Finance Assignment

This is an individual Assignment

You have four hours to complete.

This exam has two questions for a total of forty points.

Return your answers using the Excel spreadsheet provided or one PDF file (if you are not comfortable using Excel)

Question 1

Budget Preparation

QwikShare is a not-for-profit organization that provides environmentally friendly transportation options at QwikStops in suburban areas. It rents bicycles and low-emissions automobiles to customers by the hour or by the day at a rate of $5 per hour or $65 per day for bicycle rentals, and $15 per hour or $175 per day for automobile rentals. Its fiscal year is January 1-December 31.

QwikShare's full-time staff includes a Chief Executive Officer, a Chief Financial Officer, an Operations Manager, two software developers, two customer service agents, and two mechanics. Full-time staff salaries will total $750,000 in FY 2012 (up from $700,000 in FY 2011), and health benefit expenses will be 30% of full-time payroll (up from 27.5% in FY 2011). (Full-time staff salaries and benefits should be one line-item.) The organization also employs 10 part-time staff members who will earn an average of $12.50 per hour in wages and work an average of 20 hours per week. The average wage and workweek for part-timers was the same in FY 2011.

QwikShare anticipates that in FY 2012 it will rent each of its 25 bicycles for an average of 600 hours at the hourly rate and for an average of 20 days at the daily rate. In addition, it plans to rent each of its 15 automobiles for an average of 3,500 hours at the hourly rate and for an average of 60 days at the daily rate. (Revenue from bicycle rentals and automobile rentals should be two separate line-items.) The organization will also be supported by a new federal grant that will pay QwikShare $0.50 for every pound of carbon dioxide (CO₂) emissions its rentals prevent in 2012. QwikShare estimates that each of its low-emissions automobiles will prevent 7,500 pounds of CO₂ emissions in FY 2012, while each of its bicycles will prevent 25,000 pounds of CO₂ emissions.

QwikShare's depreciation expense in FY 2011, for all property and equipment, was $110,000 (the organization uses the straight-line method of depreciation). The organization retained all of the property and equipment it owned in FY 2011 and, at the beginning of FY 2012, it acquired 5 new bicycles and 3 new automobiles (as stated above, it now has a total of 25 bicycles and 15 automobiles). Each automobile was purchased for $25,000, has a useful life of 5 years, and can be sold for $5,000 at the end of its useful life. Each bicycle cost $1,750, has a salvage value of $250, and has a useful life of 3 years. The organization began FY 2012 with $55,000 in cash, and partially financed these purchases with a 3-year, $60,000 loan (the remainder was paid for with preexisting cash). The loan has an annual interest rate of 12% with equal annual loan repayments beginning on December 31. Interest payments are also made on the last day of the fiscal year.

Finally, QwikShare leases its office and garage space at $3,500 per month, pays $1,000 per month in utilities (up from $750 per month in FY 2011), and will use $2,500 in supplies each month (up from $2,000 per month in FY 2011). The organization self-insures its bicycles and automobiles but pays $350 per month in renter's insurance to protect its office and garage space.

All of QwikShare's expenses are paid on-time except full-time salaries and benefits, which are paid with a one-month lag, part-time wages, which are paid with a two-week lag, and supplies, which are paid with a one-quarter lag. The organization's revenues are received as they are earned, but federal grant payments will be received with a two-quarter lag.

Hint: As always, assume there are 12 months per year and 52 weeks per year.

Do not convert months to weeks or vice versa.

Prepare an annual operating budget and a semiannual cash budget (showing the first half of the year, the second half of the year, and the annual total in three side-by-side columns) for QwikShare for FY 2012. Assume revenues are earned evenly throughout the year.

Prepare an annual operating budget for QwikShare for FY 2012.

Prepare a semiannual cash budget showing the first half of the year, the second half of the year, and the annual total in three side-by-side columns for QwikShare for FY 2012.

Question 2

For time value of money calculations (circle/highlight all that apply):

a) Increasing i increases present value

b) Increasing i increases future value 

c) More frequent compounding increases future value 

d) More frequent discounting increases present value

e)  n is always expressed in years.