1. Earth Star is the first Pharmaceuticals Company located at Dubai Science Park engaged in development and commercialization of pharmaceuticals across wide range of therapeutic segments We focus on the most common chronic medical conditions prevalent in MENA region such as cardiac, metabolic, CNS, pain and inflammation, allergy and asthma and infectious diseases The facility has been equipped with European sourced production equipment's to meet stringent quality norms from regulatory agencies of the region, Europe and US Production capacity has been mapped in a way to cater to demand of Earth Star branded products and provide contract-manufacturing services Demand for maintaining the highest possible quality standard is a pharmaceutical industry. Earth Star has taken its responsibility very seriously and maintains culture of quality across corporate activities norm in S We are ready to meet burgeoning demands of pharmaceuticals in the regain. The company is in the process of preparing budgets for its one unit the period October to December 2016. The following information has been provided to assist in the budgeting process Budgeted monthly sales revenue is as follows 1. 40,000 70,000 50,000 45,000 October November December January 2017 Sales are 20% cash and 80% credit. Credit sales are collected over a three month period, 15% in the month of sale, 70% in the month following sale and 15% in the second month following sale. Bad debts of 5% are anticipated on all credit sales. Total sales revenue in August amounts to $30,000 and September's total sales to $36,000 revenue amounts Cost of sales is expected to amount to 60% of sales revenue each month 2. The business maintains its closing inventory levels at 75% of the following month's cost of sales. Inventory at the beginning of October is expected to amount to $18,000 3. 4. 50% of inventory purchased is paid in the month of purchase. The remaining 50% is paid for in the month following purchase. At the 30th September amounts owed for purchases are $11,700 A grant of $20,000 is expected to be received in mid-October 5. A van which cost $8,000 when purchased second hand three years ago is expected to be sold in December 2016 for $3,000. At this time the expected net book value of the van is $1,800. 6. Equipment costing $4,500 will be purchased and paid for in November 7. The equipment will be depreciated on a straight line basis over three years The above figures include depreciation on existing assets of $2,000 per month 8. Operating expenses are paid as incurred. These have been estimated as follows: 9 12,800 18,900 14,600 October November December 10. Pharmax Pharmaceuticals is also considering a $30,000 investment in equipment that will generate cash savings from operating costs at 10 percent cost of capital The following estimates regarding cash savings and useful life, along with their respective probabilities of occurrence, have been made: Annual Cash Savings Probability $6,000 $8,000 $10,000 Probability Useful Life 4 years 0.2 5 years 0.6 6 years 0.2 0.2 0.5 0.3 11. Information related to the asset and liabilities: Share Capital Reserves and surplus Long-term borrowing Current Liabilities 400,000 100,000 150,000 50,000 400,000 100,000 200,000 Fixed assets Non-current investment : Current Assets 12. The cash balance on 1st October is expected to amount to $8,000 Required: To calculate the purchases figure for each month from October 2016 to (2 marks (a) December 2016. To prepare a cash budget on a monthly basis and in total for the period October 2016 to December 2016 (b) (3 marks) To calculate the NPV and IRR (2marks) (c) (d) To replace an asset after 10 years. The estimated value of asset at that time will be $17,910. How much money investment invests every year by the company if the investment earns 6 percent interest every year? (2 marks) Also analyze the following ratios: i) Debit Equity ratio ii) Total Asset to Debit Ratio i)Proprietary Ratio iv) Debit to Capital Employed ratio V) (e) (2 marks) current Ratio To outline potential benefits from the preparation of a cash budget as prepared in part (b) (f) (4 marks) 1. Earth Star is the first Pharmaceuticals Company located at Dubai Science Park engaged in development and commercialization of pharmaceuticals across wide range of therapeutic segments We focus on the most common chronic medical conditions prevalent in MENA region such as cardiac, metabolic, CNS, pain and inflammation, allergy and asthma and infectious diseases The facility has been equipped with European sourced production equipment's to meet stringent quality norms from regulatory agencies of the region, Europe and US Production capacity has been mapped in a way to cater to demand of Earth Star branded products and provide contract-manufacturing services Demand for maintaining the highest possible quality standard is a pharmaceutical industry. Earth Star has taken its responsibility very seriously and maintains culture of quality across corporate activities norm in S We are ready to meet burgeoning demands of pharmaceuticals in the regain. The company is in the process of preparing budgets for its one unit the period October to December 2016. The following information has been provided to assist in the budgeting process Budgeted monthly sales revenue is as follows 1. 40,000 70,000 50,000 45,000 October November December January 2017 Sales are 20% cash and 80% credit. Credit sales are collected over a three month period, 15% in the month of sale, 70% in the month following sale and 15% in the second month following sale. Bad debts of 5% are anticipated on all credit sales. Total sales revenue in August amounts to $30,000 and September's total sales to $36,000 revenue amounts Cost of sales is expected to amount to 60% of sales revenue each month 2. The business maintains its closing inventory levels at 75% of the following month's cost of sales. Inventory at the beginning of October is expected to amount to $18,000 3. 4. 50% of inventory purchased is paid in the month of purchase. The remaining 50% is paid for in the month following purchase. At the 30th September amounts owed for purchases are $11,700 A grant of $20,000 is expected to be received in mid-October 5. A van which cost $8,000 when purchased second hand three years ago is expected to be sold in December 2016 for $3,000. At this time the expected net book value of the van is $1,800. 6. Equipment costing $4,500 will be purchased and paid for in November 7. The equipment will be depreciated on a straight line basis over three years The above figures include depreciation on existing assets of $2,000 per month 8. Operating expenses are paid as incurred. These have been estimated as follows: 9 12,800 18,900 14,600 October November December 10. Pharmax Pharmaceuticals is also considering a $30,000 investment in equipment that will generate cash savings from operating costs at 10 percent cost of capital The following estimates regarding cash savings and useful life, along with their respective probabilities of occurrence, have been made: Annual Cash Savings Probability $6,000 $8,000 $10,000 Probability Useful Life 4 years 0.2 5 years 0.6 6 years 0.2 0.2 0.5 0.3 11. Information related to the asset and liabilities: Share Capital Reserves and surplus Long-term borrowing Current Liabilities 400,000 100,000 150,000 50,000 400,000 100,000 200,000 Fixed assets Non-current investment : Current Assets 12. The cash balance on 1st October is expected to amount to $8,000 Required: To calculate the purchases figure for each month from October 2016 to (2 marks (a) December 2016. To prepare a cash budget on a monthly basis and in total for the period October 2016 to December 2016 (b) (3 marks) To calculate the NPV and IRR (2marks) (c) (d) To replace an asset after 10 years. The estimated value of asset at that time will be $17,910. How much money investment invests every year by the company if the investment earns 6 percent interest every year? (2 marks) Also analyze the following ratios: i) Debit Equity ratio ii) Total Asset to Debit Ratio i)Proprietary Ratio iv) Debit to Capital Employed ratio V) (e) (2 marks) current Ratio To outline potential benefits from the preparation of a cash budget as prepared in part (b) (f) (4 marks)