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Evaluation Results
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Author: Beverly Bambury
Date Evaluated: 07/13/2014 09:17:52 PM (MDT)
DRF template: FNT1: Business Applications for Finance, Accounting, and IT (V1 UNDERGRAD0208)
Program: FNT1: Bus Apps for Fin Acc & IT(V1 UNDERGRAD0208)PA
Evaluation Method: Using Rubric
Evaluation Summary for Bus. Appl. for Fin., Acc. & IT: 319.1.204, 2.10103 (2008)
Final Score: 2.00 (out of 4)
Overall comments: Please confer with a course mentor before working further on this assessment.
The work within the template and discussions in the memorandum are noted. There
are calculations within the horizontal analyses and ratio analysis that require
revision as noted in aspects A, B, and C. Ratio indications and Industry comparisons
in aspects D1, D2, and D3 also require review.
Please note, study links may also be copied and pasted into a new internet browser
window. As always, please use the ECare Support Request Form at the top of the
evaluation report to contact the WGU ECare Team for questions or support.
Detailed Results (Rubric used: FNT1 319.1.204, 2.10103)
Articulation of Response (clarity, organization, word usage, ease of understandability)
(1) Unacceptable
(2) Needs Revision
(3) Meets Standard
(4) Exemplary
There is no evidence of
response to the prompts.
The articulation of the
response is weak.
The articulation of the
response is adequate.
The articulation of the
response is skillful.
Criterion Score: 3.00
Accuracy of Mechanics (grammar, punctuation, spelling)
(1) Unacceptable
(2) Needs Revision
(3) Meets Standard
(4) Exemplary
The work includes several
major errors that disrupt the
meaning or flow of the
response.
The work includes a few major
errors and/or many minor
errors that interfere with the
clarity of the response.
The work includes a few minor
errors but no readily
detectable major errors.
The work includes no readily
detectable major or minor
errors.
Printed on: 07/14/2014 05:53:01 PM (EST)
Criterion Score: 3.00
A. Ratio Calculations
(1) Unacceptable
(2) Needs Revision
(3) Meets Standard
(4) Exemplary
The candidate accurately
calculates 0–8 of the indicated
ratios for Year 11.
The candidate accurately
calculates 912 of the
indicated ratios for Year 11.
Not applicable.
The candidate accurately
calculates all 13 of the
indicated ratios for Year 11.
Criterion Score: 1.00
Comments on this criterion: The 13 ratio calculations are incorrect. Providing the detailed calculations within the
spreadsheet may allow for more specific feedback.
For instruction on calculating the thirteen indicated ratios for Year 12, please revisit the section entitled Completing the
Performance Tasks in the FNT1 Course of Study by following this link:
https://cos.wgu.edu/student/course/27661/activity/71822. Chapters 11, 12, and 14 in MyAccountingLab may be
particularly helpful.
B. Horizontal Analysis of Income Statements
(1) Unacceptable
(2) Needs Revision
(3) Meets Standard
(4) Exemplary
The candidate does not
complete a horizontal analysis
of the income statements
using the attached
spreadsheet.
The candidate completes a
horizontal analysis of the
income statements using the
attached spreadsheet with
more than 2 errors.
The candidate completes a
horizontal analysis of the
income statements using the
attached spreadsheet with 1–2
errors.
The candidate completes a
horizontal analysis of the
income statements using the
attached spreadsheet with no
errors.
Criterion Score: 2.00
Comments on this criterion: Several of the calculations are correct. Please review the following:
Net sales %Inc(Dec)
Preopening %Inc(Dec) calculation and direction of Change
Interest, net direction of change for Change and %Inc(Dec)
Earnings before taxes %Inc(Dec) calculation
Provision for income taxes please review rounding for %Inc(Dec) calculation
Net earnings please review rounding for %Inc(Dec) calculation
For instruction on completing a horizontal analysis of the income statements, please revisit the section entitled
Completing the Performance Tasks in the FNT1 Course of Study by following this link:
https://cos.wgu.edu/student/course/27661/activity/71822. Chapters 11, 12, and 14 in MyAccountingLab may be
particularly helpful.
C. Horizontal Analysis of Balance Sheets
(1) Unacceptable
(2) Needs Revision
(3) Meets Standard
(4) Exemplary
The candidate does not
complete a horizontal analysis
of the balance sheets using
the attached spreadsheet.
The candidate completes a
horizontal analysis of the
balance sheets using the
attached spreadsheet with
more than 2 errors.
The candidate completes a
horizontal analysis of the
balance sheets using the
attached spreadsheet with 1–2
errors.
The candidate completes a
horizontal analysis of the
balance sheets using the
attached spreadsheet with no
errors.
Criterion Score: 2.00
Comments on this criterion: While much of the analysis is correct, please review the following responses:
Cash and cash equivalents %Inc(Dec)
Accounts receivable net direction of change for %Inc(Dec)
Printed on: 07/14/2014 05:53:01 PM (EST)
Other current assets rounding for %Inc(Dec)
Sales and income taxes payable %Inc(Dec) calculation and the direction of change for both Change and %Inc(Dec)
Total liabilities and equity %Inc(Dec) calculation
For instruction on completing a horizontal analysis of the balance sheets, please revisit the section entitled Completing
the Performance Tasks in the FNT1 Course of Study by following this link:
https://cos.wgu.edu/student/course/27661/activity/71822. Chapters 11, 12, and 14 in MyAccountingLab may be
particularly helpful.
D1. Indications
(1) Unacceptable
(2) Needs Revision
(3) Meets Standard
(4) Exemplary
The candidate provides a
logical explanation for 0–8 of
the ratios and trends whether
the ratio or trend indicates a
strength, weakness, or
satisfactory condition.
The candidate provides a
logical explanation for 912 of
the ratios and trends whether
the ratio or trend indicates a
strength, weakness, or
satisfactory condition.
Not applicable.
The candidate provides a
logical explanation for all 13 o f
the ratios and trends whether
the ratio or trend indicates a
strength, weakness, or
satisfactory condition.
