SHOW AND LABEL YOUR SUPPORTING CALCULATIONS IN EXCEL FOR ALL
COMPUTATIONAL QUESTIONS, INCLUDING MULTIPLE CHOICE, TO AVOID
ROUNDING ISSUES IN THE GRADING PROCESS. YOUR CALCULATIONS MUST
SUPPORT YOUR ANSWER.
1. Use the information below
Depreciation
$ 27,000
EBIT
$150,000
Investment in operating assets
$ 50,000
Tax rate
35%
Calculate the free cash flow
2. Use the following information below
What is the expected return for Security X?
3. The management of Erion Corporation is considering the purchase of an automated molding machine
that would cost $280,534, would have a useful life of 5 years, and would have no terminal (salvage)
value. The automated molding machine would result in cash savings of $74,000 per year due to
lower labor and other costs.
Determine the internal rate of return on the investment in the new automated molding machine.
4. A company with $800,000 in operating assets is considering the purchase of a machine that costs
$75,000 and which is expected to reduce operating costs by $20,000 each year. Calculate the payback
period.
5. Jarvey Company is studying a project that would have a ten-year life and would require a $450,000
investment in equipment which has no salvage value. Annual financial data for the project is shown
below:
Sales
$500,000
Variable cash expenses
200,000
Fixed cash expenses
150,000
Depreciation expense
45,000
The company’s required rate of return is 12%. What is the payback period for this project?
Use the following information for questions 6-8.
Management estimates that 5% of credit sales are uncollectible. Of the credit sales that are collectible,
60% are collected in the month of sale and the remainder in the month following the sale. Purchases
of inventory are equal to next month’s budgeted cost of goods sold. The budgeted cost of goods sold
are 70% of budgeted Sales. All purchases of inventory are on account; 25% are paid in the month of
purchase, and the remainder is paid in the month following the purchase.
6. Budgeted cash collections in July from June credit sales are___________.
7. Budgeted total cash receipts in August are _____________.
8. Budgeted total cash payments in July for inventory purchases are______________.
Use the following information for Questions 9-11.
The following is from Alsatia Corporation’s financial statement information for last month:
Sales
Variable Expenses
Fixed Expenses
$1,400,000
900,000
300,000
The company has no beginning or ending inventories and produced and sold 10,000 units during the
month.
9. What is the company’s break-even in units?
10. How many units would the company have to sell to attain target profits of $225,000?
11. What is the company’s degree of operating leverage?
