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 09:17:52 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