Cash payments
Use the following information to answer all questions: | |||
| Management of XYZ are considering investing in a new business line for producing a new product. The following data are relevant to the business line: | |||
| 1 | Business line machinery will cost $1,000,000 and have 10 years useful life and requires $50,000 maintenance annually | ||
| 2 | Line will have a normal capacity to produce 100,000 units annually | ||
| 3 | The line will be based in a factory rented and used by XYZ at $100,000 of which 40% will be allocated and charged to the business line. | ||
| 4 | Below are the materials used in producing the product: | ||
| Quantity | Cost | ||
| RM1 | 0.1 KG | $200 per KG | |
| RM2 | 1 piece | $100 per box of 20 pieces | |
| 5 | Salaries are paid as follows: | ||
| Head office salaries | $100,000 | annually | |
| Factory labor | $200,000 | annually | |
| Sales staff | $120,000 | annually | |
| 6 | XYZ will charge the business line $50,000 annually for Administration services (such as accounting, HR and other service) | ||
| 7 | At the end of year 5, the business line will be closed and the machinery will be sold to a third party for $450,000 | ||
| 8 | The investment and required working capital will be financed with 60% equity and 40% debt. | ||
| 9 | The new line is planned to produce and sell 50,000 units in year 1, 60,000 units in year 2 growing by 10% for the remaining years | ||
| 10 | Selling price for the product will be $50 per unit expected to rise by 10% starting year 3 | ||
| 11 | Raw materials are imported from a foreign country and their prices are expected to increase by an annual inflation rate of 7% | ||
| 12 | Working Capital: | ||
| Sales are 20% cash and 80% credit due within 60 days | |||
| Raw Material purchase are made on credit due within 30 days | |||
| Factory rent is paid in advance on December 31 of each year | |||
| 13 | The company’s dividend policy is 40% of net profit starting year 2 for this project (i.e. no dividend on year 1 net profit) | ||
| 14 | Cash balance should be minimum of100,000 | ||
| 15 | Debt to be paid over 2 years | ||
The expected dollar sales in year 1:
a.3.500.000
b.2.000.000
c.2.500.000
d.3.000.000
Expected dollar sales in year 4:
a.4.392.500
b.4.932.300
c.4.392.300
d.3.630.000
Expected cash collections in year2:
a.2.920.000
b.2.650.000
c.3.100.000
d.2.100.000
Assume no ending inventory, the total material cost for year 1 is:
a.1.000.000
b.1.250.000
c.1.605.000
d.1.284.000
Cash payments for martials for year 2
a.2.195.589
b.1.540.816
c.1.575.417
d.1.865.411
labor cost for year 2:
a.180.000
b.200.000
c.300.000
d.400.000
Assume that salvage value for the line is 0, the company uses straight line depreciation method.
What is the total overhead cost for year 1:
a.90.000
b.190.000
c.140.000
d.150.000
The total cash selling and admin expenses for year 1 is:
a.Non of the above
b.170.000
c.120.000
d.190.000
The gross margin for year 1 is :
a.860.000
b.1.640.000
c.1.005.000
d.835.000
The operating income for year 1 is:
a.835.000
b.690.000
c.590.000
d.1.180.915
the net profit for year 1 is:
a.690.000
b.590.000
c.935.000
d.490.000
Total assets by the end of year 1:
a.1.440.000
b.2.094.877
c.1.123.673
d.1.841.417
Cash Excess (Deficiency) for year1:
a.445.833
b.545.833
c.645.833
d.-645.833
e.-445.833
f.-545.833
