Paper details
INSTRUCTIONS
Assume ABC Company has asked you to not only prepare their 2015 year-end Balance Sheet but to also provide pro-forma financial statements for 2016. In addition, they have asked you to evaluate their company based on the pro-forma statements with regard to ratios. They also want you to evaluate 3 projects they are considering. Their information is as follows:
End of the year information:
Account 12/31/15
Ending Balance
Cash 50,000
Accounts Receivable 175,000
Inventory 126,00
Equipment 480,000
Accumulated Depreciation 90,000
Accounts Payable 156,000
Short-term Notes Payable 12,000
Long-term Notes Payable 200,000
Common Stock 235,000
Retained Earnings solve

Additional Information:
? Sales for December total 10,000 units. Each month?s sales are expected to exceed the prior month?s results by 5%. The product?s selling price is $25 per unit.
? Company policy calls for a given month?s ending inventory to equal 80% of the next month?s expected unit sales. The December 31 2015 inventory is 8,400 units, which complies with the policy. The purchase price is $15 per unit.
? Sales representatives? commissions are 12.5% of sales and are paid in the month of the sales. The sales manager?s monthly salary will be $3,500 in January and $4,000 per month thereafter.
? Monthly general and administrative expenses include $8,000 administrative salaries, $5,000 depreciation, and 0.9% monthly interest on the long-term note payable.
? The company expects 30% of sales to be for cash and the remaining 70% on credit. Receivables are collected in full in the month following the sale (none is collected in the month of sale).
? All merchandise purchases are on credit, and no payables arise from any other transactions. One month?s purchases are fully paid in the next month.

? The minimum ending cash balance for all months is $50,000. If necessary, the company borrows enough cash using a short-term note to reach the minimum. Short-term notes require an interest payment of 1% at each month-end (before any repayment). If the ending cash balance exceeds the minimum, the excess will be applied to repaying the short-term notes payable balance.
? Dividends of $100,000 are to be declared and paid in February.
? No cash payments for income taxes are to be made during the first calendar quarter. Income taxes will be assessed at 35% in the quarter.
? Equipment purchases of $55,000 are scheduled for March.
ABC Company?s management is also considering 3 new projects consisting of the purchase of new equipment. The company has limited resources, and may not be able to complete make all 3 purchases. The information is as follows for the purchases below.
Project 1 Project 2 Project 3
Purchase Price $80,000 $175,000 $22,700
Required Rate of Return 6% 8% 12%
Time Period 3 years 5 years 2 years
Cash Flows ? Year 1 $48,000 $85,000 $15,000
Cash Flows ? Year 2 $36,000 $74,000 $12,000
Cash Flows ? Year 3 $22,000 $38,000 N/A
Cash Flows ? Year 4 N/A $26,800 N/A
Cash Flows ? Year 5 N/A $19,000 N/A

Required Action:
Part A:
? Prepare the year-end balance sheet for 2015. Be sure to use proper headings.
? Prepare budgets such that the pro-forma financial statements for the first quarter of 2016 may be prepared.
? Sales budget, including budgeted sales for April.
? Purchases budget, the budgeted cost of goods sold for each month and quarter, and the cost of the March 31 budgeted inventory.
? Selling expense budget.
? General and administrative expense budget.
? Expected cash receipts from customers and the expected March 31 balance of accounts receivable.
? Expected cash payments for purchases and the expected March 31 balance of accounts payable.
? Cash budget.
? Budgeted income statement.
? Budgeted statement of retained earnings.
? Budgeted balance sheet.
Part B:
? Calculate using Excel formulas, the NPV of each of the 3 projects.
? It is possible that ABC Company may not be able to complete all 3 projects. Therefore, advise ABC Company as to the order in which they should pursue the projects (i.e., which project should ABC Company attempt to do first, second, and last).
? Provide justification and analysis as to why you chose the order you did. The analysis must also be done in Excel, not in a separate document.

Paper details
INSTRUCTIONS
Assume ABC Company has asked you to not only prepare their 2015 year-end Balance Sheet but to also provide pro-forma financial statements for 2016. In addition, they have asked you to evaluate their company based on the pro-forma statements with regard to ratios. They also want you to evaluate 3 projects they are considering. Their information is as follows:
End of the year information:
Account 12/31/15
Ending Balance
Cash 50,000
Accounts Receivable 175,000
Inventory 126,00
Equipment 480,000
Accumulated Depreciation 90,000
Accounts Payable 156,000
Short-term Notes Payable 12,000
Long-term Notes Payable 200,000
Common Stock 235,000
Retained Earnings solve

Additional Information:
? Sales for December total 10,000 units. Each month?s sales are expected to exceed the prior month?s results by 5%. The product?s selling price is $25 per unit.
? Company policy calls for a given month?s ending inventory to equal 80% of the next month?s expected unit sales. The December 31 2015 inventory is 8,400 units, which complies with the policy. The purchase price is $15 per unit.
? Sales representatives? commissions are 12.5% of sales and are paid in the month of the sales. The sales manager?s monthly salary will be $3,500 in January and $4,000 per month thereafter.
? Monthly general and administrative expenses include $8,000 administrative salaries, $5,000 depreciation, and 0.9% monthly interest on the long-term note payable.
? The company expects 30% of sales to be for cash and the remaining 70% on credit. Receivables are collected in full in the month following the sale (none is collected in the month of sale).
? All merchandise purchases are on credit, and no payables arise from any other transactions. One month?s purchases are fully paid in the next month.

