Assignment 2 is made up of seven questions. Read the requirements for each question thoroughly

Assignment
2

Assignment 2 is made up of seven questions. Read
the requirements for each question thoroughly, and plan your responses
carefully. Ensure that you answer each of the required components as concisely
and completely as possible. If supporting calculations are required, present
them in good form.

Case 1 10 marks

Case 1.
Two businesses, Web Services and PC Providers, have sought business loans from
you. To decide whether to make the loans, you have requested their balance
sheets.
Evaluating
business operations; using financial statements

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Required
1. Using
only these balance sheets, to which entity would you be more comfortable
lending money? Explain fully, citing specific items and amounts from the
respective balance sheets.
2. Is
there other financial information you would consider before making your
decision? Be specific.

C10-37 15 marks

C10-37 Use
cash flow data to evaluate potential investments
Your
company has some excess cash and would like to invest it in the stock of
another company. You investigate several different stocks and are trying to
decide which stock would be the best investment for your company. One factor
you investigate is each company’s cash flow. The summaries of the cash flow
statements for your three top stock choices follow:
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Although
you will look at many other criteria in your stock purchase recommendation,
what can you tell about each of the three companies listed? Based solely on
cash flow, which stock appears to be better?

C11-44 15 marks

C11-44 Investment
recommendation
Take the
role of an investment analyst at Prudential Bache. It is your job to recommend
investments for your clients. The only information you have are some ratio
values for two companies in the pharmaceuticals industry.
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Write a report to Prudential Bache’s investment
committee. Recommend on of the company’s stock over the other. State the
reasons for your recommendation.

C12-72 15 marks

C12-72. Prepare
cash budgets under two alternatives
Each
autumn, as a hobby, Suzanne De Angelo weaves cotton placemats to sell at a
local crafts shop. The mats sell for $20 per set of four. The shop charges a
10% commission and remits the net proceeds to De Angelo at the end of December.
De Angelo has woven and sold 25 sets each of the last two years. She has enough
cotton in inventory to make another 25 sets. She paid $7 per set for the
cotton. De Angelo uses a four-harness loom that she purchased for cash exactly
two years ago. It is depreciated at the rate of $10 per month. The accounts
payable relate to the cotton inventory and are payable by September 30.
De Angelo
is considering buying an eight-harness loom so that she can weave more
intricate patterns in linen. The new loom costs $1,000; it would be depreciated
at $20 per month. Her bank has agreed to lend her $1,000 at 18% interest, with
$200 principal plus accrued interest payable each December 31. De Angelo
believes she can weave 15 linen placemat sets in time for the Christmas rush if
she does not weave any cotton mats. She predicts that each linen set will sell
for $50. Linen costs $18 per set. De Angelo’s supplier will sell her linen on
credit, payable December 31.
De Angelo
plans to keep her old loom whether or not she buys the new loom. The balance
sheet for her weaving business at August 31 is as follows:
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Requirements
1. Prepare
a combined cash budget for the four months ending December 31, for two
alternatives: weaving the placemats in cotton using the existing loom and
weaving the placemats in linen using the new loom. For each alternative,
prepare a budgeted income statement for the four months ending December 31, and
a budgeted balance sheet at December 31.
2. On
the basis of financial considerations only, what should De Angelo do? Give your
reason.
3. What
nonfinancial factors might De Angelo consider in her decision?

C13-77 15 marks

C13-77. Calculate
efficiency variances
Assume
that you manage your local Marble Slab Creamery ice cream parlour. In addition
to selling ice cream cones, you make large batches of a few flavours of milk
shakes to sell throughout the day. Your parlour is chosen to test the company’s
“Made-for-You” system. The system allows patrons to customize their milk shakes
by choosing different flavours.
Customers
like the new system and your staff appears to be adapting, but you wonder
whether this new made-to-order system is as efficient as the old system where
you made just a few large batches. Efficiency is a special concern because your
performance is evaluated in part on the restaurant’s efficient use of materials
and labour. Assume that your superiors consider that efficiency variances
greater than 5% are unacceptable.
You
decide to look at your sales for a typical day. You find that the parlour used
390 kilograms of ice cream and 72 hours of direct labour to produce and sell
2,000 shakes. Assume that the standard quantity allowed for a shake is 0.2 kg
of ice cream and 0.03 hours (1.8 minutes) of direct labour. Further, assume
that standard costs are $1.50 per kilogram for ice cream and $8.00 an hour for
labour.
Requirements
1. Compute
the efficiency variances for direct labour and direct materials.
2. Provide
likely explanations for the variances. Do you have reason to be concerned about
your performance evaluation? Explain.

3. Write
a memo to Marble Slab Creamery’s national office explaining your concern and
suggesting a remedy.

C14-64 15 marks

C14-64. Apply
time value of money to a personal decision
Samer
Almasri, a second-year business student at the University of Ottawa, will
graduate in two years with an accounting major and a Spanish minor. Almasri is
trying to decide where to work this summer. He has two choices: work full-time
for a bottling plant or work part-time in the accounting department of a
meat-packing plant. He probably will work at the same place next summer as
well. He is able to work 12 weeks during the summer.
The
bottling plant would pay Almasri $600 per week this year and 7% more next
summer. At the meat-packing plant, he would work 20 hours per week at $10.00
per hour. By working only part-time, he would take two accounting courses this
summer. Tuition is $225 per hour for each of the four-hour courses. Almasri
believes that the experience he gains this summer will qualify him for a
full-time accounting position with the meat-packing plant next summer. That
position will pay $750 per week.
Almasri
sees two additional benefits of working part-time this summer. First, he could
reduce his studying workload during the fall and spring semesters by one course
each term. Second, he would have the time to work as a grader in the
university’s accounting department during the 15-week fall term. Grading pays
$50 per week.
Requirements
1. Suppose
that Almasri ignores the time value of money in decisions that cover this time
period because it is so short. Suppose also that his sole goal is to make as
much money as possible between now and the end of next summer. What should he
do? What non-quantitative factors might Samer consider? What would you do if
you were faced with these alternatives?
2. Now,
suppose that Almasri considers the time value of money for all cash flows that
he expects to receive one year more in the future. Which alternative does this
consideration favour? Why?

C15-45 15 marks

C15-45 Collect
and analyze division data
Colgate-Palmolive
operates two product segments. Using the company’s website, locate segment
information for 2008 in the company’s 2008 annual report. (Hint: Look
under investor relations.) Then, look in the financial statement footnotes.
Requirements
1. What
are the two segments (ignore geographical subsets of the one product segment)?
Gather data about each segment’s net sales, operating income, and identifiable
assets.
2. Calculate
ROI for each segment.
3. Which
segment has the highest ROI? Explain why.
4. If
you were on the top management team and could allocate extra funds to only one
division, which division would you choose? Why?