Answer:
Mary must submit official paperwork related to the merger or name change to the DSO, ensuring her records are updated.
Explanation:
Since the firm has merged and changed its name from XYZ Corporation to ABCXYZ Inc, Mary needs to draft a formal notification to her DSO regarding this change and the merger.
The DSO will then amend her records with the University of the Cumberlands.
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.
a) The finance charge totals $1,100. b) The APR stands at 9.75%. The amount needing to be financed comes to 11,000 - 4,000 = $7,000, while the total repayment equals 225 x 36 = $8,100. Thus, the finance charge is derived from the total repayment minus the financed amount, yielding $1,100. For part b), we apply the present value formula for annuities to determine the monthly interest rate i: Amount needing financing = (monthly installment x i) / [1 - (1+i)^-36], equating to 7,000 = (225/i) x [1 - (1+i)^-36], giving us i = 0.811%, which translates to APR = 12 x i = 9.732%.