Criterion Score: 1.00
Comments on this criterion: The strength indications for Earnings per share and Book value per share are correct. The
strength indications for Current ratio, Acid test ratio, and Price earnings ratio are incorrect. A clear indication (strength,
weakness, and no concern) cannot be located for the remaining 8 ratios.
For instruction on explaining whether each ratio or trend indicates a strength of the company; a likely weakness, threat,
or emerging problem; or a satisfactory condition that management should not view as a strength or weakness, please
revisit the section entitled Completing the Performance Tasks in the FNT1 Course of Study by following this link:
https://cos.wgu.edu/student/course/27661/activity/71822. Chapters 11, 12, and 14 in MyAccountingLab may be
particularly helpful.
D2. Justification
(1) Unacceptable
(2) Needs Revision
(3) Meets Standard
(4) Exemplary
The candidate provides
appropriate justification for the
identification of 0–8 of the
ratios and trends as strengths,
weaknesses, or satisfactory
conditions.
The candidate provides
appropriate justification for the
identification of 912 of the
ratios and trends as strengths,
weaknesses, or satisfactory
conditions.
Not applicable.
The candidate provides
appropriate justification for the
identification of all 13 of the
ratios and trends as strengths,
weaknesses, or satisfactory
conditions.
Criterion Score: 1.00
Comments on this criterion: The discussions with the memorandum are noted; however, additional information is
needed to meet task requirements. Please expand each justification to reflect accurate calculations as noted in aspect A,
corrected indications noted in aspect D1, and to also include annual trend analyses and explanations of why the
company's current performance in each area supports the indication.
For instruction on providing justification for the identification of the ratios and trends as strengths, weaknesses, or
satisfactory conditions, please revisit the section entitled Completing the Performance Tasks in the FNT1 Course of
Study by following this link: https://cos.wgu.edu/student/course/27661/activity/71822. Chapters 11, 12, and 14 in
MyAccountingLab may be particularly helpful.
D3. Industry Comparison
(1) Unacceptable
(2) Needs Revision
(3) Meets Standard
(4) Exemplary
The candidate does not
evaluate company ratios and
trends against ratios and
trends for the home center
industry.
The candidate provides an
illogical evaluation of company
ratios and trends against
available ratios and trends for
the home center industry.
The candidate provides a
logical evaluation of company
ratios and trends against
available ratios and trends for
the home center industry.
The candidate provides a
credible and wellsupported
evaluation of company ratios
and trends against available
ratios and trends for the home
center industry.
Criterion Score: 1.00
Printed on: 07/14/2014 05:53:01 PM (EST)
Comments on this criterion: Industry comparisons for each ratio cannot be located within the memorandum. The revised
ratio calculations should be included when expanding the memorandum to include industry comparisons.
For instruction on evaluating company ratios and trends against available ratios and trends for the home center industry,
please revisit the section entitled Completing the Performance Tasks in the FNT1 Course of Study by following this link:
https://cos.wgu.edu/student/course/27661/activity/71822. Chapters 11, 12, and 14 in MyAccountingLab may be
particularly helpful.
E. Sources
(1) Unacceptable
(2) Needs Revision
(3) Meets Standard
(4) Exemplary
If the candidate uses sources,
the candidate does not provide
intext citations and/or
references for each source
used.
If the candidate uses sources,
the candidate provides
appropriate intext citations
and/or references with major
deviations from APA style.
If the candidate uses sources,
the candidate provides
appropriate intext citations
and/or references with minor
deviations from APA style.
If the candidate uses sources,
the candidate provides
appropriate intext citations
and/or references with no
readily detectable deviations
from APA style, OR the
candidate does not use
sources.
(1) Unacceptable
(2) Needs Revision
(3) Meets Standard
(4) Exemplary
Unacceptable
Needs Revision
Meets Standard
Exemplary
Criterion Score: 4.00
Overall Holistic
Criterion Score: 2.00
Comments on this criterion: Requires revision
Printed on: 07/14/2014 05:53:01 PM (EST)
MEMORANDUM
To: CEO G COMPANY
From: Chief Accounting officer
Date: 03 July 2014
Subject: Financial Analysis and recommendations
Our finance team did a thorough accounting and finance audit and made the below findings. The report is
based on the thirteen account ratios that show company trends and the ratios are benchmarked against the
previous year.
Current Ratio
This liquidity ratio shows the firm’s ability to settle current liabilities. G Company is in a good position to
settle current liabilities it has a current ratio of more than one. The ratio has also improved from 1.86 in in
the previous fiscal year (FY) to 1.96 in the current FY. This indicates growing strength in the company.
Acid Test Ratio
In addition, this liquidity analysis ratio indicates the firm’s ability settle current financial obligations in
the corporate financing. G Company has attained a fair Acid Test ratio of 0.67, which shows the slight
improvement from the previous FY. This indicates a growing strength in the financial liquidity
management; however, this should be improved to at least one.
Inventory Turnover Ratio
Inventory turnover ratio is also an important ratio in evaluating the stock in the management in the
company. A low inventory turnover points to possible obsolescence, overstocking, or deficiencies in the
product line and marketing efforts. Increasing the inventory turnover is key in driving profitability in the
company. G Company has a fair inventory ratio of 5.1 in the current FY; however, this indicates a fall
from the previous year. The company should strive to better this ratio by adopting business best practices
in the marketing effort to increase the stock turnover ratio.
Accounts Receivable Turnover
This is an activity or efficiency that shows how the company turns account receivables to cash. This ratio
measures the effectiveness of the company in collecting accounts receivable. G Company should work on
this area for better cash management. The ratio reduced from 32.2 in the previous FY to 27.3 in current
FY, which indicates a decrease in accounts receivables collection.
Day’s Sales in Receivables
This efficiency or activity ratio that shows G Company's effectiveness in collecting accounts receivable
on a daily basis. This ratio increased from 11.1 in previous FY to 13.0 in current FY. This shows some
effectiveness in the collecting accounts receivables. However, the company should work to increase this
ratio to improve the financial future of the company.
