some cash flow difficulties, although this is not unusual in the industry. Management has recently fully extended their overdraft facility in order to pay day-to-day expenses such as wages and salaries. The audit partner is c
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Sky-blue Pty Ltd is a large private company that manufactures special reinforced concrete and other products used in the construction of airport runways and heavy use motor vehicle freeways. During the course of the audit for the year ended 30 June 20X7, the government announced that it intends to scrap its proposed third runway project. You know that Skyblue Pty Ltd’s projections include a major share of the work expected to flow from this project.
The company has been experiencing some cash flow difficulties, although this is not unusual in the industry. Management has recently fully extended their overdraft facility in order to pay day-to-day expenses such as wages and salaries. The audit partner is concerned that the company may be facing going concern problems, but the managing director maintains that future capital expenditure can be cut back to alleviate the going concern issue. In addition, surplus assets can be sold to the growing Asian market and long-term debt can be rescheduled if necessary.
Required:
What would be the impact on the audit of a comfort letter from a related company promising to provide financial support in the event that Skyblue Pty Ltd was unable to meet its debts?
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- Z Pty Ltd is a large private company that manufactures special reinforced concrete and other products used in the construction of airport runways and heavy use motor vehicle freeways. During the course of the audit for the year ended 30 June 20X7, the government announced that it intends to scrap its proposed third runway project. You know that Z Pty Ltd’s projections include a major share of the work expected to flow from this project. The company has been experiencing some cash flow difficulties, although this is not unusual in the industry. Management has recently fully extended their overdraft facility in order to pay day-to-day expenses such as wages and salaries. The audit partner is concerned that the company may be facing going concern problems, but the managing director maintains that future capital expenditure can be cut back to alleviate the going concern issue. In addition, surplus assets can be sold to the growing Asian market and long-term debt can be rescheduled if…The senior VP in charge has asked that you make a recommendation for the purchase of new equipment.Ideally, the company wants to limit its capital investment to $500,000. However, if an asset meritsspending more, an investment exceeding this limit may be considered. You assemble a team to helpyou. Your goal is to determine which option will result in the best investment for the company. Toencourage capital investments, the government has exempted taxes on profits from new investments.This legislation is to be in effect for the foreseeable future.The average reported operating income for the company is $1,430,500.The company uses an 11% discount rate in evaluating capital investments.The team is considering the following optionsOption 1:The asset cost is $300,000.The asset is expected to have an 8-year useful life with no salvage value.Straight-line depreciation is used.The net cash inflow is expected to be $62,000 each year for 8 years.A significant portion of this asset is made from…Bears, Inc. is considering investing in testing equipment to improve the quality control of its products. The new equipment will cost $983,000, with an estimated useful life of four years and no salvage value. Management has set a minimum return of 15% for similar investment opportunities. The new equipment is expected to generate $365,900 in after-tax operating expense savings, but will require a working capital commitment of $40,000 for the entire four years of the investment life (four years). What is the equipment's expected internal rate of return? PLEASE SHOW YOUR SOLUTION MANUALLY ( DON'T USE EXCEL OR USING FINANCIAL CALCULATOR) BECAUSE I REALLY DON'T KNOW THE FORMULA FOR INTERNAL RATE OF RETURN HUHUHU PLS HELP
- Dalrymple Inc. is considering production of a new product. In evaluating whether to go ahead with the project, which of the following items should be considered when cash flows are estimated? If the item should not be included, explain why not.A) Since the firm's director of capital budgeting spent some of her time last year to evaluate the new project, a portion of her salary for that year should be charged to the project's initial cost.B) The project will utilize some equipment the company currently owns but is not now using. A used equipment dealer has offered to buy the equipment.C) The company has spent for tax purposes $3 million on research related to the new product. These funds cannot be recovered, but the research may benefit other projects that might be proposed in the future.D) The new product will cut into sales of some of the firm's other products.E) The firm would borrow all the money used to finance the new project, and the interest on this debt would be $1.5 million…Dwight Donovan, the president of Fanning Enterprises, is considering two investment opportunities. Because of limited resources, he will be able to invest in only one of them. Project A is to purchase a machine that will enable factory automation; the machine is expected to have a useful life of four years and no salvage value. Project B supports a training program that will improve the skills of employees operating the current equipment. Initial cash expenditures for Project A are $116,000 and for Project B are $36,000. The annual expected cash inflows are $44,810 for Project A and $12,355 for Project B. Both investments are expected to provide cash flow benefits for the next four years. Fanning Enterprises’ desired rate of return is 8 percent.Adams Corporation is considering the purchase of equipment employing advanced technology to lower production costs in a product line. At the end of the third year, management will close down the line and liquidate the remaining assets. The project will require an investment of $500,000 in plant upgrade and equipment and an additional $30,000 in working capital, which will be recovered in full at the end of year 3.Over its three-year useful life, the new equipment will reduce labor and rawmaterials usage sufficiently to cut operating costs from $9,000,000 to $8,850,000. It is estimated that the new equipment can be sold for $150,000 at the end of year 3. If the new equipment were purchased, the old machine would be sold to another company for $170,000 rather than be traded in for the new equipment. If the old equipment is kept for three more years, the salvage value would be reduced to $70,000.Adams management uses 10% to discount the cash flows. Decide whether replacement is justified…
