...Accounting for Business Decision Making Assignment Ali Nafiz S1409011055 Submitted on 9th November, 2014 Table of Contents Task 1 Task 2 Task 3 2-4 5-7 8-10 1 Ali Nafiz S1409011055 TASK 1 a) Anhad Sdn. Bhd. Budgeted statement of profit for the year ending 31 October 2014 RM (000s) Revenue (120000 × 8)1 Less Variable overheads Direct Materials (1200 × 2) × 95%2 Direct Labour (1200 × 1.32)3 Production overheads Selling overheads Distribution overheads Contribution Less Fixed overheads7 Indirect labour Production overheads Selling overheads Distribution overheads Administration overheads Budgeted Net profit 350 800 450 150 750 2500 1576 2280 1584 6004 6405 4206 5524 4076 RM (000s) 9600 1 2 Sales volume increase by 50%, which is equal to 800000 × 150% = 1200000. And the new selling price is RM 8. Material cost per unit is RM2, which remains unchanged, and 5% discount is given on the total. 5% discount would mean the budgeted cost for 2014 would be 95% of the cost of 2013. 3 Assuming that production of one unit takes 1 hour, for 800,000 units it takes 800,000 hours, which means labour 960,000 cost per hour is = 1.2, The new cost/hr for 2014 is 1.2 × 110% = 1.32. 800000 4 5 6 Production overheads increase in proportion with the 50% increase in sales volume; 480,000 280,000 400,000 800,000 × 1200,000 = 600,000 Variable selling overheads increase in line with the sales revenue; 7200,000 × 9600,000 = 640,000. Distribution overheads increase in...
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...Incremental analysis, also known as marginal or differential analysis, is one of the methods used by managers in decision making. It involves choosing between alternatives based on revenue differences, cost differences and cost saving differences. While undertaking incremental analysis, the three different costs to be considered are sunk costs, relevant costs and opportunity costs. Sunk costs are those which are not relevant for decision making. They are incurred indifferent to the alternative course of action. Relevant costs are those which need to be considered for decision making. They vary between the alternatives. Opportunity costs is the cost of choosing one alternative over the other. There are three different types of incremental analysis – present worth analysis, cash flow analysis and rate of return analysis. Cash flow analysis: · First step is to identify the incremental after tax cash flows for all alternatives. · When determining the above, only relevant costs are to be taken · Consider the cost of opportunity of not choosing the other alternative · Overhead costs which are fixed should not be allocated · Changes in net working capital (Current Assets – Current Liabilities) should be included · Depreciation is a non cash expense. However, the tax effect of the same should be considered if tax rates are applicable · Second step is to discount the cash flows using an appropriate discounting rate considering...
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...the free cash flows instead of the accounting profits since these are the funds flow the company will receive and will be able to reinvest. By examining the cash flows they will be adapt to predict the profits and/or expenses timetable. The company’s interests in these cash flows are on an after-tax basis since they are part of the shareholders dividends. Additionally, the additional cash flows are of important, because, after analyzing the project while viewing the company as a whole, the additional cash flows are seen as minimal benefits and will show the elevated value to the company if the decision is made to implement the project. B. Since depreciation is not considered a cash flow item, it does affect the balance of the differential cash flows during the course of the project's run cycle due to the amount of taxes to be paid by the company. Depreciation is in fact an expense item. If the company records more depreciation has incurred, the more they will have in expenses. Hence, the profits will be lower and so will the taxes paid out which are cash flow items. C. While assessing the possible budgeting proposal, any unrecoverable costs are disregarded. The company needs place more interest in the cumulative after-tax cash flows by viewing the company has as a whole. Even if the company decide to investment the sunk costs will have already appeared, which means they are not additional cash flows and are not relevant. D. The projects Initial Cash Outlay can...
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...Financial Statement Differential Olga Belteton ACC/561 7.2.2012 Instructor: Tom Myers, CPA Financial Statement Differential There are four financial statements that companies refer to or should refer to when running their business; the balance sheet, the income statement, the statement of cash flows and the statement of owner’s equity also called the retained earnings statement. The balance sheet is the financial statement that lets the business know if it will meet their billing deadlines. It give insight to management on whether buy more capital, and if the company will be able to pay dividends to the owners of the business. The balance sheet shows the assets of the company, the liabilities that will be paid by the assets and presents the shareholders equity that is left when the liabilities are paid from the assets. The Income Statement is sometimes referred to as the profit and loss statement will show what the company has earned and how profitable the company is during a period. An income statement could be viewed during a given month or a specific quarter or a particular year. The income statement is revenue minus expenses, which gives the net income of the business. The Statement of Cash Flow shows a business what the money is used for and where it is coming from during a period of time. The company will see how the cash flows from the operating stance, any purchasing and, selling done and will see any common stock sold as well as...