Debt Ratio
Debt ratio is an important ratio in determining the financial leverage of the company. G Company has an
impressive debt ratio of 29.94, which shows a big level of financial stability. However, the ratio had a
slight increase in the current FY; thus, the management should work on maintaining this ratio.
Time Interest Earned Ratio
This is an important metric used to measure the company’s ability to meet debt obligations. The interest
payable to debt holders depends on the ability of the company to sustain earnings. A high ratio indicates
that a company has an undesirable lack of debt with earnings that could be used for other projects. G
Company's ratio has increased tremendously and the company could cut on debt payment to finance
investment projects.
Rate of Return on Net Sales
This profitability ratio shows what the return is on the net sales of the company. This shows the
company's efficiency. G Company's ratio has increased from 5.43% to 9.94% showing increase in how
efficiently the company runs; however, there is room for improvement here--a better ration would mean
better profitability.
Rate of Return on Total Assets
In addition, this profitability ratio shows the productivity of total assets in the corporate. A higher ratio
shows a higher efficiency in asset utilization in company. Company G has a low return on asset ratio of
9.94%; this is a decrease from the previous year where the company recorded a ratio of 12.30%.
Therefore, there is underutilization of net assets in the G Company. The management of the company
should strive effectively to utilize the asset available at G Company.
Rate of Return on Common Stockholders’ Equity
In addition, this efficiency ratio examines the returns to the common stockholders. A higher ratio
indicates better efficiency in the company. G company has attained a ratio of 11.62, which is a decrease
from the previous year where the company had a ratio of 20.20%. This shows a big decline in the ratio.
The company should therefore try to increase the productivity of the company to increase the
shareholders' wealth.
Earnings per Share of Common Stock.
This is one of the most important variables in determining the price of the shares. A higher ratio indicates
greater efficiency in the production of the company. G company has experienced an increase in this ratio,
which indicates strength in the company. If this trend persists, it will bring more investors on board and
will improve the future welfare of G Company.
Price Earnings Ratio
This ratio is important in stock valuation: stocks with higher ratio forecasts earnings growth. A higher
ratio indicates strength in the company. G Company experienced tremendous growth in this area.
Book Value per Share of Common Stock.
G Company also experienced slight growth in this ratio. That is from $4.25 to $4.716, which indicates a
growing strength in the company.
Conclusion
G Company has to keenly evaluate the analysis. Responding to each ratio will greatly improve the
efficiency in the company; however, priorities must also be in line with all G Company goals. Ultimately
these efforts will greatly increase the net worth of the company, and will be in line with the goal of
increasing shareholder wealth.
FNT1 Task 1 319.1.2-01-10, 2.1-01-03
Financial Statement Analysis Student Template
Revised April 12, 2011
B
Bambury
First Initial
Last Name
Select your first initial from the drop down menu and enter your last name in the field above.
Student Name:
Company G
Comparative Income Statements
December 31, Years 12 and 11
NET SALES
Cost of Merchandise Sold
GROSS PROFIT
Operating Expenses:
Selling and Store Operating
Pre-Opening
General and Administrative
Total Operating Expenses
OPERATING INCOME
Interest Income (Expense):
Interest Income
Less: Interest Expense
Interest, net
EARNINGS BEFORE INCOME TAXES
Provision for Income Taxes
NET EARNINGS
Horizontal Analysis
Change
% Inc (Dec)
11.178.375
903,00%
6.543.803
7,57%
4.634.573
12,43%
Year 12
134.886.375
92.952.803
41.933.573
Year 11
123.708.000
86.409.000
37.299.000
25.827.000
222000
2.316.000
28.365.000
13.568.573
23.478.000
267000
2.163.000
25.908.000
11.391.000
2.349.000
45.000
153.000
2.457.000
2.177.573
10,01%
20,27%
7,07%
9,48%
19,12%
183000
384000
-201000
13.367.573
117000
366000
-249000
11.142.000
66.000
18.000
-48.000
2.225.573
56,41%
4,92%
-19,27%
1997,00%
5.052.000
8.315.573
4.419.000
6.723.000
663.000
1.592.573
15,00%
23,67%
Company G
Comparative Balance Sheets
December 31, Years 12 and 11
Year 12
ASSETS
Current Assets:
Cash and Cash Equivalents
Short-Term Investments
Accounts Receivable, net
Merchandise Inventory
Other Current Assets
Total Current Assets
Property and Equipment, at cost:
Land
Buildings
Furniture, Fixtures and Equipment
Less Accumulated Depreciation
Net Property and Equipment
TOTAL ASSETS
LIABILITIES
Current Liabilities:
Accounts and Notes Payable
Accrued Salaries and Related Expense
Sales and Income Taxes Payable
Other Accrued Expenses
Total Current Liabilities
Long-Term Liabilities:
Notes Payable
Other Long-Term Liabilities
Total Long-Term Liabilities
Year 11
4.050.000
36.000
2.638.000
20.503.000
688000
27.915.000
5.562.000
162.000
2.686.000
15.534.000
393000
24.337.000
1.512.000
-126.000
-48.000
4.969.000
295.000
3.578.000
37,33%
-77,78%
1,79%
31,99%
75,00%
14,70%
12.843.000
24.933.000
9.411.000
47.187.000
8.235.000
38.952.000
66.867.000
11.484.000
21.939.000
7.860.000
41.283.000
6.360.000
34.923.000
59.260.000
1.359.000
2.994.000
1.551.000
5.904.000
1.875.000
4.029.000
7.607.000
11,83%
13,65%
19,73%
14,30%
29,48%
11,54%
12,84%
9.800.000
1.869.000
1.233.000
2.619.000
15.521.000
7.938.000
1.656.000
1.290.000
2.166.000
13.050.000
1.862.000
213.000
57.000
453.000
2.471.000
23,46%
12,86%
4,62%
20,91%
18,93%
3.051.000
1.134.000
4.185.000
2.889.000
858000
3747000
162.000
276.000
438.000
5,61%
32,17%
11,69%
Total Liabilities
STOCKHOLDERS' EQUITY:
Common Stock ($1.00 Par)
Paid In Capital
Retained Earnings
Treasury Stock (2,000,000 shares, at cost)
Total Stockholders' Equity
TOTAL LIABILITIES and EQUITY
19.706.000
16.797.000
2.909.000
17,32%
10.000.000
13.530.000
28.251.000
-4.620.000
47.161.000
66.867.000
10.000.000
12.501.000
19.962.000
0
42.463.000
59.260.000
0
1.029.000
8.289.000
-4.620.000
4.698.000
7.606.000
0,00%
8,23%
41,52%
0
11,06%
1284,00%
Below data is used for drop down box.
