It is possible that ABC Company may not be able to complete all 3 projects

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Question description

Excel Project Instructions

Assume ABC Company has asked you to not only prepare their 2013 year-end Balance Sheet but to also provide pro-forma financial statements for 2014. In addition, they have asked you to evaluate their company based on the pro-forma statements with regard to ratios. They also want you to evaluate 3 projects they are considering. Their information is as follows:

End of the year information:



Ending Balance



Accounts Receivable






Accumulated Depreciation


Accounts Payable


Short-term Notes Payable


Long-term Notes Payable


Common Stock


Retained Earnings


Additional Information:

·  Sales for December total 12,000 units. Each month’s sales are expected to exceed the prior month’s results by 5%. The product’s selling price is $15 per unit.

·  Company policy calls for a given month’s ending inventory to equal 80% of the next month’s expected unit sales. The December 31 2012 inventory is 9,400 units, which complies with the policy. The purchase price is $8 per unit.

·  Sales representatives’ commissions are 10.0% of sales and are paid in the month of the sales. The sales manager’s monthly salary will be $3,500 in January and $4,000 per month thereafter.

·  Monthly general and administrative expenses include $8,000 administrative salaries, $5,000 depreciation, and 0.9% monthly interest on the long-term note payable.

·  The company expects 30% of sales to be for cash and the remaining 70% on credit. Receivables are collected in full in the month following the sale (none is collected in the month of sale).

·  All merchandise purchases are on credit, and no payables arise from any other transactions. One month’s purchases are fully paid in the next month.

·  The minimum ending cash balance for all months is $140,000. If necessary, the company borrows enough cash using a short-term note to reach the minimum. Short-term notes require an interest payment of 1% at each month-end (before any repayment). If the ending cash balance exceeds the minimum, the excess will be applied to repaying the short-term notes payable balance.

·  Dividends of $100,000 are to be declared and paid in February.

·  No cash payments for income taxes are to be made during the first calendar quarter. Income taxes will be assessed at 35% in the quarter.

·  Equipment purchases of $55,000 are scheduled for March.

ABC Company’s management is also considering 3 new projects consisting of the purchase of new equipment. The company has limited resources, and may not be able to complete make all 3 purchases. The information is as follows for the purchases below.

Project 1

Project 2

Project 3

Purchase Price




Required Rate of Return




Time Period

3 years

5 years

2 years

Cash Flows – Year 1




Cash Flows – Year 2




Cash Flows – Year 3




Cash Flows – Year 4




Cash Flows – Year 5




Required Action:

Part A:

  • Prepare the year-end balance sheet for 2013. Be sure to use proper headings.
  • Prepare budgets such that the pro-forma financial statements may be prepared.
  • Sales budget, including budgeted sales for April.
  • Purchases budget, the budgeted cost of goods sold for each month and quarter, and the cost of the March 31 budgeted inventory.
  • Selling expense budget.
  • General and administrative expense budget.
  • Expected cash receipts from customers and the expected March 31 balance of accounts receivable.
  • Expected cash payments for purchases and the expected March 31 balance of accounts payable.
  • Cash budget.
  • Budgeted income statement.
  • Budgeted statement of retained earnings.
  • Budgeted balance sheet.

Part B:

  • It is possible that ABC Company may not be able to complete all 3 projects. Therefore, advise ABC Company as to the order in which they should pursue the projects (i.e., which project should ABC Company attempt to do first, second, and last).
  • Provide justification and analysis as to why you chose the order you did. The analysis must also be done in Excel, not in a separate document.

This assignment must be submitted as 1 Excel document.

  • Calculate using Excel formulas, the NPV of each of the 3 projects.
  • Tutor Answer

    (Top Tutor) Daniel C.
    School: Duke University
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