UNIT 4 ASSIGNMENT Please complete this assignment using MS Word, typing your first and last name on the first page, in the upper right corner of the page. Once your assignment is complete, upload your...

1 answer below »
I dont need referencing style


UNIT 4 ASSIGNMENT Please complete this assignment using MS Word, typing your first and last name on the first page, in the upper right corner of the page. Once your assignment is complete, upload your MS Word doc to Brightspace: Assignments Folder. QUESTION I ABC Corp management has decided that the required rate of return for the company should be 8%. Total assets on the December 31, 2019 ABC Corp balance sheet are $500,000. If ABC’s Net Income for 2019 is $40,000, has the company met the required return of 8%? Use “residual income” to determine your answer. QUESTION II A. If the bank requires that a corporation keep the debt to total assets ratio at 45% maximum, determine the capital structure (in dollars of debt and equity) of a company that has total assets of $2,000,000. B. Why is a lower level of debt, in a corporation’s capital structure, considered a conservative financial structure? QUESTION III A. Briefly explain how EVA differs from “residual income” with regards to financial analysis. Write no more than one brief, clear sentence. Be specific! B. Calculate EVA for AA Corp, considering that its Total Debt is $350,000 and Total Shareholders’ Equity is $750,000. Net operating profit (after taxes) was $50,000 and its WACC is 4.5%. Explain your answer, in one short sentence or a few words. QUESTION IV A. If the operating leverage for XYZ Inc is 4, and the company’s sales volume decreases from 100,000 units to 95,000 units, explain the impact on the income statement of this decrease in sales volume. Include a numeric (percentage) and a brief (four to ten words) written answer. B. Calculate the financial leverage, for XYZ Inc using the income statement data below. Interpret your answer with one or two short sentences. XYZ Inc INCOME STATEMENT For the year-ended December 31 2019 Sales Revenue$ 1,000,000 COGS 400,000 Gross Profit600,000 Operating Expenses380,000 EBIT220,000 Interest Expense170,000 EBT Earnings Before Tax 50,000 Income Tax Expense 40,000 EAT Earnings After Tax 10,000 UNIT 5 ASSIGNMENT Please complete this assignment using MS Word, typing your first and last name on the first page, in the upper right corner of the page. Once your assignment is complete, upload your MS Word doc to Brightspace: Assignments Folder. QUESTION I Calculate the break-even point, in number of unit sold, for the following manufacturing company, ABC Inc using this income statement data: Sales Revenue $540,000$180 price per unit, 3000 units sold Variable Costs189,000$63 variable cost per unit Contribution Margin351,000 Fixed Costs130,000 Profit221,000 QUESTION II Imagine that you own a retail sports equipment store. You have hired 10 employees: six floor salespersons, one store manager, one evening and weekend store manager and two administrative staff. You would like to begin employee evaluations once annually, and decide to create performance indicators to fairly measure the contributions and success of each employee group. The employee groups are: salespersons, manager and administrative support. Duties of the administrative staff include store bookkeeping and ordering inventory. Suggest two performance indicators for each of the organizational units listed below. Decide how your employees will be evaluated, objectively (that is, not ‘subjectively). You may refer to page 301 Table 7.9 for examples, but try to think of your own performance indicators for the three groups of employees. QUESTION III A. Determine the payback period, in years, of a project that is expected to generate $30,000 per year in cash flow. The project cost (initial investment) is $250,000. B. Name three other methods (excluding payback period, from Part A) used by financial managers, to assess the viability of a multi-year project, with significant initial investment (similar to the example in part A). Briefly describe each method, in one short sentence per method. Refer to pages 477 to 489 of Chapter 11, Capital Budgeting. You do not need to do calculations. Do your best to explain in your own words, each capital budgeting method.
Answered 4 days AfterFeb 22, 2022

Answer To: UNIT 4 ASSIGNMENT Please complete this assignment using MS Word, typing your first and last name on...

Prince answered on Feb 26 2022
120 Votes
UNIT 4 ASSIGNMENT
QUESTION I
ABC Corp management has decided that the required rate of return for the company should be 8%. Total assets on the December 31, 2019 ABC Corp balance sheet are $500,000. If ABC’s Ne
t Income for 2019 is $40,000, has the company met the required return of 8%? Use “residual income” to determine your answer.
Answer 1 – Residual Income refers to the Operating income earned over the required return.
Required Return = 8% of Assets = 8% * $500,000 = $40,000
Net Income of ABC Corp = $40,000
Residual Income = $40,000 - $40,000 = $0
Since, Residual Income is equal to Required return, Company has met the required return of 8%
QUESTION II
A. If the bank requires that a corporation keep the debt to total assets ratio at 45% maximum, determine the capital structure (in dollars of debt and equity) of a company that has total assets of $2,000,000.
Answer – Total Asset of the Company = $2,000,000
Required Debt to Total assets ratio is 45% ie Debt is 45% of Total Assets.
Debt = 45% * $2,000,000 = $900,000
Thus, Equity = Total Assets – Debt = $2,000,000 - $900,000 = $1,100,000
Thus, Capital Structure of Company is as follows:
Debt = $900,000
Equity = $1,100,000
B. Why is a lower level of debt, in a corporation’s capital structure, considered a conservative financial structure?
Answer: Debt is a financial burden on the company which company needs to pay back to the debt holder in the stipulated time period along with the fixed interest rate. Higher debt level can result insolvency to the company. Thus, a lower level of debt, in a corporation’s capital structure, considered a conservative financial structure.
QUESTION III
A. Briefly explain how EVA differs from “residual income” with regards to financial analysis. Write no more than one brief, clear sentence. Be specific!
Answer – The main difference between the Economic Value Added and the residual income is tax consideration, Residual Income is calculated on the operating income ie the income before tax whereas the EVA is calculated on Profit after tax.
B. Calculate EVA for AA Corp, considering that its Total Debt is $350,000 and Total Shareholders’...
SOLUTION.PDF

Answer To This Question Is Available To Download