1) What does analyzing companies against their industry tell a finance manager or financial analyst about the health and success of own company? Furthermore, what does analyzing a company against firms in OTHER industries tell a finance manager or financial analyst about their own company?

2) How can effective communication of budgetary and financial management data help managers and leaders make better overall decisions that affect the entire organization across all sectors--public, private, and nonprofit?

3) Annual stockholders reports are required by the Securities and Exchange Commission (SEC) to provide stockholders a summary and documents the firms financial activities during the past year. In addition, near the end of each quarter, many companies unveil their quarterly performance. Firms that beat analyst estimates often see their share prices jump, while those that miss estimates by even a small amount, tend to suffer price declines. The practice of manipulating earnings in order to mislead investors is known as earnings management.

• Why might financial managers be tempted to manage earnings?

4. Using the below income statement, calculate the gross profit, operating profit, and net profit margins (show your work) and answer why trend analysis is important in sound financial management in 2-4 sentences. Cite appropriately if outside sources are used.

Income (sales, revenue)	20,000,000
-COGS (cost of goods sold)(variable costs)	12,000,000
Gross Profit	8,000,000
-Operating expenses (fixed expenses)	4,000,000
-Depreciation Expense(Note)	1,000,000
Operating profit or EBIT (earnings before int. & tax)	3,000,000
-Interest	100,000
EBT (earnings before tax) Use for tax calc	. 2,900,000
-Taxes owed	870,000
EAT (earnings after tax) or net profit or net income	2,030,000

5.

ABC Company currently sells squishy balls. The product development team has developed a new, improved design.

They expect sales of the original product to decrease once the new design launches.

Current price		$2.50	Current cost		$1.20	Current units sold		40,000
New product price		$3.30	New product cost		$1.60	New version sales		30,000
Decrease sales original due new product launch					50%	Marketing price decrease			40%

1. What is the contribution margin for ABC with the current widget?

2. What is the expected contribution margin for ABC after the new product launch?

3. What is the erosion cost?

4. Application: marketing is reviewing a 40% price reduction in the current design that will eliminate the drop in sales.

What is the contribution margin for the original widget w/price reduction?

5. Should they reduce the price of the original widget to combat erosion?

6. ABC is currently looking at a new machine to allow them to make Squishy pillows to add on to their product line. Machine cost is $50,000 plus $5,000 installation. EBITDA is expected to be $20,000, $30,000, $20,000 for the 3 year project. The machine can be sold at the end of year 3 for $5,000. 30% tax. 10% cost of capital. MACRS 3 year. The computations are completed for you below.

a. Just based on the financial analysis should they go forward with the project? Use the NPV, IRR, Payback and Discounted Payback results for your support. 1-2 paragraphs total response-be clear and concise.

Capital Budgeting			Purchase price	50,000	Installation	5,000
55,000	Year 1	Year 2	Year 3	Year 4
EBITDA	20,000	30,000	20,000	0	Inst Price	55,000
Depr 3 year	0.3333	0.4445	0.1481	0.0741	less depr	50,925
Depreciation Exp.	18,332	24,448	8,146	0	BV	4,076
EBT	1,669	5,553	11,855	0	Selling price	5,000
Tax	501	1,666	3,556	0	less BV	4,076
EAT	1,168	3,887	8,298	0	Taxable	925
add depr back	18,332	24,448	8,146	0	Tax owed	277
OCF	19,499	28,334	16,444	0	Selling price	5,000
					Less tax	277
					Terminal	4,723
Wacc	10.00%
NPV	0	1	2	3
$2,046	($55,000)	$19,499	$28,334	$21,166
IRR			Tax rate	0.3
12.07%
Project	ii	Payback		Disc. Pay
	-55,000		-55,000
CF1	19,499	(35,501)	17,727	(37,273)
CF2	28,334	(7,166)	23,417	(13,856)
CF3	21,166	14,000	15,903	2,046
Payback	2	0.34		0.87