DO NOT REMOVE.
Select Option:
Strength
Weakness
No Concern
A
B
C
D
E
F
G
H
I
J
K
L
M
N
O
P
Q
R
S
T
U
V
W
X
Y
Z
he field above.
The below rules are from Financial Accounting Principles , Wild, 18th ed.
This column is not
graded. It is
provided for
students to use as
they analyze the
ratios for the
essay.
↑↑↑
Apply the above mathematics rules to your work in this task. Enter --- in the answer
field when appropriate.
Ratio Analysis:
Company G
Year 12
Year 11
Quartile
Industry
Data
Ratio:
3,1
Select Strength,
Weakness, or
No Concern
1,93
1,86
Acid-Test Ratio
0,67
0,64
1,6
0,9
0,6
5,1
6,1
13
10,2
8,3
Weakness
32,2
35,2
33,5
31,4
Weakness
11,1
15,1
13,5
11,3
Weakness
28,34%
30,0%
45,0%
66,0%
Weakness
31,12
29,7
17,2
8,1
Weakness
Inventory Turnover
Accounts Receivable Turnover
27,3
(This formula in Horngren only includes credit sales)
Day's Sales in receivables
13,0
(Horngren reference includes all sales. Modify the formula
to use only credit sales. Cash sales are already collected.)
Debt Ratio
Times-interest-earned ratio
29,94%
67,50
2,1
1,4
Strength
Current Ratio
Rate of return on net sales
9,94%
5,43%
7,55%
6,12%
4,20%
Rate of return on total assets
9,94%
12,30%
17,20%
12,30%
8,60%
Strength
Strength
Weakness
Rate of return on common
stockholder's equity
11,62%
20,20%
18,60%
16,30%
12,80%
Weakness
Earnings per share of
common stock
0,3695
$0,672
0,9
0,87
0,83
Weakness
Price earnings ratio
15,557
$5,21
7
6,3
5,5
Strength
4,716
$4,25
6
5,5
4,9
Strength
Book value per share of
common stock
Evaluation Results
Do you have a question or need support?
Use the ECare form to contact the WGU ECare Team for questions or support.
ECare Support Request Form
CLICK HERE TO PROVIDE FEEDBACK ABOUT THIS ASSESSMENT
Author: Beverly Bambury
Date Evaluated: 07/13/2014 09:58:00 PM (MDT)
DRF template: FNT1: Business Applications for Finance, Accounting, and IT (V1 UNDERGRAD0208)
Program: FNT1: Bus Apps for Fin Acc & IT(V1 UNDERGRAD0208)PA
Evaluation Method: Using Rubric
Evaluation Summary for Bus. Appl. for Fin., Acc. & IT: 319.1.30110, 2.104, 2.505 (2008)
Final Score: 2.25 (out of 4)
Overall comments: While the work in the template is noted and some of the discussions are logical, the
annual net cash flows are incorrect and are affecting other calculations within the
template. The calculations in aspects A1, A2, A3, A4, and A5 require revision.
Additional review of the discussions in aspects B1a, B2a, B3a, B4, and B5 is also
needed. Please also note that the written components are to be included in a
computerbased presentation rather than a memorandum.
Please note, study links may also be copied and pasted into a new internet browser
window. As always, please use the ECare Support Request Form at the top of the
evaluation report to contact the WGU ECare Team for questions or support.
Detailed Results (Rubric used: FNT1 319.1.30110, 2.104, 2.505)
Articulation of Response (clarity, organization, word usage, ease of understandability)
(1) Unacceptable
(2) Needs Revision
(3) Meets Standard
(4) Exemplary
There is no evidence of
response to the prompts.
The articulation of the
response is weak.
The articulation of the
response is adequate.
The articulation of the
response is skillful.
Criterion Score: 3.00
Accuracy of Mechanics (grammar, punctuation, spelling)
(1) Unacceptable
(2) Needs Revision
(3) Meets Standard
(4) Exemplary
The work includes several
major errors that disrupt the
meaning or flow of the
response.
The work includes a few major
errors and/or many minor
errors that interfere with the
clarity of the response.
The work includes a few minor
errors but no readily
detectable major errors.
The work includes no readily
detectable major or minor
errors.
Printed on: 07/14/2014 05:56:41 PM (EST)
Criterion Score: 3.00
A1. Net Cash Flow
(1) Unacceptable
(2) Needs Revision
(3) Meets Standard
(4) Exemplary
The candidate does not
accurately calculate the net
cash flow that should be used
for each year in the discounted
cash flow analysis.
Not applicable.
Not applicable.
The candidate accurately
calculates the net cash flow
that should be used for each
year in the discounted cash
flow analysis.
Criterion Score: 1.00
Comments on this criterion: The net cash flows are incorrect. Please review the depreciation expense, income before
taxes, income taxes, net income, and cash flows for each year.
For instruction on calculating the net cash flow that should be used for each year in the discounted cash flow analysis,
please revisit the section entitled Completing the Performance Tasks in the FNT1 Course of Study by following this link:
https://cos.wgu.edu/student/course/27661/activity/71822. Chapters 13 and 20 in MyAccountingLab may be particularly
helpful.
