it estimates will last for three years. It expects to enjoy high profits during this period, estimating profit growth over the next three years to be 18%, 16% and 13% respectively, before returning to constant industry growth pattern of 6% per year in year 4. V Energy Tech Ltd. has just paid a dividend of $2.50 per share and expects that the dividend will grow at the same rate as its profits. The firm’s cost of capital is 9%. What is the firm’s share price today (P0)? What is the expected share price next year (P1)? Calculate the dividend yield for year 2. Calculate the current capital gains yield (year 1).
Smartlink Computer Services Co. specializes in customized software development for the broadcast and telecommunications industries. The company was started by three people to develop software primarily for a national network to be used in broadcasting national election results. After sustained and manageable growth for many years, the company has grown very fast over the last three years, doubling in size. This growth has placed the company in a challenging financial position. Within thirty days, Smartlink will need to renew its P300,000 loan with Philippine National Bank. This loan is classified as a current liability on Smartlink’s balance sheet. Steve Heart, president of Smartlink, is concerned about renewing the loan. The bank has requested Smartlink's most recent financial statements which appear below, including balance sheets for this year and last year. The bank has also requested four ratios relating to operating performance and liquidity. Required: Explain why the Philippine…

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