Question

9.   Custom Tailored Shirts is a specialty retailer offering T-shirts, sweatshirts, and caps. Its most recent annual sales consisted of $21,000 of T-shirts, $18,000 of sweatshirts, and $2,900 of caps. The company is adding polo shirts to the lineup and projects that this addition will result in sales next year of $18,000 of T-shirts, $16,000 of sweatshirts, $11,500 of Polo shirts, and $2,100 of caps. What sales amount should be used when evaluating the Polo shirt project?

10.   British Metals is reviewing its current accounts to determine how a proposed project might affect the account balances. The firm estimates the project will initially require $81,000 in additional current assets and $57,000 in additional current liabilities. The firm also estimates the project will require an additional $9,000 a year in current assets in each of the first three of the four years of the project. How much net working capital will the firm recoup at the end of the project assuming that all net working capital can be recaptured?

11.   Rock Haven has a proposed project that will generate sales of 1,840 units annually at a selling price of $31 each. The fixed costs are $13,400 and the variable costs per unit are $7.47. The project requires $32,000 of fixed assets that will be depreciated on a straight-line basis to a zero book value over the four-year life of the project. The salvage value of the fixed assets is $9,500 and the tax rate is 25 percent. What is the operating cash flow for Year 4?

Answer 1

polo shirts, the sales were o Without adding as follows T shirts $21,000 Sweatshirts $ 18,000 Caps $2,900 After adding polo shirts, the sales will be as follows T shirts $ 18,000 Sweatshirts $ 16,000 Polo shirts $11,500 caps $2,100 Decrease in sale of Tshists = $21,000-$18,000 : $3,000 Decrease in sale of sweatshirts = $18,000 - $16,000 - $2,000 Decrease in sale of caps = $2,900 - $2,100 = $800 sales amount which should be used when evaluating Polo shiot project 2) polo shirts sale / Decrease in sale of Tshirts & Decrease = in sale of Sweatshirts + Decrease in sale of caps]

= $ 11,500 - $3,000 + $2,000+ $800] 3 $11,500 – $5,800 = $5,700 Answer In the beginning og project >> Additional current assets - $81,000 Additional current liabilities = $57,000 Net working capital > Current Asset - Current liability = $ 81,000 - $57,000. a $24,000 Project will require $9,000 per year as wooking capital for 3 years. so, Annual Net wooking capital = $9,000 83 = $27,000 Total networking capital employed in project will be recovered at the end of project. so, Recovery of Net worting Capital = $24,000 +$27,000 = $51,000 0 AS

Annual salen 1,840 units sale price per unit - $31 Variable cost per unit - $7.457 Annual Fixed wst - $13,400 Project requires fixed cost of $32,000 which will be depreciated straight line to zero over 4 years. So, Depreciation - $32,000 u - $8,000 Tax Rate = 25% or 0.25 = = = Operating cash How in yeary Q (s-v) - FC] (1- Tax) + fpep x Tax] Here, Q= No. of units s= sale price per unit Ve variable cost per unit FC= Annual fixed cost Dep: Depreciation - [1,40 ($31- $7.47) – $ 13,40o] (1-0.25) +($8,000X0-25)

= [1,8५० ( 4 23.53) - 413,५००] (0.75) + $३,००० __ = 4 43,३१5.२०- 4 13,५००7 (0.75) + $ २,००० - ( ३१,8१६.२०) (0.75) + ३००० २२,५२१.५० + ३,००० - २५,५३1.40 bruter