A2. Net Present Value
(1) Unacceptable
(2) Needs Revision
(3) Meets Standard
(4) Exemplary
The candidate does not
accurately calculate the net
present value of this project
using a discount rate equal to
the company’s weighted
average cost of capital.
Not applicable.
Not applicable.
The candidate accurately
calculates the net present
value of this project using a
discount rate equal to the
company’s weighted average
cost of capital.
Criterion Score: 1.00
Comments on this criterion: 340,006 is incorrect. Please review the cash flows for years 1 through 8, the direction of
cash flow for Building restoration costs, and the Investment amount.
For instruction on calculating the net present value of this project using a discount rate equal to the companys weighted
average cost of capital, please revisit the section entitled Completing the Performance Tasks in the FNT1 Course of
Study by following this link: https://cos.wgu.edu/student/course/27661/activity/71822. Chapters 13 and 20 in
MyAccountingLab may be particularly helpful.
A3. Internal Rate of Return
(1) Unacceptable
(2) Needs Revision
(3) Meets Standard
(4) Exemplary
The candidate does not
accurately calculate the
expected yield on the project
using the IRR method.
Not applicable.
Not applicable.
The candidate accurately
calculates the expected yield
on the project using the IRR
method.
Criterion Score: 1.00
Comments on this criterion: IRR of 14.817% is incorrect. Please review the investment amount and the cash flows for
years 1 through 8.
For instruction on calculating the expected yield on the project using the IRR method, please revisit the section entitled
Completing the Performance Tasks in the FNT1 Course of Study by following this link:
https://cos.wgu.edu/student/course/27661/activity/71822. Chapters 13 and 20 in MyAccountingLab may be particularly
helpful.
A4. Accounting Rate of Return
(1) Unacceptable
(2) Needs Revision
(3) Meets Standard
(4) Exemplary
The candidate does not
accurately calculate the
accounting rate of return for
Not applicable.
Not applicable.
The candidate accurately
calculates the accounting rate
of return for this project.
Printed on: 07/14/2014 05:56:41 PM (EST)
this project.
Criterion Score: 1.00
Comments on this criterion: 44.49% is incorrect. More detailed feedback may be provided if the calculation is performed
within the template or otherwise made available for review.
For instruction on calculating the accounting rate of return for this project, please revisit the section entitled Completing
the Performance Tasks in the FNT1 Course of Study by following this link:
https://cos.wgu.edu/student/course/27661/activity/71822. Chapters 13 and 20 in MyAccountingLab may be particularly
helpful.
A5. Payback Period
(1) Unacceptable
(2) Needs Revision
(3) Meets Standard
(4) Exemplary
The candidate does not
accurately calculate the
unadjusted payback period in
years and months.
Not applicable.
Not applicable.
The candidate accurately
calculates the unadjusted
payback period in years and
months.
Criterion Score: 1.00
Comments on this criterion: 6 years and 11 months is incorrect. Please review the investment amount and cash flows
for all years.
For instruction on calculating the unadjusted payback period in years and months, please revisit the section entitled
Completing the Performance Tasks in the FNT1 Course of Study by following this link:
https://cos.wgu.edu/student/course/27661/activity/71822. Chapters 13 and 20 in MyAccountingLab may be particularly
helpful.
B. Presentation
(1) Unacceptable
(2) Needs Revision
(3) Meets Standard
(4) Exemplary
The candidate does not
prepare an appropriate
computerbased presentation.
Not applicable.
Not applicable.
The candidate prepares an
appropriate computerbased
presentation.
Criterion Score: 1.00
Comments on this criterion: The information is presented in a memorandum format rather than the computerbased
presentation format as requested. Please update to reflect an appropriate format such as PowerPoint.
For instruction on preparing an appropriate computerbased presentation, please revisit the section entitled Completing
the Performance Tasks in the FNT1 Course of Study by following this link:
https://cos.wgu.edu/student/course/27661/activity/71822. Chapters 13 and 20 in MyAccountingLab may be particularly
helpful.
B1. Net Cash Flow Without Depreciation
(1) Unacceptable
(2) Needs Revision
(3) Meets Standard
(4) Exemplary
The candidate does not
correctly identifies what the net
cash flow for the second year
would be if there were no
depreciation expense.
Not applicable.
Not applicable.
The candidate correctly
identifies what the net cash
flow for the second year would
be if there were no
depreciation expense.
(2) Needs Revision
(3) Meets Standard
(4) Exemplary
The candidate provides an
illogical explanation of the
impact of depreciation on net
The candidate provides a
logical explanation of the
impact of depreciation on net
The candidate provides a
credible and wellsupported
explanation of the impact of
Criterion Score: 4.00
Comments on this criterion: $432,000 is correct.
B1a. Impact of Depreciation
(1) Unacceptable
The candidate does not
explain the impact of
depreciation on net cash flow
Printed on: 07/14/2014 05:56:41 PM (EST)
for the second year.
cash flow for the second year.
cash flow for the second year.
depreciation on net cash flow
for the second year.
Criterion Score: 2.00
Comments on this criterion: The discussion addresses the impact of depreciation expense on net cash flow by way of
income tax. Please continue to review the explanation to reflect accurate net cash flow with depreciation once corrected
as noted in aspect A1.
For instruction on explaining the impact of depreciation on net cash flow for the second year, please revisit the section
entitled Completing the Performance Tasks in the FNT1 Course of Study by following this link:
https://cos.wgu.edu/student/course/27661/activity/71822. Chapters 13 and 20 in MyAccountingLab may be particularly
helpful.
B2. NPV Recommendation
(1) Unacceptable
(2) Needs Revision
(3) Meets Standard
(4) Exemplary
The candidate does not make
an appropriate
recommendation based upon
the NPV analysis.
Not applicable.
Not applicable.
The candidate makes an
appropriate recommendation
based upon the NPV analysis.
Criterion Score: 4.00
Comments on this criterion: The recommendation to invest is appropriate.
