1)Each of the following scenarios is independent. Assume that all cash flows are after-tax cash flows.

a)Cuenca Company is considering the purchase of a new equipment that will speed up the process of producing flash drives. The equipment will cost $7,200,000 and have a life of 5 years with no expected salvage value. The expected cash flows associated with the project follow:

YrCash revenueCash expense

1$8,000,000$6,000,000

28,000,0006,000,000

38,000,0006,000,000

48,000,0006,000,000

58,000,0006,000,000

b)Kathy Shorts is evaluating an investment in an information system that will save $240,000 per year. She estimated that the system will last 10yrs. The system will cost $1,248,000. Her company's cost of capital is 10%

c)Elmo Enterprise just announced that a new plant would be built in Helper, Utah. Elmo told its stockholders that the plant has an expected life of 15 years and an expected IRR equal to 25%. The cost of building the plant is expected to be $2,880,000

Required:

a)Calculate the IRR for Cuenca Company. The company's cost of capital is 16%.the new equipment be purchased?

b)Calculate Kathy Short's IRR. Should she acquire the new system?

c)What should be Elmo Enterprises' expected annual flow from the plant?

2)La Flamiglia Pizzeria provide the following information for the month of October:

a)Sales are budgeted to be $157,000. About 85% of sales is cash: the remainder is on account

b)La Flamiglia expects that, on average, 70% of credit sales will be paid in the month of sale, and 28% will be paid in the following month

c)Food and supplies purchases, all on account, are expected to be $116,000. La Flamiglia pays 25% in the month of purchase and 75% in the month following the purchase

d)Most of the work is done by the owners, who typically withdraw $6,000 a month from the business as their salary. (note - the $6,000 is a payment in total to the two owners, not per person.)Various part-time workers cost $7,300 per month. They are paid for their work weekly, so on average 90% of their wages is paid in the month incurred and the remaining 10% in the next month

e)Utilities average $5,950 per month. Rent on the building is $4,100 per month

f)Insurance is paid quarterly; the next payment of $1,200 is due in October

g)September sales were $181,500 and purchases of food and supplies in September equaled $130,000

h)The cash balance on October 1 is $2,147

Required:

1)Calculate the cash receipts expected in October (hint: remember to include both cash sales and payments from credit sales)

2)Calculate the cash needed in October to pay for food purchases

3)Calculate the cash budget for the month of October

3) Cutlass Company's projected profit for the coming year is as follows:

TotalPer Unit

Sales$200,000$20

Total variable cost120,00012

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Contribution margin80,0008

Total fixed cost64,000

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Operating income16,000

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Required:

1)Compute the variable cost ratio. Compute the contribution margin ratio

2)Compute the break-even point in units

3)Compute the break-even point in dollars

4)How many units must be sold to earn a profit of $30,000

5)Using the contribution margin ratio computed in requirement 1, compute the additional profit that cutlass would earn if sales were $25,000 more than expected

6)For the projected level of sales, compute the margin of safety in units and in sales dollars

Calculate the degree of operating leverage. Now suppose that Cutlass revises the forecast to show a 30% increase in sales over the original forecast. What is the percent change in operating income expected for the revised forecast? What is the total operating income expected by cutlass after revising the sales forecast?

4)Dyno-max is considering buying a new water treatment system for its plant in Austin Texas. The company screens its potential capital investments using the payback and accounting rate of return methods. If the potential investment has a payback of less than four years and a minimum 12% accounting rate of return, it will be considered further.

The data for the water treatment system follow:

Cost of water treatment system$48,000

Estimated residual value0

Estimated annual net cash inflows (each yr for 5yrs)

From anticipated environmental cleanup saving13,000

Estimated useful life5 years

Requirement:

a)Compute the water treatment system's payback

b)Compute the water treatment's ARR

c)Should Dyno-max turn down this investment proposal or consider it further?