Name and describe one solvency ratio. What does this ratio measure? What is the formula for this ratio?
Question 1. The Von
Pottasnevitch Company sells office products and for the most part has a regular group of customers and fairly predictable sales. Many of the company’s customers are offered credit, while other clients do business on a cash basis. The company’s monthly sales are consistently split between 10% cash business and 90% on credit. The credit sales are collected 50% in the same month of the sale and the remaining 50% is due the following month. Sales for the upcoming first quarter of the next year are estimated as follows:
January: $100,000
February: $200,000
March: $150,000
Calculate the expected cash collections for February.
Question 2. The Walkabout Corporation manufactures boomerangs (its only product). The company’s standards for manufacturing boomerangs are as follows:
| Standard direct labor rate per hour | $ 18.50 per hour |
| Standard direct labor hours per boomerang | 0.4 hours |
During the month of January, the company produced 1,800 boomerangs. Actual production data for the month follows:
| Actual direct labor hours worked | 700 hours |
| Actual direct labor cost incurred | $ 14,000 |
Part A. Calculate the labor rate variance for the month. Is it favorable or unfavorable?
Part B. Calculate the labor efficiency variance for the month. Is it favorable or unfavorable?
answer these questions.
Magnum Corporation is considering the purchase of a new business that will increase
their annual cash flows by $50,000 per year for 8 years. The business will cost
$140,000 and the current market rate of interest is 6%.
Use the Present Value tables or Excel to answer the following questions.
Required:
1. What is the Net Present Value of the above business? (10 points)
2. Should the Magnum Corporation purchase the new business based upon the results of
| the NPV method? Why? Why not? (10 points)
3. What is the Present Value Index for the business that Magnum is thinking about purchasing? (5 points) 4. What is the Payback period for the purchase of the new business? (10 points) 5. Briefly describe the Net Present Value Method of Capital Budgeting. (5 points) 6. Roberto just graduated from college and he is currently earning $45,000 per year. Roberto has decided that he would like to begin investing 15% of his annual salary into his 401K plan at work for the next 40 years. Roberto plans to invest his 401K retirement funds into a mutual fund of stocks and bonds that is expected to earn 8% into the foreseeable future. Roberto is not planning on taking any money out of his retirement account until he retires. (10 points) What amount will Roberto have in his 401K Retirement account when he retires in 40 years? How much money will Roberto have earned in his retirement account after 40 years?
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