B2a. Appropriate Action
(1) Unacceptable
(2) Needs Revision
(3) Meets Standard
(4) Exemplary
The candidate does not
explain why this is an
appropriate action.
The candidate provides an
illogical explanation of why
this is an appropriate action.
The candidate provides a
logical explanation of why this
is an appropriate action.
The candidate provides a
credible and wellsupported
explanation of why this is an
appropriate action.
Criterion Score: 2.00
Comments on this criterion: The application of the decision rule is on track. Please continue to update the discussion
once a corrected NPV calculation is determined.
For instruction on explaining why the recommendation based upon the NPV analysis is an appropriate action, please
revisit the section entitled Completing the Performance Tasks in the FNT1 Course of Study by following this link:
https://cos.wgu.edu/student/course/27661/activity/71822. Chapters 13 and 20 in MyAccountingLab may be particularly
helpful.
B3. IRR Recommendation
(1) Unacceptable
(2) Needs Revision
(3) Meets Standard
(4) Exemplary
The candidate does not make
an appropriate
recommendation based upon
the IRR analysis.
Not applicable.
Not applicable.
The candidate makes an
appropriate recommendation
based upon the IRR analysis.
Criterion Score: 4.00
Comments on this criterion: The investment recommendation is appropriate.
B3a. Appropriate Action
(1) Unacceptable
(2) Needs Revision
(3) Meets Standard
(4) Exemplary
The candidate does not
explain why this is an
appropriate action.
The candidate provides an
illogical explanation of why
this is an appropriate action.
The candidate provides a
logical explanation of why this
is an appropriate action.
The candidate provides a
credible and wellsupported
explanation of why this is an
appropriate action.
Criterion Score: 2.00
Printed on: 07/14/2014 05:56:41 PM (EST)
Comments on this criterion: The discussion is noted, although there is a mention of ARR that does not logically support
the recommendation. Please review and expand the discussion to include an accurate application of the decision rule
based on IRR and an appropriate IRR calculation.
For instruction on explaining why the recommendation based upon the IRR analysis is an appropriate action, please
revisit the section entitled Completing the Performance Tasks in the FNT1 Course of Study by following this link:
https://cos.wgu.edu/student/course/27661/activity/71822. Chapters 13 and 20 in MyAccountingLab may be particularly
helpful.
B4. Difference in Rate of Return
(1) Unacceptable
(2) Needs Revision
(3) Meets Standard
(4) Exemplary
The candidate does not
explain why the accounting
rate of return on this project is
different from the internal rate
of return for the same capital
investment.
The candidate provides an
illogical explanation of why the
accounting rate of return on
this project is different from
the internal rate of return for
the same capital investment.
The candidate provides a
logical explanation of why the
accounting rate of return on
this project is different from
the internal rate of return for
the same capital investment.
The candidate provides a
credible and wellsupported
explanation of why the
accounting rate of return on
this project is different from
the internal rate of return for
the same capital investment.
Criterion Score: 2.00
Comments on this criterion: While it is correct that IRR and ARR differ with regards to the application of time value of
money. Please continue to compare these calculations, with specific mention of the varied inputs in to each calculation.
For instruction on explaining why the accounting rate of return on this project is different from the internal rate of return
for the same capital investment, please revisit the section entitled Completing the Performance Tasks in the FNT1
Course of Study by following this link: https://cos.wgu.edu/student/course/27661/activity/71822. Chapters 13 and 20 in
MyAccountingLab may be particularly helpful.
B5. Payback Period
(1) Unacceptable
(2) Needs Revision
(3) Meets Standard
(4) Exemplary
The candidate does not
explain the relative
significance of the unadjusted
payback period in this decision
situation.
The candidate provides an
illogical explanation of the
relative significance of the
unadjusted payback period in
this decision situation.
The candidate provides a
logical explanation of the
relative significance of the
unadjusted payback period in
this decision situation.
The candidate provides a
credible and wellsupported
explanation of the relative
significance of the unadjusted
payback period in this decision
situation.
Criterion Score: 2.00
Comments on this criterion: The discussion is noted. There are advantages and disadvantages of this capital budget
tool that have not yet been identified. Please clarify.
For instruction on explaining the relative significance of the unadjusted payback period in this decision situation, please
revisit the section entitled Completing the Performance Tasks in the FNT1 Course of Study by following this link:
https://cos.wgu.edu/student/course/27661/activity/71822. Chapters 13 and 20 in MyAccountingLab may be particularly
helpful.
B6. Cost of Capital—NPV
(1) Unacceptable
(2) Needs Revision
(3) Meets Standard
(4) Exemplary
The candidate does not
explain how the weighted
average cost of capital should
be used in capital budgeting
analysis when utilizing the NPV
method.
The candidate provides an
illogical explanation of how the
weighted average cost of
capital should be used in
capital budgeting analysis
when utilizing the NPV
method.
The candidate provides a
logical explanation of how the
weighted average cost of
capital should be used in
capital budgeting analysis
when utilizing the NPV
method.
The candidate provides a
credible and wellsupported
explanation of how the
weighted average cost of
capital should be used in
capital budgeting analysis
when utilizing the NPV
method.
Criterion Score: 3.00
Comments on this criterion: The discussion of how WACC can be used as the discount rate in an NPV calculation is
logical.
B7. Cost of Capital—IRR
Printed on: 07/14/2014 05:56:41 PM (EST)
(1) Unacceptable
(2) Needs Revision
(3) Meets Standard
(4) Exemplary
The candidate does not
explain how the weighted
average cost of capital should
be used in capital budgeting
analysis when utilizing the IRR
method.
The candidate provides an
illogical explanation of how the
weighted average cost of
capital should be used in
capital budgeting analysis
when utilizing the IRR
method.
The candidate provides a
logical explanation of how the
weighted average cost of
capital should be used in
capital budgeting analysis
when utilizing the IRR
method.
The candidate provides a
credible and wellsupported
explanation of how the
weighted average cost of
capital should be used in
capital budgeting analysis
when utilizing the IRR
method.
