1. Body Builders Corporation is opening a chain of five health clubs in the Minneapolis area. Body Builders’s marketing manager has suggested a marketing plan designed to generate new memberships. The plan would allow new members to delay payment for the first three months’ membership and pay at the end of the first quarter. Thus, the cash flow from membership fees will not occur for three months.
Identify the implications of this marketing approach for the cash flows of Body Builders.
2. Expected quarterly unit sales for tents at Sandy’s Camping Gear are 7,500, 8,800, 3,200, and 2,900 for the next 2 years. At the start of the current year, inventory of finished tents on hand is 750 tents. Sandy’s has a desired ending inventory of 20 percent of next quarter’s sales.
Create the production budget in numbers of tents for quarters one through four for the current year.
3. Cash flow budget. (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect. Any boxes left with a question mark will be automatically graded as incorrect.)
4. Flagstags Brewery’s flexible budget estimates are $74,000, $77,000, and $80,000 to manufacture 4,000, 4,500, and 5,000 gallons of beer, respectively, next quarter.
What are the variable and fixed manufacturing costs in the flexible budget for Flagstags?
5. Harry Blackmun, manager of the Dry Goods Department at Goodright’s Grocery, has a budget of $6,000 per month for the current year. This budget includes the allocation of $500 of storewide common costs based on the square feet occupied by Dry Goods. Recently, Dry Goods expanded its total store space to include household items that had not previously been included in the store. During the current month, Mr. Blackmun was overbudget by $700. The store manager was upset with the manager of Dry Goods and asked for an explanation.
a. The budget overage may have been caused by the expansion of the Dry Goods Department. Is this statement true or false?
b. What budget tool could Goodright’s use to better evaluate its department managers?
6. A particular investment proposal has a positive net present value of $20 when a discount rate of 8 percent is used. The same proposal has a negative net present value of $2,000 when a discount rate of 10 percent is used. What conclusions can be drawn about the estimated return of this proposal?
7. Landry’s Tool Supply Corporation is considering purchasing a machine that costs $100,000 and will produce annual cash flows of $40,000 for five years. The machine is expected to be sold at the end of five years for $12,000.
What is the net present value of the proposed investment? Landry’s requires a 15 percent return on all capital investments using the present value tables in Exhibits 26-3 and 26-4. (Round your “PV factors” to 3 decimal places.)
8. A company is trying to decide whether to go ahead with an investment opportunity that costs $90,000. The expected incremental cash inflows are $50,000, while the expected incremental cash outflows are $32,000.
What is the payback period?
9. Ron Jasper manages a factory for Frombees Inc. A salesperson for new factory equipment has persuaded Ron that the new equipment offered by her company would be less dangerous for the employees and lower the sound level in the factory significantly. Ron believes that employees would be more satisfied with their jobs as a result of reduced danger and lower sound levels. Ron has always said that satisfied employees are more productive. Thus, in making the cash flow estimates for the new equipment, Ron has included increased cash flows from increased productivity. In fact, these estimated increases in productivity are just enough to allow the net present value of the proposal to be positive.
Identify whether the following statement is true or false: The net present value estimates could be optimistic.
10. The Cook County Authority is considering the purchase of a small plane to transport government officials. It is hoped that the plane will save money on travel costs for government employees. Assume the county requires a 8 percent rate of return.
Using the present value tables in Exhibits 26-3 and 26-4, If the plane’s cost is $306,840 and it can likely be sold in six years for $100,000, what minimum annual savings in transportation costs is needed in order to make the plane a good investment? (Round Present value factor to 3 decimal places and your final answer to nearest whole dollar)
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