ACC 122 Final Project Instructions The following information pertains to Draper Consulting, Inc. Draper Consulting, Inc. provides medical billing consulting services. Use the answer boxes, forms and worksheets provided in the MS Excel Answer Worksheet, do not create your own. PLEASE FOLLOW THE DIRECTIONS IN THE ORDER THEY APPEAR! DO NOT CHANGE THE FORMATTING OF ANY OF THE WORKSHEETS. ONLY ENTER YOUR ANSWERS IN THE BLANK BOXES PROVIDED! DO NOT EDIT OR OVERRIDE ANY INFORMATION ALREADY PROVIDED! Requirement 1 Based on the financial statements provided, prepare the Statement of Cash Flows for the year ended December 31, 2019 using the indirect method. Additional Information Needed: During the year, Draper Consulting sold equipment for $27,000 cash that originally cost $57,000 and had $46,000 accumulated depreciation. New equipment was purchased for cash. Bonds payable and common stock were issued for cash. Cash dividends of $28,000 were declared and paid. At the end of the year, shares of treasury stock were purchased for cash. Accounts payable relate to merchandise purchases. Draper Consulting Inc. Income Statement Year Ended December 31, 2019 Sales Revenue Less: Cost of Goods Sold 925,000 490,000 435,000 207,000 62,000 17,000 Gross Profit Expenses: Wages Expense Depreciation Expense Insurance Expense Interest Expense Income Tax Expense Total Expense Other Income and (Expenses): Gain on Sale of Equipment Net Income 12,000 57,000 355,000 16,000 96.000 Draper Consulting Inc. Balance Sheet December 31, 2019 and 2018 2019 2018 Assets: Current Assets: Cash 25,000 Accounts Receivable 68,000 33,000 51,000 126,000 Inventory 177,000 8,000 11,000 278,000 221,000 Prepaid Insurance Total Current Assets Plant Assets: Equipment Less: Accumulated Depreciation - Equipment Total Assets 887,000 (191,000) 974,000 763,000 (175,000) 809,000 Liabilities: 27,000 Current Liabilities: Accounts Payable Interest Payable Income Tax Payable 37,000 7,000 11,000 0 19,000 55,000 46,000 Total Current Liabilities Long-Term Liabilities: Bonds Payable Total Liabilities 80,000 145,000 200,000 126,000 Stockholders' Equity: Common Stock 660,000 166,000 Retained Earnings 98,000 (52,000) Less: Treasury Stock Total Stockholders' Equity Total Liabilities and Stockholders' Equity 774,000 974,000 O 683,000 809,000 2 Requirement 2 Based on the financial statements provided and assuming the market price of Draper's stock is $200 per share and there are 100 shares of common stock outstanding, calculate the following ratios for the year ended December 31, 2019. Round all amounts to TWO places past the decimal point. Show your calculations in the boxes provided. a. Current Ratio b. Debt Ratio C. Debt to Equity Ratio d. Earnings per Share e. Price to Earnings Ratio f. Return on Total Assets g. Return on Common Stockholders' Equity Requirement 3 Draper has decided to manufacture billing software to sell to its clients. During the first month of manufacturing, Draper incurred the following costs: Inventories: Beginning Ending Materials 10,800 10,300 Work in Process 0 21,000 Finished Goods 0 31,500 Other Information: Direct Materials Purchased 19,000 Plant Utilities 10,000 Plant Janitorial Services 700 Plant Rent 13,000 Sales Salaries Expense 5,000 Customer Hotline Expense 18,000 Delivery Expense 1,700 Direct Labor 190,000 Sales Revenue 750,000 a. Prepare a Schedule of Cost of Goods Manufactured and an Income Statement for the month ended January 31, 2020. b. If Draper sells 19,750 software products for the month, how much does it cost to manufacture one unit? 3 Requirement 4 Draper Consulting provides consulting services at an average price of $175 per hour and incurs variable costs of $100 per hour. Assume average fixed costs are $5,250 a month in 2020. Based on the given information, complete the following calculations. a. What is the number of hours that must be billed each month to break even? b. If Draper decides to make a profit of $3,000 