Reference no: EM131295974

Computational Problems: Show your work and be sure to explain or justify your answers.

1. Budgeting Problem

You currently run a day training and habilitation center for adults with physical and mental challenges. (This is a not for profit organization.) Participants in your program attend from 8-3. Your company provides transportation for the participants. You are thinking about starting an after school program for children with physical and mental challenges. The new program would run from 3-6pm M-F. This program would give parents who have physically and mentally challenged children in the regular school system a place for their children until the parents come home from work. You have completed preliminary research on the program. You anticipate the program will not increase the current overhead of the company. You decide the next step is to create a budget.

You have the following information:
The program will run 50 weeks out of the year.
You expect 30 students.
You expect to charge $100 per week per student. The variable cost per week for snacks and activities =$20 per student
You can use the vehicles from the day program. You will need to hire 2 part time drivers to take the children home at 6. Each bus currently cost $25 per hour to operate, not including the driver's salary. Drivers make $15.00 per hour. Expected bus usage is 1 hour per day.
You will need to hire staff. The ratio for staff is 1 staff person for 10 students. Instructors receive $15 per hour. You would want them to work 2-7 every day. Benefits are paid to employees working more than 20 hours per week. The current program director makes $50,000. She is willing to run this program also. She anticipates it will take 10 hours per week to run the program.

Other costs:
Rent of the building = $60,000 per year. You anticipate using 3 of the 6 current rooms
Utilities run $2400 per year
Phone is $1200 per year
Postage last year was $900
Accounting fees last year were $3000
Insurance (property and directors and officers) is $3600 per year
Cost to get the program certified = $400
Cost of printing and distributing brochures announcing the new service = $600
Create an annual budget for this program. List the assumptions used in your budget and list your rationale for these assumptions. Be clear and thorough in your rationale. You may change the amount you would charge for each student as long as you justify the change. Identify the new costs of starting this program. 22 points

2. Garner Orthopedic Company needs to decide which capital projects to pursue.

1) Project A will cost $20,000 and has the following cash flow
a. Yr 1 5000
b. Yr 2 6000
c. Yr 3 7000
d. Yr 4 1000

2) Project B will also cost $20,000 has the following cash flow
a. Yr 1 16000
b. Yr 2 5000
c. Yr 3 4000

a) Calculate specific payback for each
b) Calculate NPV of each. Use the weighted cost of capital of 8%.
c) If Garner only has $20,000 to invest, which project should they select? Justify your answer.
d) If Garner has $40,000 to invest should they select both projects? Justify your answer.

3) Financial Data for 3 Medical Supply companies

                                                                  Durham Medical               Raleigh Supply                   Charlotte Meds

Average Selling price per unit                     $20.00                                   $435.00                        $35.00

Average Variable cost per unit                   $13.75                                   $240.00                          $16.00

Units Sold                                                   80,000                                   4,500                              15,000

Fixed costs                                                 $40,000                                 $150,000                        $60,000

a. What is the profit for each company at the indicated sales volume?

b. What is the breakeven point in units for each company?

c. What is the degree of operating leverage for each company at the indicated sales volume?

d. If sales decline, which firm would suffer the largest decline in profitability? Explain why