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...Principles of Managerial Accounting—Fall 2013 Competencies |Competency |Description | |1 |Know difference between managerial and financial accounting. | |(Ch. 1-2) |Managerial accounting – provision of accounting info for a company’s internal users. It is the firms internal | |Q 1-6 |accounting system and is designed to support information needs for managers. (provide planning, controlling, | | |and decision making info) Internal accounting | | |Financial accounting – producing info for external users, including investors, creditors, customers, suppliers,| | |government agencies, and labor unions. External accounting | | |Identify cost classifications—Direct Materials, Direct Labor, Manufacturing Overhead, Nonmanufacturing costs. | | |Direct materials – materials that are part of the final product and can be directly traced to the goods being | | |produced. (tires on cars, wood in dining room table, alcohol in cologne, denim in jeans) | | |Direct labor – labor that can be directly traced to the goods being produced...
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...Mini Case BUS 401: Principles of Finance Chapter 11 Mini Case A. Due to flows being an item that the firm obtains and can reinvest, Caledonia should concentrate on cash flows verses accounting profits. When cash flows are being evaluated, the firm’s benefits and costs can be reviewed in a better manner. Since firms are more interested in benefits for the shareholders, they are only interested in the cash flows after-tax. Incremental cash flows are reviewed the most because firms are more concerned with their increased values when the project’s marginal benefits are being evaluated. B. When reviewing cash flow items, depreciation is not one of them. But depreciation to play a role in the differential cash flows of the project because of its effect on taxes. Overall expenses are increased by the expense of depreciation. Depreciation reduces accounting profits which also impacts cash flow by reducing taxes. C. Since firms are more concerned with incremental after-tax cash flows only, sink costs are typically ignored. Regardless of the results in regards to a project, sink costs have happened and are not considered incremental cash flows. J. Because the NPV is greater than zero and the IRR is greater than the rate of return, than the project should be accepted. K. The total project risk, also known as the project standing alone risk, disregards the statistic that the majority of the projects risk will be diversified away as the project...
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...for medical supplies, $10 for administrative) | ($150 Labour, $30 for medical supplies, $15 for administrative) | Admission classification | Inpatient – one day | Outpatient (frees up one bed day) | Bed Day costs | Cost is $520 but return is only $40 lose $480 | Net Saved +$480 | Costs of new machine | $25,000 + catheters (9*500) | $25,000 + catheters (9*6000) | Lifespan of machines | 5 | 5 | Expected Utilisation | 200 per machine (base) | 200 + (50-150)Max 350Min 250 | Freed up bed days | | Max 175Min 80 | Inflation Rate | 3% | 3% | Differential Risks Adjusted | +/- 3% | +/- 3% | Salvage Value | 0 after 5 years ($10000 after 3 years) | | Corporate Cost of Capital | 10% | 10% | PROCESS: Section 1: Quantitative Analysis 1. Step 1 – Estimate the project cash flows Excel Sheet 1 and 2 a. Capital outlays – cost of purchase of capital b. Operating cash flows c. Terminal Cash flows 2. Step 2 - Profitability Analysis or Return on Investment (ROI) analysis focuses on projects financial return d. Returns can be measured using NPV (in money or dollar terms) Excel sheet 1 and 2 e. Internal Rate of Return (IRR) measures in percentage term – Excel Sheet 3 and 4 3. Project Risk Analysis – Quantitative techniques for assessing a projects stand alone risk f....
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...Online Chapter 15 LEASE FINANCING AND BUSINESS VALUATION Learning Objectives After studying this chapter, readers will be able to describe the two primary types of leases, explain how lease financing affects financial statements and taxes, conduct a basic lease analysis from the perspective of the lessee, discuss the factors that create value in lease transactions, explain in general terms how businesses are valued, and conduct a business valuation using discounted cash flow and market multiple approaches. Introduction This chapter covers two unrelated topics: lease financing and business valuation. Leasing is a substitute for debt financing and hence expands the range of financing alternatives available to businesses (and to individuals). However, leasing should be used only when it offers some advantage over conventional financing. We begin this chapter by discussing factors that contribute to the large amount of leasing activity among healthcare businesses and how businesses analyze lease transactions. The valuation of entire businesses, as opposed to capital projects, is a critical step in the merger and acquisition process. In addition, business valuation plays an important role when one owner is bought out by other owners and when businesses are inherited. The second part of this chapter discusses two techniques used to value businesses. Leasing Basics Businesses generally own fixed assets, but it is the use of buildings and equipment that is important, not their...