Criterion Score: 3.00
Comments on this criterion: The comparative relationship is noted.
C. Sources
(1) Unacceptable
(2) Needs Revision
(3) Meets Standard
(4) Exemplary
If the candidate uses sources,
the candidate does not provide
intext citations and/or
references for each source
used.
If the candidate uses sources,
the candidate provides
appropriate intext citations
and/or references with major
deviations from APA style.
If the candidate uses sources,
the candidate provides
appropriate intext citations
and/or references with minor
deviations from APA style.
If the candidate uses sources,
the candidate provides
appropriate intext citations
and/or references with no
readily detectable deviations
from APA style, OR the
candidate does not use
sources.
(1) Unacceptable
(2) Needs Revision
(3) Meets Standard
(4) Exemplary
Unacceptable
Needs Revision
Meets Standard
Exemplary
Criterion Score: 3.00
Overall Holistic
Criterion Score: 2.00
Comments on this criterion: Requires revision
Printed on: 07/14/2014 05:56:41 PM (EST)
CASH BUDGETING ANALYSIS
1
Cash Budgeting Analysis
Beverly Bambury
FNT1
Western Governors University
12 July 2014
CASH BUDGETING ANALYSIS
2
CAPITAL BUDGETINGING ANALYSIS
PART B.
Part 1
CASH FLOW FOR YEAR 2.
Amount ($)
Sale revenue
$3,000,000
0perating expense
$2,400,000
Profit before tax
$600,000
Less tax
($168,000)
Net earning
$432,000
Ignoring the depreciation expense in year two greatly reduces the net cash flow in the year. The
net cash flow reduces from $529,500 to $432,000. This is because depreciation expense reduces
the earnings before tax, therefore less tax is required. Ignoring depreciation expenses increases
tax from $70,000 to $168,000. This explains the difference in the cash flows.
Part 2
With respect to the net present value (NPV) analysis it evident that the project has a positive
NPV. This is the present value of future revenue, which exceeds the initial investment by
$340,006. This shows that the project is more profitable than investing in the initial capital in
bank deposit at 12% interest rate. Therefore, Entrepreneur D should invest in this project. The
CASH BUDGETING ANALYSIS
3
project attains the business goal of maximizing shareholder wealth, as it is more profitable than
the opportunity cost.
Part 3
Based on the accounting rate of return (ARR) analysis the project has an internal rate of return of
14.817%. This is a higher return compared to the opportunity cost of investing in bank deposit
with the prevailing interest rates of 12%. This means that Entrepreneur D, should take this option
has it maximizes future returns, which of course speaks to the business goal of shareholder
wealth maximization.
Part 4
In this analysis the ARR differs from the internal rate of return (IRR). This is because the ARR
does not consider the time preference of money; hence, future cash flows are not discounted. The
internal rate of return IRR utilizes the concept of time preference of money, where cash flows are
discounted according to time, which explains the disparity between the ARR and IRR.
Part 5
Payback period is very important in this analysis, as it an effective measure of investment risk.
The project with a lesser payback period is often considered less risky. Payback period also
measures liquidity of a project alternative (Brealey & Myrey 2004). Therefore, payback analysis
in this capital budgeting analysis is equally important.
Part 6
Weighted average of cost of capital (WACC) is a calculation in which each category of capital is
proportionately weighted. All the available sources of capital are proportionately weighted
CASH BUDGETING ANALYSIS
4
(Brealey & Myrey 2004). The weighted average cost of capital should be used when selecting
and valuing investment opportunities. Using the NPV analysis the WACC can be used to
discount future cash flows and determine worthy investment opportunities. The net present of
future cash inflows should be higher than the present value of capital for the business to make
positive returns.
Part 7
The WACC can also be effectively used in capital budgeting decisions using the IRR. The
WACC will give the minimum amount at which the company produces value for investors
(Johnson, 1970). Therefore using the internal rate of return, we can adequately compare different
investment portfolios and benchmark them against the WACC.
CASH BUDGETING ANALYSIS
5
References
Brealey, R. A., Myers, S. C., & Marcus, A. J. (2004). Essentials of coporate finance. Boston,
Mass.: McGraw-Hill.
Johnson, R. W. (1970). Capital budgeting. Belmont, Calif.: Wadsworth Pub. Co.
FNT1 Task 2 319.1.3-01-10, 2.1-04, 2.5-05 Capital Budgeting Student Template
Revised May 8, 2011
B
Student Name:
Bambury
Enter your first initial and last name in the fields above.
Your Task 2 Data
Years 1 & 2
Estimated Cash Receipts from tool sales each year.
Estimated Cash Expenses for operations each year
Initial Investment for equipment, etc.
Marginal Tax Rate
Restoration at the end of 8 years
Working Capital required
3,000,000
2,400,000
3,000,000
28%
120,000
200,000
Years 3 & 4
3,200,000
2,400,000
Years 5 & 6
3,400,000
2,650,000
Entrepreneur D
Net Cash Flow per Year
Years 1 & 2
Years 3 & 4
Years 5 & 6
Years 7 & 8
Expected annual sales of new product
3,000,000
3,200,000
3,400,000
3,800,000
Expected annual costs of new product
Cash expenses
Depreciation expense
Income before taxes
Income tax at marginal rate
Net income
Net annual cash flow for years shown
2,400,000
347,500
252,500
70,500
182,000
529,500
2,400,000
347,500
452,500
126,700
325,800
673,500
2,650,000
347,500
402,500
112,700
289,800
637,300
2,800,000
347,500
652,500
182,700
469,800
817,300
Net Present Value:
Cash Flows
12%
PV Factors
Present
Value
Years 7 & 8
3,800,000
2,800,000
529,500
529,500
673,500
673,500
637,300
637,300
817,300
817,300
200,000
120,000
60,000
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Working Capital return
Salvage return
Building restoration costs
Total
Investment
Net Present Value
0.8929
0.7972
0.7118
0.6355
0.5674
0.5066
0.4523
0.4039
0.4039
0.4039
0.4039
472,790
422,117
479,397
428,009
361,604
322,856
369,644
330,107
80,780
48,468
24,234
3,340,006
3,000,000
340,006
GRADERS: To provide for factor rounding, please allow plus or minus $2000 on this net present value solution.