? The minimum ending cash balance for all months is $50,000. If necessary, the company borrows enough cash using a short-term note to reach the minimum. Short-term notes require an interest payment of 1% at each month-end (before any repayment). If the ending cash balance exceeds the minimum, the excess will be applied to repaying the short-term notes payable balance.
? Dividends of $100,000 are to be declared and paid in February.
? No cash payments for income taxes are to be made during the first calendar quarter. Income taxes will be assessed at 35% in the quarter.
? Equipment purchases of $55,000 are scheduled for March.
ABC Company?s management is also considering 3 new projects consisting of the purchase of new equipment. The company has limited resources, and may not be able to complete make all 3 purchases. The information is as follows for the purchases below.
Project 1 Project 2 Project 3
Purchase Price $80,000 $175,000 $22,700
Required Rate of Return 6% 8% 12%
Time Period 3 years 5 years 2 years
Cash Flows ? Year 1 $48,000 $85,000 $15,000
Cash Flows ? Year 2 $36,000 $74,000 $12,000
Cash Flows ? Year 3 $22,000 $38,000 N/A
Cash Flows ? Year 4 N/A $26,800 N/A
Cash Flows ? Year 5 N/A $19,000 N/A

Required Action:
Part A:
? Prepare the year-end balance sheet for 2015. Be sure to use proper headings.
? Prepare budgets such that the pro-forma financial statements for the first quarter of 2016 may be prepared.
? Sales budget, including budgeted sales for April.
? Purchases budget, the budgeted cost of goods sold for each month and quarter, and the cost of the March 31 budgeted inventory.
? Selling expense budget.
? General and administrative expense budget.
? Expected cash receipts from customers and the expected March 31 balance of accounts receivable.
? Expected cash payments for purchases and the expected March 31 balance of accounts payable.
? Cash budget.
? Budgeted income statement.
? Budgeted statement of retained earnings.
? Budgeted balance sheet.
Part B:
? Calculate using Excel formulas, the NPV of each of the 3 projects.
? It is possible that ABC Company may not be able to complete all 3 projects. Therefore, advise ABC Company as to the order in which they should pursue the projects (i.e., which project should ABC Company attempt to do first, second, and last).
? Provide justification and analysis as to why you chose the order you did. The analysis must also be done in Excel, not in a separate document.

Excel ProjectIMPORTANT: You are required to present clear, easy-to-understand, and easy-to-find answers. You need to follow the instructions below when presenting your project for project that can be graded. Failure to follow instructions may result in unclear or unorganized answers, which will lower grade for the project.
1- Present only one Excel Workbook (only one Excel File) for the entire project
2- Name your file using your first and last name as the following example:
John_Doe_FIN301_A_ Project
3- Each answer to each question should be in separate sheet in your Excel workbook.
For that, you need to create a separate sheet for each answer and name it with the
question number.

4- Show your work and how the answer was obtained by formulating your cells.
NEW PROJECT ANALYSIS (100 pts)
You must analyze a potential new product—a caulking compound that Cory Materials’ R&D people developed for use in the residential construction industry. Cory’s marketing manager thinks the company can sell 115,000 tubes per year at a price of $3.25 each for 3 years, after which the product will be obsolete. The required equipment would cost $150,000, plus another $25,000 for shipping and installation. Current assets (receivables and inventories) would increase by $35,000, while current liabilities (accounts payable and accruals) would rise by $15,000. Variable cost per unit is $1.95, fixed costs (exclusive of depreciation) would be $70,000 per year, and fixed assets would be depreciated under MACRS with a 3-year life. (Refer to Appendix 12A for MACRS depreciation rates.) When production ceases after 3 years, the equipment should have a market value of $15,000. Cory’s tax rate is 40%, and it uses a 10% WACC for average-risk projects.
Find the required Year 0 investment and the project’s annual cash flows. Then calculate the project’s NPV, IRR, MIRR, and payback. Assume at this point that the project is of average risk.
Suppose you now learn that R&D costs for the new product were $30,000 and that those costs were incurred and expensed for tax purposes last year. How would this
affect your estimate of NPV and the other profitability measures
c. If the new project would reduce cash flows from Cory’s other projects and if the new project would be housed in an empty building that Cory owns and could sell, how would those factors affect the project’s NPV
d. Are this project’s cash flows likely to be positively or negatively correlated with returns on Cory’s other projects and with the economy, and should this matter in your analysis Explain.

e. Unrelated to the new product, Cory is analyzing two mutually exclusive machines that will upgrade its manufacturing plant. These machines are considered average- risk projects, so management will evaluate them at the firm’s 10% WACC. Machine X has a life of 4 years, while Machine Y has a life of 2 years. The cost of each machine is $60,000; however, Machine X provides after-tax cash flows of $25,000 per year for 4 years and Machine Y provides aftertax cash flows of $42,000 per year for 2 years. The manufacturing plant is very successful, so the machines will be repurchased at the end of each machine’s useful life. In other words, the machines are “repeatable” projects.
1) Using the replacement chain method, what is the NPV of the better machine 2) Using the EAA method, what is the EAA of the better machine
f. Construct a spreadsheet that calculates the cash flows, NPV, IRR, payback, and
MIRR.
The CEO expressed concern that some of the base-case inputs for the caulking compound might be too optimistic or too pessimistic, and he wants to know how the NPV would be affected if these six variables were 20% above or 20% below the base-case levels: unit sales, sales price, variable cost, fixed costs, WACC, and equipment cost. Hold other things constant when you consider each variable and construct a sensitivity graph to illustrate your results.
Do a scenario analysis based on the assumption that there is a 25% probability that each of the six variables itemized in part g will turn out to have their best-case values as calculated in part g, a 50% probability that all will have their base-case values, and a 25% probability that all will have their worst-case values. The other variables remain at base-case levels. Calculate the expected NPV, the standard deviation of NPV, and the coefficient of variation.
Does Cory’s management use the risk-adjusted discount rate to adjust for project risk Explain.