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...Chapter 8 INVESTMENT CRITERIA 1.(a) NPV of the project at a discount rate of 14%. 100,000 200,000 = - 1,000,000 + ---------- + ------------ (1.14) (1.14)2 300,000 600,000 300,000 + ----------- + ---------- + ---------- (1.14)3 (1.14)4 (1.14)5 = - 44837 (b) NPV of the project at time varying discount rates = - 1,000,000 100,000 + (1.12) 200,000 + (1.12) (1.13) 300,000 + (1.12) (1.13) (1.14) 600,000 + (1.12) (1.13) (1.14) (1.15) 300,000 + (1.12) (1.13) (1.14)(1.15)(1.16) = - 1,000,000 + 89286 + 158028 + 207931 + 361620 + 155871 = - 27264 2. Investment A a) Payback period = 5 years b) NPV = 40000 x PVIFA (12%,10) – 200 000 = 26000 c) IRR (r ) can be obtained by solving the equation: 40000 x PVIFA (r, 10) = 200000 i.e., PVIFA (r, 10) = 5.000 From the PVIFA tables we find that PVIFA (15%,10) = 5.019 PVIFA (16%,10) = 4.883 Linear interporation in this range yields r = 15 + 1 x (0.019 / 0.136) = 15.14% d) BCR = Benefit Cost Ratio = PVB / I = 226,000 / 200,000 = 1.13 Investment B a) Payback period = 9 years b) NP V = 40,000 x PVIFA (12%,5) + 30,000 x PVIFA (12%,2) x PVIF (12%,5) + 20,000 x PVIFA (12%...
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...Situation Analysis First of all I consider your instant closing of old branch as a major setback from the operations point of view. Since last two years you built an amazing rapport there with your customers and established your technical acumen as a brand, you should have atleast provided some overlap plan rather than shifting instantly to the new Arcade so that it could have contributed to your image building at new location and consequently you should shut down this premise once your brand attained pinnacle in terms of value creation. Secondly also looking at following projected Sales (in case if you continued at the same place) and Actual Sales at new place (considering the uniform trend for the next 6 months as initial 6 months), it can be easily inferred that continuing at the same place assuming you maintain uniform profit margin over second and third year, would have helped you to achieve higher sales projections than what you achieved in Arcade owing to lack the visibility substantially. Hence arcade should have been an option of extension of your services and visibility rather than core and sole functional premises. You should have invested part of amount recieved from partners into aesthetics development at same outlet and part of that should have been invested in your services improvement aspect. Also, business lacked the important aspect of having a common mission among all the three partners, because of varying operating philosophies, at a very critical time...
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...Florida Keys Hospital Traditional Project Analysis This case is a traditional capital budgeting analysis that focuses on the issues of cash flow analysis, profitability and breakeven measures, inflation effects, and risk assessment and risk incorporation—issues that are common to most real asset investment decisions. You are required to develop a model to calculate the ambulatory surgery center’s net cash flows on the basis of estimated utilization, estimated charges, and other relevant data and then take this data and calculate the NPV, IRR, MIRR, and Payback. You must also perform sensitivity and scenario analyses. You should also provide an analysis of risk and the impact of inflation on project profitability. Your completed assignment will be evaluated on the basis of addressing all of the following (in no particular order): 1. The hospital already owns the site for the center, so should any cost be attributed to the land? Explain. 2. What overhead costs should be included in this analysis? 3. How should the cannibalization of inpatient surgeries be handled? 4. a. What is the project's payback? What is the economic interpretation of payback? What type of information do decision makers get from the payback? b. What is the project's net present value (NPV)? Explain the economic rationale behind this profitability measure. c. What is the project's internal rate of return (IRR)? Explain the economic rationale behind IRR. Do the NPV and IRR always lead to the...
