Business Analysis and Interpretation
1. Student Enterprises has the following business transaction estimates relating to the first quarter of 2018.
$
Credit Sales 180960
Cash Sales 162624
Receipts from Accounts Receivable 145640
Wages 85020
Office Furniture 27176
Prepayments 7698
Administrative Expense 24816
Depreciation on Office Furniture 1554
Receipt of Loan 28500
Credit Purchases 95456
Payments of Accounts Payable 93104
Accrued Expense 986
Prepayments 1327
The cash balance at 1 January 2018 was $79 550.
Required
Prepare a cash budget for the quarter ending 31 March 2018.
2. Student Industries sells IT equipment, specialising in printers and faxes. The following statement reflects the contribution margin of each activity, and overall profit levels.
|
|
Printers
|
Faxes
|
Total
|
|
Sales
|
$3 096 000
|
$1595000
|
$4 691 000
|
|
Less: Variable costs
|
2 260 000
|
1,065000
|
3 325 000
|
|
Contribution margin
|
836 000
|
530 000
|
1366000
|
|
Direct fixed costs
|
415 000
|
355000
|
770 000
|
|
Common fixed costs:
|
|
|
|
|
Utilities
|
|
|
40 000
|
|
Other administration
|
|
|
162 000
|
|
Profit
|
|
|
$394 000
|
Required
a. Calculate the contribution margin ratios for each of the two areas of activity, and in total.
b. Using the total contribution margin ratio, calculate the level of sales required to break even by item and in total.
3. Student Industries is considering buying asmall industrial machine which costs $124 000 and is expected to earn annual net cash inflows of $54 600, $49 600, $44 600 and $39 700, before it wears out sufficiently to be unreliable and must be sold for an estimated $12 400.
Required
a. If funds earn 11 per cent, what is its NPV?
b. If funds earn 15 per cent, what is its NPV?
c. Advise management on your recommendation regarding purchase of the machine subsequent to your NPV calculations.
d. What advice would you give management if the required payback period was two years?