Use the following information to answer all questions:
Management of XYZ are considering investing in a new business line for
producing a new product. The following data are relevant to the business
line:
Business line machinery will cost
1 $1,000,000 and have 10 years useful life
and requires $50,000 maintenance annually
Line will have a normal capacity to produce
2
100,000 units annually
The line will be based in a factory rented
and used by XYZ at $100,000 of which 40%
3
will be allocated and charged to the
business line.
Below are the materials used in producing
4
the product:
Quantity
Cost
$200 per
RM1
0.1 KG
KG
$100 per
RM2
1 piece
box of 20
pieces
5 Salaries are paid as follows:
Head office salaries
$100,000
annually
Factory labor
$200,000
annually
Sales staff
$120,000
annually
XYZ will charge the business line $50,000
6 annually for Administration services (such
as accounting, HR and other service)
At the end of year 5, the business line will
7 be closed and the machinery will be sold to
a third party for $450,000
The investment and required working
8 capital will be financed with 60% equity and
40% debt.
The new line is planned to produce and sell
9 50,000 units in year 1, 60,000 units in year
2 growing by 10% for the remaining years
Selling price for the product will be $50 per
10
unit expected to rise by 10% starting year 3
Raw materials are imported from a foreign
11 country and their prices are expected to
increase by an annual inflation rate of 7%
12 Working Capital:
Sales are 20% cash and 80% credit due
within 60 days
Raw Material purchase are made on credit
due within 30 days
Factory rent is paid in advance on
December 31 of each year
The company’s dividend policy is 40% of
13 net profit starting year 2 for this project (i.e.
no dividend on year 1 net profit)
Cash balance should be minimum
14
of100,000
15 Debt to be paid over 2 years
The expected dollar sales in year 1:
a.3.500.000
b.2.000.000
c.2.500.000
d.3.000.000
Expected dollar sales in year 4:
a.4.392.500
b.4.932.300
c.4.392.300
d.3.630.000
Expected cash collections in year2:
a.2.920.000
b.2.650.000
c.3.100.000
d.2.100.000
Assume no ending inventory, the total material cost for year 1 is:
a.1.000.000
b.1.250.000
c.1.605.000
d.1.284.000
Cash payments for martials for year 2
a.2.195.589
b.1.540.816
c.1.575.417
d.1.865.411
labor cost for year 2:
a.180.000
b.200.000
c.300.000
d.400.000
Assume that salvage value for the line is 0, the company uses straight line
depreciation method.
What is the total overhead cost for year 1:
a.90.000
b.190.000
c.140.000
d.150.000
The total cash selling and admin expenses for year 1 is:
a.Non of the above
b.170.000
c.120.000
d.190.000
The gross margin for year 1 is :
a.860.000
b.1.640.000
c.1.005.000
d.835.000
The operating income for year 1 is:
a.835.000
b.690.000
c.590.000
d.1.180.915
the net profit for year 1 is:
a.690.000
b.590.000
c.935.000
d.490.000
Total assets by the end of year 1:
a.1.440.000
b.2.094.877
c.1.123.673
d.1.841.417
Cash Excess (Deficiency) for year1:
a.445.833
b.545.833
c.645.833
d.-645.833
e.-445.833
f.-545.833

Purchase answer to see full
attachment