EXCEL PROJECT

profileangail

 

Excel Project Instructions

 

Assume ABC Company has asked you to not only prepare their 2013 year-end Balance Sheet but to also provide pro-forma financial statements for 2014. In addition, they have asked you to evaluate their company based on the pro-forma statements with regard to ratios. They also want you to evaluate 3 projects they are considering. Their information is as follows:

 

End of the year information:

 

Account

12/31/13

Ending Balance

Cash

160,000

Accounts Receivable

126,000

Inventory

75,200

Equipment

745,000

Accumulated Depreciation

292,460

Accounts Payable

36,900

Short-term Notes Payable

18,300

Long-term Notes Payable

157,225

Common Stock

450,000

Retained Earnings

solve

 

 

 

Additional Information:

 

·         Sales for December total 12,000 units. Each month’s sales are expected to exceed the prior month’s results by 5%. The product’s selling price is $15 per unit.

 

·         Company policy calls for a given month’s ending inventory to equal 80% of the next month’s expected unit sales. The December 31 2012 inventory is 9,400 units, which complies with the policy. The purchase price is $8 per unit.

 

·         Sales representatives’ commissions are 10.0% of sales and are paid in the month of the sales. The sales manager’s monthly salary will be $3,500 in January and $4,000 per month thereafter.

 

·         Monthly general and administrative expenses include $8,000 administrative salaries, $5,000 depreciation, and 0.9% monthly interest on the long-term note payable.

 

·         The company expects 30% of sales to be for cash and the remaining 70% on credit. Receivables are collected in full in the month following the sale (none is collected in the month of sale).

 

·         All merchandise purchases are on credit, and no payables arise from any other transactions. One month’s purchases are fully paid in the next month.


·         The minimum ending cash balance for all months is $140,000. If necessary, the company borrows enough cash using a short-term note to reach the minimum. Short-term notes require an interest payment of 1% at each month-end (before any repayment). If the ending cash balance exceeds the minimum, the excess will be applied to repaying the short-term notes payable balance.

 

·         Dividends of $100,000 are to be declared and paid in February.

 

·         No cash payments for income taxes are to be made during the first calendar quarter. Income taxes will be assessed at 35% in the quarter.

 

·         Equipment purchases of $55,000 are scheduled for March.

 

ABC Company’s management is also considering 3 new projects consisting of the purchase of new equipment. The company has limited resources, and may not be able to complete make all 3 purchases. The information is as follows for the purchases below.

 

 

Project 1

Project 2

Project 3

Purchase Price

$50,000

$75,000

$32,500

Required Rate of Return

12%

8%

10%

Time Period

3 years

5 years

2 years

Cash Flows – Year 1

$18,000

$25,000

$20,000

Cash Flows – Year 2

$22,000

$20,000

$18,000

Cash Flows – Year 3

$22,000

$18,000

N/A

Cash Flows – Year 4

N/A

$16,500

N/A

Cash Flows – Year 5

N/A

$15,000

N/A


 

 

Required Action:

 

Part A:

 

  • Prepare the year-end balance sheet for 2013. Be sure to use proper headings.
  • Prepare budgets such that the pro-forma financial statements may be prepared.

 

  • Sales budget, including budgeted sales for April.
  • Purchases budget, the budgeted cost of goods sold for each month and quarter, and the cost of the March 31 budgeted inventory.
  • Selling expense budget.
  • General and administrative expense budget.
  • Expected cash receipts from customers and the expected March 31 balance of accounts receivable.
  • Expected cash payments for purchases and the expected March 31 balance of accounts payable.
  • Cash budget.
  • Budgeted income statement.
  • Budgeted statement of retained earnings.
  • Budgeted balance sheet.

 

Part B:

 

  • Calculate using Excel formulas, the NPV of each of the 3 projects.
  • It is possible that ABC Company may not be able to complete all 3 projects. Therefore, advise ABC Company as to the order in which they should pursue the projects (i.e., which project should ABC Company attempt to do first, second, and last).
  • Provide justification and analysis as to why you chose the order you did. The analysis must also be done in Excel, not in a separate document.

 

 

 

This assignment must be submitted as 1 Excel document.

 

ADDITIONAL INFORMATION FROM INSTRUCTOR:

 

·         I wanted to bring up an important point regarding NPV (Part B of the project).Remember that when doing the NPV, you are discounting the cash flows back to the present year to determine whether or not the project is a wise investment. Ideally, if it is positive, it should be done; however, there is not always enough cash to be able to do everything that is showing as a positive investment.

 

Sometimes, a project does not have a positive NPV. Therefore, the goal is to choose the order in which to do the projects.

 

 

 

 

 

 

  • 9 years ago
  • 20
Answer(0)