Description of the Task: The aim of this task is to give you the opportunity to demonstrate your level of understanding of Performance Measurement in Decentralized Organizations (Ch. 9), Differential Analysis The Key to Decision Making (Ch. 10) & Capital Budgeting Decisions (Ch. 11). Instructions to candidates: You must submit the possible answers in PDF format via its associated assignment box with this cover page attached. There will be a standard penalty for late submission. The standard penalty is 5% of the marks for that task for each delay in submission of a day or partial day up to a maximum of five (5) working days after the due date; Your submission will not be accepted after the earlier of the following occurrences: Feedback on the assessment task has been posted/released to any student; or The fifth working day after the due date. Marking criteria: Clear and concise discussion and working of the key points of the questions; Presentation - format, spelling, vocabulary, readability. Ch. 9: Problem Solving 1: Return on Investment (ROI) and Residual Income |L09-1, LO9-21 Ending Balance Financial data for Joel de Paris, Inc., for last year follow: Joel de Paris, Inc. Balance Sheet Beginning Balance Assets Cash $ 140,000 Accounts receivable. 450,000 Inventory 320,000 Plant and equipment, net 680,000 Investment in Buisson, S.A. 250,000 Land (undeveloped). 180,000 Total assets $2,020,000 Liabilities and Stockholders' Equity Accounts payable $360,000 Long-term debt 1,500,000 Stockholders' equity. 160,000 Total liabilities and stockholders' equity $2,020,000 .. $ 120,000 530,000 380,000 620,000 280,000 170,000 $2,100,000 $ 310,000 1,500,000 290,000 $2,100,000 Joel de Paris, Inc. Income Statement $4,050,000 3,645,000 405,000 Sales Operating expenses Net operating income Interest and taxes: Interest expense Tax expense Net income $150,000 110,000 260,000 $ 145,000 The company paid dividends of $15,000 last year. The Investment in Buisson, S.A.W on the balance sheet represents an investment in the stock of another company. Required: 1. Compute the company's margin, turnover, and return on investment (ROI) for last year. 2. The board of directors of Joel de Paris, Inc., has set a minimum required rate of return of 15%. What was the company's residual income last year? Ch. 10: Problem Solving 2: Relevant Cost Analysis in a variety of Situations |L010-2. LO10-3, L010-41 Andretti Company has a single product called a Dak. The company normally produces and sells 60,000 Daks each year at a selling price of $32 per unit. The company's unit costs at this level of activity are given below: A number of questions relating to the production and sale of Daks follow. Each question is independent Required: 1. Assume that Andretti Company has sufficient capacity to produce 90,000 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its sales by 25% above the present 60,000 units each year if it were willing to increase the fixed selling expenses by $80,000. Would the increased fixed selling expenses be justified? 2. Assume again that Andretti Company has sufficient capacity to produce 90,000 Daks each year. A customer in a foreign market wants to purchase 20,000 Daks. Import duties on the Daks would be $1.70 per unit, and costs for permits and licenses would be $9,000. The only selling costs that would be associated with the order would be $3.20 per unit shipping cost. Compute the per unit break-even price on this order 3. The company has 1,000 Daks on hand that have some irregularities and are therefore considered to be seconds. Due to the irregularities, it will be impossible to sell these units at the normal price through regular distribution channels. What unit cost figure is relevant for setting a minimum selling price? Explain. 4. Due to a strike in its supplier's plant, Andretti Company is unable to purchase more material for the production of Daks. The strike is expected to last for two months. Andretti Company has enough material on hand to operate at 30% of normal levels for the two-month period. As an alternative, Andretti could close its plant down entirely for the two months. If the plant were closed, fixed manufacturing overhead costs would continue at 60% of their normal level during the two-month period and the fixed selling expenses would be reduced by 20%. What would be the impact on profits of closing the plant for the two-month period? 5. An outside manufacturer has offered to produce Daks and ship them directly to Andretti's customers. If Andretti Company accepts this offer, the facilities that it uses to produce Daks would be idle; however, fixed manufacturing overhead costs would be reduced by 75%. Because the outside manufacturer would pay for all shipping costs, the variable selling expenses would be only two-thirds of their present amount. Compute the unit cost that is relevant for comparison to the price quoted by the outside manufacturer Ch. 11: Problem Solving 3: Basic Net Present Value Analysis |L011-21 Windhoek Mines, Ltd., of Namibia, is contemplating the purchase of equipment to exploit a mineral deposit on land to which the company has mineral rights. An engineering and cost analysis has been made, and it is expected that the following cash flows would be associated with opening and operating a mine in the area: Cost of new equipment and timbers $275,000 Working capital required ... $100,000 Annual net cash receipts $120,000* Cost to construct new roads in three years $40,000 Salvage value of equipment in four years $65,000 *Receipts from sales of ore, less out-of-pocket costs for salaries, utilities, insurance, and so forth. The mineral deposit would be exhausted after four years of mining. At that point, the working capital would be released for reinvestment elsewhere. The company's required rate of return is 20%. Required: Determine the net present value of the proposed mining project. Should the project be accepted? Explain. Ch. 11: Problem Solving 4: Net Present Value Analysis; Simple Rate of Return (L011-2, LO11-4 Casey Nelson is a divisional manager for Pigeon Company. His annual pay raises are largely determined by his division's return on investment (ROI), which has been above 20% each of the last three years. Casey is considering a capital budgeting project that would require a $3,500,000 investment in equipment with a useful life of five years and no salvage value. Pigeon Company's discount rate is 16%. The project would provide net operating income each year for five years as follows: $3,400,000 1,600,000 1,800,000 Sales ... Variable expenses Contribution margin Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs Depreciation .... Total fixed expenses Net operating income $700,000 700,000 1,400,000 $ 400,000 Required: 1. What is the project's net present value? 2. What is the project's simple rate of return? 3. Would the company want Casey to pursue this investment opportunity? Would Casey be inclined to pursue this investment opportunity? Explain