Fin350 Week 3 Module 3 Practice Problems

Problem 1: Jonathon Barrs is a manager for Easy Manufacturing, LLC. He wishes to evaluate three possible investments. These investments are for the purchase of new machine tools from Germany, Japan, and a local US manufacturer. The firm earns 10% on its investments and they have a risk index of 5%. The chart below lays out the expected return and expected risks of the three projects.

Classify each of the following transactions as arising from an operating (O), investing (I), financing (F), or noncash investing/financing (N)

1. This is a closed book exam. You may only have pens, pencils and a calculator at

33) Each year for eight years, an investment will generate incremental sales of $8,000 and cash operating expenses of $2,500. The applicable tax rate is 30% and depreciation is $2,000. What is the net cash flows for each of the eight years?

The standard costs and variances for direct materials, direct labor, and factory overhead for the month of May are as follows:

Diane Hollowell and Terry Parmenter were discussing the format of the statement of cash flows of Snowbarger Co. At the bottom of Snowbarger's statement of cash flows was a separate section entitled “Noncash investing and financing activities.” Give three examples of significant noncash transactions that would be reported in this section.

If you work this problem as a group assignment, each group member should be prepared to

Compute the incremental net income of the investment for each year. (Do not round intermediatecalculations.)

In analyzing factors attributable to the change in a firm's operating income from one year to the next, which of the following effect(s) may be included in the growth factor?

* First, we calculate the Net Operating Profit after Tax, which is equals to EBIT×1-t.

2. The single most important assessment in Cash Flows in the “cash flow from financial operations” because it provides an overlook on management’s operating decisions. In this case, we can see that Reebok had reported positive cash flows from operations, for example in 1990 reported $39.2M while LA Gear reported a negative (40M) the same year. Looking closely, we can see that LA Gear was retaining huge quantities of inventory while at the same time, not collecting enough money from customers (A/R). Hence we can conclude that for Reebok, operations was a source of cash but on the other hand, LA Gear was quite the opposite: operations was a use (or drain) of cash. Turning our attention to “cash flows from financing activities” we can see that more differences. Reebok is borrowing little money, instead it is paying loans. LA Gear is borrowing huge quantities of money, for example in 1990 it borrowed $56M. As a result of this, we can see where the money to finance

b.What are the amounts and timing of the acquisition investment’s free cash flow from 2013 through 2022?

3) Based on the data in Exhibit 7 and the definition of operating income gains given

4. Did the cash flow from operations cover both the capital expenditures and the firm’s dividend payments, if any?

b) What is the firm’s forecasted average daily sales for the first three months of operations? For the entire half-year?