a month, how many hours must be billed? c. Draper thinks it can reduce its fixed costs to $3,990 per month, but will have to raise variable costs to $105 per hour. What is the number of hours that must be billed each month to break even under these circumstances? Requirement 5 Draper Consulting must evaluate two capital expenditure proposals. Draper's hurdle rate is 10%. Data for the two proposals follow. Proposal X $120,000 24,000 Proposal Y $120,000 Required investment Annual after-tax cash inflows After-tax cash inflows at the end of years 3, 6, 9, and 12 Life of the project 72,000 12 years 12 years Using net present value analysis, which proposal is the more attractive option? If Draper has sufficient funds available, should both proposals be accepted? REQUIREMENT 1: STATEMENT OF CASH FLOWS Draper Consulting, Inc Statement of Cash Flows Year Ended December 31, 2019 Cash Flows from Operating Activities: Adjustments to reconcile Net Income to net cash: Net Cash Provided by Operating Activities Cash Flows from Investing Activities: Net Cash Provided by Investing Activities Cash Flows from Financing Activities: Net Cash Provided by Financing Activities Net Increase in Cash Cash Balance, December 31, 2018 Cash Balance, December 31, 2019 REQUIREMENT 2: FINANCIAL STATEMENT ANALYSIS a. Current Ratio Current Assets Current Liabilities Current Ratio b. Debt Ratio Total Liabilities Total Assets Debt Ratio c. Debt to Equity Ratio Total Liabilities Total Equity Debt to Equity Ratio d. Earnings Per Share (Net Income - Preferred Dividends) Common Shares Outstanding = Earnings Per Share e. P/E Ratio Market Price Per Share Earnings Per Share P/E Ratio f. Return on Total Assets (Net Income + Interest Expense) Average Total Assets Return on Total Assets g. Return on Common Stockholders' Equity (Net Income - Preferred Dividends) Average Common Equity Return on Equity REQUIREMENT 3: SCHEDULE OF COST OF GOODS MANUFACTURED AND INCOME STATEMENT Draper Consulting, Inc Schedule of Cost of Goods Manufactured Month Ended January 31, 2020 Direct Materials: Beginning Materials Inventory Materials Purchased Cost of Materials Available Less: Ending Materials Inventory Total Materials Used Less: Indirect Materials Used Direct Materials Used Direct labor Factory Overhead: Plant Janitorial Services Plant Utilities Plant Rent Total Factory Overhead Total manufacturing costs for the year Add: Beginning Work-in-Process Inventory Total Cost of Work-in-Process during the year Less: Ending work in process inventory Cost of goods manufactured Draper Consulting, Inc Income Statement Month Ended January 31, 2020 Sales revenue Cost of goods sold: Cost of Goods Manufactured Add: Beginning Finished Goods Inventory Cost of goods available for sale Less: Ending Finished Goods Inventory Cost of goods sold Gross profit Sales Salaries Expense Delivery Expense Customer Hotline Expense Operating income Cost to manufacture one unit = REQUIREMENT 4: COST-VOLUME-PROFIT ANALYSIS a. Break Even Under Normal Circumstances (Fixed Costs Target Income ) + Contribution Margin = Break Even Point 0 + b. To Earn a Profit of $3,000 ( Fixed Costs + Target Income ) Contribution Margin Break Even Point + c. Break Even When Fixed Costs are $3,990 and Variable Costs are $105 (Fixed Costs + Target Income ) Contribution Margin Break Even Point + 0 REQUIREMENT 5: NET PRESENT VALUE ANALYSIS Proposal X: Cash Flow Discount Factor Present Value Years 1 - 12: Cash Flow; Discount Factor (N = 12, i/YR = 10) Less: Initial Investment Net Present Value (NPV) of Proposal X Proposal Y: Cash Flow Discount Factor Present Value Year 3: Cash Flow; Discount Factor (N = 3, i/YR = 10) Year 6: Cash Flow; Discount Factor (N = 6, i/YR = 10) Year 9: Cash Flow; Discount Factor (N = 9, i/YR = 10) Year 12: Cash Flow; Discount Factor (N = 12, i/YR = 10) Sum of Discounted Cash Flows Less: Initial Investment Net Present Value (NPV) of Proposal Y Which proposal is more attractive and