- Assume that to comply with the Air Quality Control Act of 1989, a company must install three smokestack scrubber units to its ventilation stacks at an installed cost of $335,000 per unit. An estimated $100,000 per unit in fines could be saved each year over the five-year life of the ventilation stacks. The cost of capital is 14% for the firm. a) Draw the timeline with the cash flows for the project. b) Calculate the NPV of the project and make the decision to accept/reject. Briefly explain.Dwight Donovan, the president of Perez Enterprises, is considering two investment opportunities. Because of limited resources, he will be able to invest in only one of them. Project A is to purchase a machine that will enable factory automation; the machine is expected to have a useful life of five years and no salvage value. Project B supports a training program that will improve the skills of employees operating the current equipment. Initial cash expenditures for Project A are $103,000 and for Project B are $48,000. The annual expected cash inflows are $26,481 for Project A and $13,982 for Project B. Both investments are expected to provide cash flow benefits for the next five years. Perez Enterprises’ desired rate of return is 8 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)Required Compute the net present value of each project. Which project should be adopted based on the net present value approach? Compute the approximate internal rate…Dwight Donovan, the president of Stuart Enterprises, is considering two investment opportunities. Because of limited resources, he will be able to invest in only one of them. Project A is to purchase a machine that will enable factory automation; the machine is expected to have a useful life of five years and no salvage value. Project B supports a training program that will improve the skills of employees operating the current equipment. Initial cash expenditures for Project A are $104,000 and for Project B are $44,000. The annual expected cash inflows are $28,139 for Project A and $12,816 for Project B. Both investments are expected to provide cash flow benefits for the next five years. Stuart Enterprises’ desired rate of return is 6 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)Required Compute the net present value of each project. Which project should be adopted based on the net present value approach? Compute the approximate internal…
- Pharmos Incorporated is a Pharmaceutical Company which is considering investing in a new production line of portable electrocardiogram (ECG) machines for its clients who suffer from cardio vascular diseases. The company has to invest in equipment which cost $2,500,000 and falls within a MARCS depreciation of 5-years, and is expected to have a scrape value of $200,000 at the end of the project. Other than the equipment, the company needs to increase its cash and cash equivalents by $100,000, increase the level of inventory by $30,000, increase accounts receivable by $250,000 and increase account payable by $50,000 at the beginning of the project. Pharmos Incorporated expect the project to have a life of five years. The company would have to pay for transportation and installation of the equipment which has an invoice price of $450,000.The company has already invested $75,000 in Research and Development and therefore expects a positive impact on the demand for the new product line.…Pharmos Incorporated is a Pharmaceutical Company which is considering investing in a new production line of portable electrocardiogram (ECG) machines for its clients who suffer from cardio vascular diseases. The company has to invest in equipment which cost $2,500,000 and falls within a MARCS depreciation of 5-years, and is expected to have a scrape value of $200,000 at the end of the project. Other than the equipment, the company needs to increase its cash and cash equivalents by $100,000, increase the level of inventory by $30,000, increase accounts receivable by $250,000 and increase account payable by $50,000 at the beginning of the project. Pharmos Incorporated expect the project to have a life of five years. The company would have to pay for transportation and installation of the equipment which has an invoice price of $450,000. The company has already invested $75,000 in Research and Development and therefore expects a positive impact on the demand for the new product line.…Pharmos Incorporated is a Pharmaceutical Company which is considering investing in a new production line of portable electrocardiogram (ECG) machines for its clients who suffer from cardio vascular diseases. The company has to invest in equipment which cost $2,500,000 and falls within a MARCS depreciation of 5-years, and is expected to have a scrape value of $200,000 at the end of the project. Other than the equipment, the company needs to increase its cash and cash equivalents by $100,000, increase the level of inventory by $30,000, increase accounts receivable by $250,000 and increase account payable by $50,000 at the beginning of the project. Pharmos Incorporated expect the project to have a life of five years. The company would have to pay for transportation and installation of the equipment which has an invoice price of $450,000.The company has already invested $75,000 in Research and Development and therefore expects a positive impact on the demand for the new product line.…
