Answer:
1. The return on investment is 20%
2. The total is $40,000
Explanation:
1. The formula for Return on Investment is defined as Net income from the Investment divided by the investment amount.
The net income mentioned in the question is the after-tax profit of $20,000.
The total amount Amelia invested in Goodies Gift Shop is reflected as owner's equity at $100,000 in the balance sheet for Year 2.
Using the formula: Return on Investment = 20,000/100,000 = 20%
2. We can calculate the projected pre-tax profit as follows: Projected margin minus total overhead = 250K - 200K = $50,000
Thus, the after-tax profit is computed as pre-tax profit multiplied by (1 minus tax rate) = 50K x (1-20%) = $40,000
The answer is "People-Oriented Leadership".
This type of leadership involves a leader who initiates and recognizes that communication between team members is crucial for fostering effective teamwork. Nevin sees social interactions as a means to create unity and encourage a collaborative environment that facilitates goal achievement.
a. Determine the initial investment tied to replacing the current grinder with the new one.
Initial investment = cost of the new grinder + installation costs of the new grinder - after-tax revenue from selling the old grinder + increase in net working capital.
Cost of the new grinder = $105,000.
Cost to install the new grinder = $5,000.
After-tax revenue from the old grinder = $70,000 - ($70,000 - {$60,000 x (1 - 52%)] x 40%} = $70,000 - $16,480 = $53,520.
Increase in net working capital = $40,000 + $30,000 - $58,000 = $12,000.
Thus, initial investment = $105,000 + $5,000 - $53,520 + $12,000 = $68,480.
b. Assess the incremental operating cash inflows related to the new grinder installation. (Remember to factor in depreciation in year 6.)
New grinder cash flows:
Year 1 = [($43,000 - $22,000) x (1 - 40%)] + $22,000 = $34,600.
Year 2 = [($43,000 - $35,200) x (1 - 40%)] + $35,200 = $39,880.
Year 3 = [($43,000 - $21,120) x (1 - 40%)] + $21,120 = $34,248.
Year 4 = [($43,000 - $12,672) x (1 - 40%)] + $12,672 = $30,868.80.
Year 5 = [($43,000 - $12,672) x (1 - 40%)] + $12,672 + $18,000 (NWC) + $19,934.40 (after-tax salvage value) = $68,803.20.
Old grinder cash flows:
Year 1 = [($26,000 - $11,520) x (1 - 40%)] + $11,520 = $20,208.
Year 2 = [($24,000 - $6,912) x (1 - 40%)] + $6,912 = $15,964.80.
Year 3 = [($22,000 - $6,912) x (1 - 40%)] + $6,912 = $15,964.80.
Year 4 = [($20,000 - $3,456) x (1 - 40%)] + $3,456 = $13,382.40.
Year 5 = $18,000 x (1 - 40%) = $10,800.
Incremental cash flows:
Year 1 = $34,600 - $20,208 = $14,392.
Year 2 = $39,880 - $15,964.80 = $23,915.20.
Year 3 = $34,248 - $15,964.80 = $18,283.20.
Year 4 = $30,868.80 - $13,382.40 = $17,486.40.
Year 5 = $68,803.20 - $10,800 = $58,003.20.
c. Determine the expected terminal cash flow at the end of year 5 from the grinder replacement.
Terminal cash flow = regaining net working capital + after-tax salvage value = $18,000 + $19,934.40 = $37,934.40.
d. Show a timeline displaying the relevant cash flows for the proposed grinder replacement decision.
Year 0 = -$68,480.
Year 1 = $34,600.
Year 2 = $39,880.
Year 3 = $34,248.
Year 4 = $30,868.80.
Year 5 = $68,803.20.
To work this out, we have to reverse the steps:
After the July discount of 50%, the price of the jeans is $25.50
Thus, the original price before this discount was 2 * $22.50 = $45
In June, the cost was decreased by 25%.
45 ------------------75%
x --------------------100 %
45: x = 75: 100
45 * 100 = 75 x
4,500 = 75 x
x = 4,500: 75
x = $60
Finally, in May the jeans were priced at 250% of their wholesale cost.
60 ----------------- 250%
x -------------------100 %
60: x = 250: 100
6,000 = 250x
x = 6,000: 250
x = $24
Conclusion: The wholesale cost of the jeans was $24.