why? ACC 122 Final Project Instructions The following information pertains to Draper Consulting, Inc. Draper Consulting, Inc. provides medical billing consulting services. Use the answer boxes, forms and worksheets provided in the MS Excel Answer Worksheet, do not create your own. PLEASE FOLLOW THE DIRECTIONS IN THE ORDER THEY APPEAR! DO NOT CHANGE THE FORMATTING OF ANY OF THE WORKSHEETS. ONLY ENTER YOUR ANSWERS IN THE BLANK BOXES PROVIDED! DO NOT EDIT OR OVERRIDE ANY INFORMATION ALREADY PROVIDED! Requirement 1 Based on the financial statements provided, prepare the Statement of Cash Flows for the year ended December 31, 2019 using the indirect method. Additional Information Needed: During the year, Draper Consulting sold equipment for $27,000 cash that originally cost $57,000 and had $46,000 accumulated depreciation. New equipment was purchased for cash. Bonds payable and common stock were issued for cash. Cash dividends of $28,000 were declared and paid. At the end of the year, shares of treasury stock were purchased for cash. Accounts payable relate to merchandise purchases. Draper Consulting Inc. Income Statement Year Ended December 31, 2019 Sales Revenue Less: Cost of Goods Sold 925,000 490,000 435,000 207,000 62,000 17,000 Gross Profit Expenses: Wages Expense Depreciation Expense Insurance Expense Interest Expense Income Tax Expense Total Expense Other Income and (Expenses): Gain on Sale of Equipment Net Income 12,000 57,000 355,000 16,000 96.000 Draper Consulting Inc. Balance Sheet December 31, 2019 and 2018 2019 2018 Assets: Current Assets: Cash 25,000 Accounts Receivable 68,000 33,000 51,000 126,000 Inventory 177,000 8,000 11,000 278,000 221,000 Prepaid Insurance Total Current Assets Plant Assets: Equipment Less: Accumulated Depreciation - Equipment Total Assets 887,000 (191,000) 974,000 763,000 (175,000) 809,000 Liabilities: 27,000 Current Liabilities: Accounts Payable Interest Payable Income Tax Payable 37,000 7,000 11,000 0 19,000 55,000 46,000 Total Current Liabilities Long-Term Liabilities: Bonds Payable Total Liabilities 80,000 145,000 200,000 126,000 Stockholders' Equity: Common Stock 660,000 166,000 Retained Earnings 98,000 (52,000) Less: Treasury Stock Total Stockholders' Equity Total Liabilities and Stockholders' Equity 774,000 974,000 O 683,000 809,000 2 Requirement 2 Based on the financial statements provided and assuming the market price of Draper's stock is $200 per share and there are 100 shares of common stock outstanding, calculate the following ratios for the year ended December 31, 2019. Round all amounts to TWO places past the decimal point. Show your calculations in the boxes provided. a. Current Ratio b. Debt Ratio C. Debt to Equity Ratio d. Earnings per Share e. Price to Earnings Ratio f. Return on Total Assets g. Return on Common Stockholders' Equity Requirement 3 Draper has decided to manufacture billing software to sell to its clients. During the first month of manufacturing, Draper incurred the following costs: Inventories: Beginning Ending Materials 10,800 10,300 Work in Process 0 21,000 Finished Goods 0 31,500 Other Information: Direct Materials Purchased 19,000 Plant Utilities 10,000 Plant Janitorial Services 700 Plant Rent 13,000 Sales Salaries Expense 5,000 Customer Hotline Expense 18,000 Delivery Expense 1,700 Direct Labor 190,000 Sales Revenue 750,000 a. Prepare a Schedule of Cost of Goods Manufactured and an Income Statement for the month ended January 31, 2020. b. If Draper sells 19,750 software products for the month, how much does it cost to manufacture one unit? 3 Requirement 4 Draper Consulting provides consulting services at an average price of $175 per hour and incurs variable costs of $100 per hour. Assume average fixed costs are $5,250 a month in 2020. Based on the given information, complete the following calculations. a. What is the number of hours that must be billed each month to break even? b. If Draper decides to make a profit of $3,000 