Owens & Minor is a distributor of surgical and medical supplies to hospitals and other health care facilities. Due to changing demand from customers, the company is facing increased operating costs, which has resulted in lower profit margins and even losses. In 1993, O&M recorded an $18 million profit, which was reduced to a loss of $11 million in 1995. The entire industry is experiencing similar difficulties. In an effort to resume profitability, O&M is evaluating alternatives to “cost-plus pricing”. Cost-plus pricing does not reflect the true cost of the services provided by O&M. Customers are demanding more of O&M while
Test Market expenses – This is a sunk cost and thus should not be included
5. If debt is used to finance this project, should the interest payments associated with this new debt be considered cash flows?
This project will most likely involve debt financing. This means that interest expense would occur and should be taken into account in the analysis of the project. Interest expense is a cash expense and is automatically included when the net cash flows are
ASC 320-10-35-33F: “Changes in the quality of the credit enhancement should be considered when estimating whether a credit loss exists and the period over which the debt security is expected to recover.”
This case is talking about an executive retreat. It was introduced by John Matthews who was a executive had been selected to attend the two-and-a-half-week retreat. The retreat was more like a competition about academic and athletic. The team members should not only get know each other and cooperate with teammates but also need to compete with others. The whole participants were broken into five groups and their aim was to win the competition. There are several sessions about academic and athletic that the participants should complete. After the introduction part the case showed the experience of John. Before the group meeting John was wondering and worried about this retreat. When he was taking the first group meeting, he tried to learn
The court deciphering between criminal negligence and recklessness. Criminal negligence being a person failing to perceive a substantial and unjustifiable risk that the result will occur or that the circumstance exists. The risk must be of such nature and degree that the failure to perceive it constitutes a gross deviation from the standard of care that a reasonable person would observe in the situation.
Sparkle Company is a Nigerian diamond mining company. Sparkle is a joint venture, 50 percent owned by Shine and 50 percent owned by Brighten. Both Shine and Brighten are U.S.-based companies with their functional currency being the American dollar. Sparkle Companies functional currency is that of Nigeria, being the Naira. During 2009, Sparkle had several transactions with its joint venture owners and outside parties. The details of Sparkle’s transactions are three loans, three expenditures, and one revenue stream. The loans the company took out were $1 million from Brighten, $1 million from Shine, and 300 million Naira from a local Nigerian bank. The expenditures
1.1. Review principles of estimating project cash flows. Suggested reading: Ch. 9 “Capital Budgeting and Cash Flow Analysis” in “Contemporary Financial Management”, 11th ed. by Moyer, McGuigan, and Kretlow.
Shakespeare Inc., a private publishing company issued its F/S on March 20, 2012. There were several accruals and events that the management of Shakespeare is considering to determine if they should be recognized or disclosed in Dec 31, 2011 F/S. In my opinion, the important things to focus on subsequent events are the period they effect and if their influence is material or not, so that in conclusion, the F/S are fairly presented.
Drilled and tapped based were forwarded to assembly by forklift truck, in wire-bound pallets holding bout 400 bases. This requires five forklift trips to move on "packet-release" quantity to assembly. (See question 1)
1) Incremental cash flows are the cash flows that should be used in calculating the NPV of a project. The cash flows are changes in cash flows that occur as a direct consequence of accepting a project, not the cash flows that the company is already receiving.
b. What medium would you use to reach each of these parties and what would your relative resource allocation be to each?
Define the term “incremental cash flow.” Since the project will be financed in part by debt, should the cash flow statement include interest expense? Explain.
Answer: When determining the incremental cash flows related to the project, we should not include interest expense, even if the project will be partly financed by debt. We will take the interest cost into consideration when we perform the net present value analysis on these cash flows. At that point, the required rate of return we will use will be a rate that will take into consideration the cost of both debt and equity financing, and therefore, the effect of interest costs (and the effect of the cost of equity) will be considered at that time. Usually, the WACC will be used as the required rate of return, as long as the project is an average-risk project for the company.