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...Corporate Finance Notes * Chapter One: Introduce to Corporate Finance 1. Three Questions: A. What Long-term asset should be invested? Capital Budgeting B. How to raise cash for capital expenditures? Capital Structure C. How to manage short-term cash flow? Net Working Capital 2. Capital Structure: Marketing Value of Firm = MV of Debt + MV of Equity 3. Finance perspect and Accountant perspect: Finance: Cash Flow ! Accountant: A/R means profit ! 4. Sole proprietorship, parternership and corporation | 5. The goal of financial management: Maximize the current value per share of the existing stock. 6. Agency problem and Control of the Corporation Agency Relations: stockholders with management - agency cost Goal: Management has a significant incentive to act in the interests of stockholders. Conclusion: Stockholders control the firm and the stockholder wealth maximization is the relevant goal of the corporation . 7. Financial Market: Money Market & Capital Market Money Market: loosely connected markets – dealer markets. Core – market banks, government secutities dealers, money brokers 8. Financial Market: Primary Market & Secondary Market Primary Market: New Issues initially sell securities – public offerings and private placement IPO: underwriten by a syndicate (辛迪加, 财团) of IBs. Buy and sell for a higher price. Register in SEC. Private Placement: avoid the cost of preparing the registration...
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...Management Buyouts: A Framework for Value Realization Management buyouts (‘MBO’s) have become increasingly popular in recent years due in large part to the abundance of available capital in the North American marketplace. They can be particularly attractive as an exit strategy for business owners looking to retire and for corporations seeking to divest of a non-core business segment. In addition to the many Canadian-based financial investors searching for good MBO candidates, a growing number of players from the United States and other parts of the world are looking to Canada due to the scarcity of good prospects and the quality of the companies and management teams that reside here. Financial investors will compete among themselves for the chance to secure an opportunity that meets their investment criteria. Financial investors may take a minority equity interest or a majority stake in an investee company, and some financial investors specialize in certain industry sectors. Most financial investors publicize their areas of interest and general investment criteria on their websites. There a three main parties involved in an MBO: the owner of the company who is seeking to divest, the management team looking to acquire an equity interest, and the financial investor seeking a return on invested capital. In order to be successful over the long term, an MBO must be structured to satisfy the collective, yet sometimes conflicted, interests of these parties. This article examines the...
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...allocating various roles, as per the potential of the individuals. They even failed to include all the members in the discussion to such an extent , that one of the group member actually decided to quit the program. Why did the group process break down ? The group process broke down because , the members could not form a group, at the first place.The group was to consist of five members, who , due to their affiliations to different backgrounds , had strong opinionated views. Hence they failed to mutually conform on a single conclusion. They got more concerned about their personal opinions , views and thoughts , instead of using it as a resource for the group task. There was poor structural integration, stereotyping, power differentials , stepping up due to social identity etc , by virtue of which each member argued over another’s view point or tried to show oneself above another, that led to a complete breakdown of the group. What dimensions of diversity were responsible for the conflict ? There were various dimensions that could be seen as a responsible factor for the conflict. Age : It was seen that the age of the members varied from 23 - 52 , which led to the argument of who could be the leader of the group. Sex : The group consisted of 3 women and two men , wherein the women had a notion of being a victim of sexual biassing....
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...Paper Winter Term 2011/2012 Study Course Investion, Finanzierung und Risikomanagement für Kleinere und Mittlere Unternehmen Case Study Term Paper Winter Term 2011/2012 By Prof. Dr. Tobias Popovic By Prof. Dr. Tobias Popovic Submitted by Bernardo Suárez González Student Identity Card: 299813 María de la Concepción Goitisolo Sopeña Student Identity Card: 299802 Submitted by Bernardo Suárez González Student Identity Card: 299813 María de la Concepción Goitisolo Sopeña Student Identity Card: 299802 Stuttgart, 20.01.2012 Stuttgart, 20.01.2012 Table of Contents Assignment 1: D’Leon Inc. – Financial Statements and Taxes 1 Assignment 2: Allied Food Products – Capital Budgeting and Cash Flow Estimation 7 Annex 12 Affidavit 13 Assignment 1: D’Leon Inc. – Financial Statements and Taxes A. What effect did the expansion have on sales, after-tax operating income, net working capital (NWC), and net income? The impact on sales can be seen in Table IC3-2. Income Statements. Sales are the sum of Cost of goods sold and Other Expenses. In respect to 2007 there is an increase in sales powered, perhaps, by the excessive and unnecessary much publicity. Sales in 2007: $ 3,432,000 Sales in 2008: $ 6,034,000 Although sales in 2008 were higher than in 2007, the EBIT was negative ($ 130,948). The explanation may be that the lease interests (increased plant capacity...
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