a month, how many hours must be billed? c. Draper thinks it can reduce its fixed costs to $3,990 per month, but will have to raise variable costs to $105 per hour. What is the number of hours that must be billed each month to break even under these circumstances? Requirement 5 Draper Consulting must evaluate two capital expenditure proposals. Draper's hurdle rate is 10%. Data for the two proposals follow. Proposal X $120,000 24,000 Proposal Y $120,000 Required investment Annual after-tax cash inflows After-tax cash inflows at the end of years 3, 6, 9, and 12 Life of the project 72,000 12 years 12 years Using net present value analysis, which proposal is the more attractive option? If Draper has sufficient funds available, should both proposals be accepted? REQUIREMENT 1: STATEMENT OF CASH FLOWS Draper Consulting, Inc Statement of Cash Flows Year Ended December 31, 2019 Cash Flows from Operating Activities: Adjustments to reconcile Net Income to net cash: Net Cash Provided by Operating Activities Cash Flows from Investing Activities: Net Cash Provided by Investing Activities Cash Flows from Financing Activities: Net Cash Provided by Financing Activities Net Increase in Cash Cash Balance, December 31, 2018 Cash Balance, December 31, 2019 REQUIREMENT 2: FINANCIAL STATEMENT ANALYSIS a. Current Ratio Current Assets Current Liabilities Current Ratio b. Debt Ratio Total Liabilities Total Assets Debt Ratio c. Debt to Equity Ratio Total Liabilities Total Equity Debt to Equity Ratio d. Earnings Per Share (Net Income - Preferred Dividends) Common Shares Outstanding = Earnings Per Share e. P/E Ratio Market Price Per Share Earnings Per Share P/E Ratio f. Return on Total Assets (Net Income + Interest Expense) Average Total Assets Return on Total Assets g. Return on Common Stockholders' Equity (Net Income - Preferred Dividends) Average Common Equity Return on Equity REQUIREMENT 3: SCHEDULE OF COST OF GOODS MANUFACTURED AND INCOME STATEMENT Draper Consulting, Inc Schedule of Cost of Goods Manufactured Month Ended January 31, 2020 Direct Materials: Beginning Materials Inventory Materials Purchased Cost of Materials Available Less: Ending Materials Inventory Total Materials Used Less: Indirect Materials Used Direct Materials Used Direct labor Factory Overhead: Plant Janitorial Services Plant Utilities Plant Rent Total Factory Overhead Total manufacturing costs for the year Add: Beginning Work-in-Process Inventory Total Cost of Work-in-Process during the year Less: Ending work in process inventory Cost of goods manufactured Draper Consulting, Inc Income Statement Month Ended January 31, 2020 Sales revenue Cost of goods sold: Cost of Goods Manufactured Add: Beginning Finished Goods Inventory Cost of goods available for sale Less: Ending Finished Goods Inventory Cost of goods sold Gross profit Sales Salaries Expense Delivery Expense Customer Hotline Expense Operating income Cost to manufacture one unit = REQUIREMENT 4: COST-VOLUME-PROFIT ANALYSIS a. Break Even Under Normal Circumstances (Fixed Costs Target Income ) + Contribution Margin = Break Even Point 0 + b. To Earn a Profit of $3,000 ( Fixed Costs + Target Income ) Contribution Margin Break Even Point + c. Break Even When Fixed Costs are $3,990 and Variable Costs are $105 (Fixed Costs + Target Income ) Contribution Margin Break Even Point + 0 REQUIREMENT 5: NET PRESENT VALUE ANALYSIS Proposal X: Cash Flow Discount Factor Present Value Years 1 - 12: Cash Flow; Discount Factor (N = 12, i/YR = 10) Less: Initial Investment Net Present Value (NPV) of Proposal X Proposal Y: Cash Flow Discount Factor Present Value Year 3: Cash Flow; Discount Factor (N = 3, i/YR = 10) Year 6: Cash Flow; Discount Factor (N = 6, i/YR = 10) Year 9: Cash Flow; Discount Factor (N = 9, i/YR = 10) Year 12: Cash Flow; Discount Factor (N = 12, i/YR = 10) Sum of Discounted Cash Flows Less: Initial Investment Net Present Value (NPV) of Proposal Y Which proposal is more attractive and why