What is the payback period of this investment

Assignment Help Financial Accounting

Reference no: EM132747867

Questions - Use the following information to answer questions 1-14:

It is now January 2018. The year 2017 finished well. The finalized year-end financial statements for 2017 are provided in the excel file associated with this assignment.

Randolf and Tenisa at Comfy Home would like the accountant to prepare pro-forma financial statements for 2018 based on an optimistic sales forecast. Tenisa has won the business of a large corporate client and the couple believe that Comfy Home revenues will increase by 40% in 2018 as compared with the year 2017.

Using the actual financial statements for 2017 (in the excel file with this assignment),create a pro-forma balance sheet and income statement for 2018 using the percent of sales method. For any financial statement line items where no additional information is provided to indicate otherwise, assume the line item changes proportionally to sales. Note: Please use excel formulas for all calculations and do not round any intermediate steps. If you round during intermediate steps, you may get rounding errors resulting in incorrect answers.

Randolf and Tenisa provide the following additional information to the accountant to prepare the pro-forma statements:

No new investments in furniture and fixtures or buildings and property are expected for 2018.

Of the $500,000 in building and properties at year-end 2017, $325,000 represents buildings and $175,000 represents property (land). The buildings are being depreciated straight-line over 10 years with no salvage value.

The furniture and fixtures are being depreciated straight-line over 15 years with no salvage value.

The $45,000 current portion of the bank loan will be paid in 2018. Of the $255,000 in long term debt, another $45,000 comes due in 2019.

Comfy Home does not plan to obtain any additional loans in 2018.

The interest rate for Comfy Home's borrowing has declined recently to 8%. It is expected to be the average rate of interest for Comfy Home short and long-term borrowings in 2018. Use total beginning borrowings to estimate the interest expense for 2018.

Comfy Home's expected tax rate is 20%. Comfy Home has no outstanding deferred tax assets or deferred tax liabilities.

Comfy Home is not planning on any dividend payments in 2018. No contributions or disbursements to/from owners' equity are foreseen.

Comfy Home's insurance premium covers its buildings and property as well as liability and is not expected to increase in 2018.

Use Cash as the plug in the pro-forma financial statements.

Question 1 - What is the forecasted total revenue on Comfy Home's 2018 pro-forma financial statements?

Question 2 - What is the forecasted marketing expenses on Comfy Home's 2018 pro-forma financial statements?

Question 3 - What is the forecasted depreciation expense on Comfy Home's 2018 pro-forma financial statements?

Question 4 - What is the forecasted interest expense on Comfy Home's 2018 pro-forma financial statements?

Question 5 - What is the forecasted cost of goods sold on Comfy Home's 2018 pro-forma financial statements?

Question 6 - What is the forecasted insurance expense on Comfy Home's 2018 pro-forma financial statements?

Question 7 - What is the forecasted furniture and fixtures on Comfy Home's 2018 pro-forma financial statements?

Question 8 - What is the forecasted inventories on Comfy Home's 2018 pro-forma financial statements?

Question 9 - What is the forecasted current portion of bank loan on Comfy Home's 2018 pro-forma financial statements?

Question 10 - What is the forecasted bank loan (long term portion only) on Comfy Home's 2018 pro-forma financial statements?

Question 11 - What is the forecasted contributed capital on Comfy Home's 2018 pro-forma financial statements?

Question 12 - What is the forecasted accounts receivable on Comfy Home's 2018 pro-forma financial statements?

Question 13 - What is the forecasted deferred revenue on Comfy Home's 2018 pro-forma financial statements?

Question 14 - What is the forecasted cash on Comfy Home's 2018 pro-forma financial statements?

Question 15 - Comfy Home is considering investing in a new inventory management system. The system would cost $40,000 upfront. It will generate net cash flows of $3,300 per year for 15 years. Comfy Home's discount rate is 9%.

What is the payback period of this investment?

Question 16 - Comfy Home is considering investing in a new inventory management system. The system would cost $40,000 upfront. It will generate net cash flows of $3,300 per year for 15 years. Comfy Home's discount rate is 9%. What is the net present value of this investment?

Use a spreadsheet to calculate your answer and round to the nearest whole dollar. If your answer is a negative number, please use the minus sign to represent negative numbers rather than parentheses. For instance, -1500 rather than (1500).

Question 17 - Comfy Home is considering investing in a new shop location. The decorating and installation of the shop including staff training will cost $30,000 upfront. The investment will generate the net cash flows below over the next 10 years. Comfy Home's discount rate is 9%.

What is the internal rate of return of this investment?

Use a spreadsheet to calculate your answer. Enter your answer as a percent (for example, for 7%, enter '7')

Cash Flows:

Year 0 (30,000) (year of investment)

Year 1 $2000

Year 2 $2000

Year 3 $3500

Year 4 $3500

Year 5 $3500

Year 6 $4500

Year 7 $4150

Year 8 $5000

Year 9 $5000

Year 10 $5000

Reference no: EM132747867

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