EXCEL PROJECT INSTRUCTIONS
Assume ABC Company has asked you to not only prepare their 2015 year-end Balance Sheet but to also provide pro-forma financial statements for 2016. 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:
|
Account
|
12/31/15 Ending Balance
|
|
Cash
|
50,000
|
|
Accounts Receivable
|
175,000
|
|
Inventory
|
126,00
|
|
Equipment
|
480,000
|
|
Accumulated Depreciation
|
90,000
|
|
Accounts Payable
|
156,000
|
|
Short-term Notes Payable
|
12,000
|
|
Long-term Notes Payable
|
200,000
|
|
Common Stock
|
235,000
|
|
Retained Earnings
|
solve
|
Additional Information:
• Sales for December total 10,000 units. Each month's sales are expected to exceed the prior month's results by 5%. The product's selling price is $25 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 2015 inventory is 8,400 units, which complies with the policy. The purchase price is $15 per unit.
• Sales representatives' commissions are 12.5% 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 $50,000. 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
|
$80,000
|
$175,000
|
$22,700
|
|
Required Rate of Return
|
6%
|
8%
|
12%
|
|
Time Period
|
3 years
|
5 years
|
2 years
|
|
Cash Flows - Year 1
|
$48,000
|
$85,000
|
$15,000
|
|
Cash Flows - Year 2
|
$36,000
|
$74,000
|
$12,000
|
|
Cash Flows - Year 3
|
$22,000
|
$38,000
|
N/A
|
|
Cash Flows - Year 4
|
N/A
|
$26,800
|
N/A
|
|
Cash Flows - Year 5
|
N/A
|
$19,000
|
N/A
|
Required Action:
Part A:
• Prepare the year-end balance sheet for 2015. Be sure to use proper headings.
• Prepare budgets such that the pro-forma financial statements for the first quarter of 2016 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.