Internal Rate of Return:
Investment
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8 + Working Capital + Salvage - Remodeling
Cash Flows
-3,000,000
529,500
529,500
673,500
673,500
637,300
637,300
817,300
1,197,300
14.817%
Internal Rate of Return using Excel
Payback Period:
Net
Cash Flow
Time for Cash
Flow to Payback
Investment
Investment
Year 1
Year 2
Year 3
Year 4
Year 5
529500
529500
673500
673500
637300
-3000000
529500
529,500
673500
673500
637300
Year 6
637300
594000
Year 7
817300
Year 8
1197300
State your answer below in years and
full months rounding up as necessary.
6
Accounting Rate of Return
44.49%
Years
11 Months
*Working Capital requirements are not part of this calculation.
Initial
X
A
B
C
D
E
F
G
H
I
J
K
Investment
Work Cap
Cash 1
Cash 2
Cash 3
Cash 4
Exp 1
Exp 2
Exp 3
3,000,000
210,000
3,200,000
3,600,000
3,800,000
3,700,000
2,500,000
2,800,000
3,200,000
3,250,000
220,000
3,100,000
3,400,000
3,600,000
3,240,000
2,400,000
2,600,000
2,700,000
3,000,000
200,000
3,000,000
3,200,000
3,400,000
3,800,000
2,400,000
2,400,000
2,650,000
2,940,000
250,000
3,400,000
3,500,000
3,700,000
3,470,000
2,800,000
2,850,000
2,900,000
2,900,000
180,000
2,940,000
3,160,000
3,240,000
3,600,000
2,200,000
2,500,000
2,600,000
2,850,000
200,000
3,200,000
3,600,000
3,800,000
3,600,000
2,500,000
2,800,000
3,400,000
2,900,000
300,000
3,170,000
3,240,000
3,470,000
3,930,000
2,400,000
2,500,000
2,750,000
2,800,000
180,000
3,000,000
3,200,000
3,600,000
3,470,000
2,300,000
2,600,000
2,800,000
2,820,000
180,000
3,000,000
3,200,000
3,600,000
3,800,000
2,300,000
2,600,000
2,800,000
2,450,000
260,000
3,750,000
3,860,000
3,930,000
3,240,000
3,100,000
3,300,000
3,400,000
3,100,000
300,000
3,170,000
3,240,000
3,470,000
3,600,000
2,400,000
2,500,000
2,750,000
2,840,000
200,000
3,200,000
3,600,000
3,800,000
3,700,000
2,500,000
2,800,000
3,400,000
L
2,950,000
180,000
2,940,000
3,260,000
3,240,000
3,470,000
2,200,000
2,500,000
2,600,000
M
N
O
P
Q
R
S
T
U
V
W
Y
Z
3,400,000
220,000
3,100,000
3,400,000
3,600,000
3,800,000
2,400,000
2,600,000
2,700,000
2,800,000
250,000
3,400,000
3,500,000
3,700,000
3,240,000
2,800,000
2,850,000
2,900,000
2,900,000
300,000
3,170,000
3,240,000
3,470,000
3,930,000
2,400,000
2,500,000
2,750,000
2,840,000
225,000
3,200,000
3,600,000
3,800,000
3,700,000
2,500,000
2,800,000
3,400,000
2,850,000
180,000
2,940,000
3,160,000
3,240,000
3,600,000
2,200,000
2,500,000
2,600,000
2,600,000
240,000
3,750,000
3,860,000
3,930,000
3,700,000
3,100,000
3,250,000
3,300,000
2,800,000
260,000
3,750,000
3,860,000
3,930,000
3,470,000
3,100,000
3,000,000
3,400,000
2,840,000
225,000
3,200,000
3,600,000
3,800,000
3,700,000
2,500,000
2,800,000
3,400,000
2,900,000
250,000
3,400,000
3,500,000
3,700,000
3,800,000
2,800,000
2,850,000
2,900,000
2,800,000
300,000
3,170,000
3,240,000
3,470,000
3,400,000
2,400,000
2,500,000
2,750,000
2,900,000
200,000
3,000,000
3,200,000
3,400,000
3,400,000
2,400,000
2,400,000
2,650,000
2,750,000
200,000
3,100,000
3,200,000
3,400,000
3,360,000
2,600,000
2,500,000
2,500,000
2,750,000
200,000
3,000,000
3,200,000
3,200,000
3,400,000
2,400,000
2,400,000
2,650,000
Exp 4
Tax Rate
Restoration
2,700,000
2,900,000
30%
120,000
2,800,000
2,500,000
25%
140,000
2,580,000
2,800,000
28%
120,000
2,480,000
2,500,000
22%
140,000
2,500,000
2,600,000
30%
160,000
2,700,000
2,600,000
25%
130,000
2,600,000
3,300,000
32%
150,000
2,570,000
2,500,000
32%
160,000
2,570,000
2,800,000
32%
160,000
2,140,000
2,500,000
30%
190,000
2,600,000
2,600,000
32%
150,000
2,700,000
2,850,000
25%
130,000
2,500,000
2,500,000
30%
160,000
2,800,000
2,700,000
25%
140,000
2,480,000
2,500,000
22%
140,000
2,600,000
3,300,000
32%
150,000
2,700,000
2,850,000
26%
130,000
2,500,000
2,600,000
30%
160,000
2,140,000
2,650,000
30%
190,000
2,140,000
2,500,000
30%
190,000
2,800,000
2,950,000
28%
160,000
2,480,000
2,800,000
22%
140,000
2,600,000
2,400,000
32%
150,000
2,580,000
2,400,000
28%
120,000
2,700,000
2,600,000
28%
120,000
2,580,000
2,500,000
28%
120,000
2,580,000