The ABC Company

Balance Sheet
31-Dec-17

Assets
Cash $ 50,000.00
Account Receivables $ 175,000.00
Inventory $ 126,000.00
Equipment $ 480,000.00
Less: Acc. Depreciation $ (90,000.00)

Total Assets $ 741,000.00

Liabilities
Accounts Payable $ 156,000.00
Short-term Notes Payable $ 12,000.00
Long-term Notes Payable $ 200,000.00

Total Liabilities $ 368,000.00

Shareholders' Equity
Common Stock $ 235,000.00
Retained Earnings $ 138,000.00

Total Shareholders' Equity $ 373,000.00

Total Shareholders' Equity & Liabilities $ 741,000.00

 Jan Feb March April

Sales unit 10500 11025 11576.25 12155.06

Sales 262500 275625 289406.3 303876.6
Inventory units 8820 9261 9724.05
Inventory cost 132300 138915 145860.8
COGS 157500 165375 173643.8
Sales rep.commision 32812.5 34453.13 36175.78
Manager salary 3500 4000 4000
Administrative salaries 8000 8000 8000
Depreciation 5000 5000 5000
Interest expense 1800 1800 1800
Sales on Cash 78750 82687.5 86821.88
Accounts Receivable 175000 183750 192937.5 202584.4
merchandise units 10100 10605 11135.25
Accounts payable 9904.762 151500 159075 167028.8
Dividend 100000
Equipment purchases 55000
Short-term note 9767.262 248788 210521
Short-term interest expense 97.67262 2585.553 4690.763
Total

827531.3

417075.8
496518.8
103441.4
11500
24000
15000
5400

469076.3
2683.225
 Jan Feb March
Cash in

Sales on Cash $ 78,750.00 $ 82,687.50 $ 86,821.88

Accounts Receivable $ 175,000.00 $ 183,750.00 $ 192,937.50
Short-term note $ 9,767.26 $ 248,788.00 $ 210,521.00
Total $ 263,517.26 $ 515,225.50 $ 490,280.38

Cash out

COGS $ 157,500.00 $ 165,375.00 $ 173,643.75

Sales rep.commision
Manager salary
Administrative salaries
Interest expense
Accounts payable
Dividend
Equipment purchases
Short-term interest payable
Total
$ 32,812.50 $ 34,453.13 $ 36,175.78
$ 3,500.00 $ 4,000.00 $ 4,000.00
$ 8,000.00 $ 8,000.00 $ 8,000.00
$ 1,800.00 $ 1,800.00 $ 1,800.00
$ 9,904.76 $ 151,500.00 $ 159,075.00
$ 100,000.00
$ 55,000.00
$ 97.67 $ 2,585.55
$ 213,517.26 $ 465,225.80 $ 440,280.08

Ending balance $ 50,000.00 $ 50,000 $ 50,000

Total

$ 248,259.38
$ 551,687.50
$ 469,076.26
$ 799,946.88

$ 496,518.75
$ 103,441.41
$ 11,500.00
$ 24,000.00
$ 5,400.00
$ 320,479.76
$ 100,000.00
$ 55,000.00
$ 2,683.23
$ 1,119,023.14

$ (319,076.27)
 ABC Company
Budgeted income statement
31-Mar-16

Sales revenue $ 827,531.25

COGS $ 496,518.75
Gross profit $ 331,012.50

Operating expense
Sales rep.commision $ 103,441.41
Manager salary $ 11,500.00
Administrative salaries $ 24,000.00
Depreciation expense $ 15,000.00
Total operating expense $ 153,941.41

Operating income $ 177,071.09

Interest expense $ (8,083.23)

EBT $ 168,987.87
Less: Income tax (35%) $ 59,145.75
EAT $ 109,842.11
Less: Dividend $ 100,000.00
Retained Earning $ 9,842.11
 ABC Company
Budgeted Statement of Retained earning
31-Mar-16

Retained Earnings-December 31, 2015 $ 138,000.00

Add: Net income $ 109,842.11
Less: Dividend $ 100,000.00

Retained Earnings March 31, 2016 $ 147,842.11

 ABC Company
Budgeted balance sheet
31-Mar-16

Assets
Cash $ 298,259.38
Account Receivables $ 377,584.38
Inventory $ 543,075.75
Equipment $ 535,000.00
Less: Acc. Depreciation $ (105,000.00)

Total Assets $ 1,648,919.50

Liabilities
Accounts Payable $ 323,028.75
Short-term Notes Payable $ 481,076.26
Long-term Notes Payable $ 200,000.00

Total Liabilities 804105.0119048

Shareholders' Equity
Common Stock $ 235,000.00
Retained Earnings $ 147,842.11

Total Shareholders' Equity $ 382,842.11

Total Shareholders' Equity & Liabilities $ 1,186,947.13

 (a) Net Present Value Calculation
Project 1 Project 2 Project 3
Purchase Price ($80,000) ($175,000) ($22,700)
Required Rate of Return 6% 8% 12%
Time Period (Years) 3 5 2
Cash Flows – Year 1 $ 48,000.00 $ 85,000.00 $ 13,000.00
Cash Flows – Year 2 $ 36,000.00 $ 74,000.00 $ 13,000.00
Cash Flows – Year 3 $ 22,000.00 $ 38,000.00
Cash Flows – Year 4 $ 26,000.00
Cash Flows – Year 5 $ 19,000.00

Net Present Value $15,794.51 $29,354.26 ($729.34)

Analysis
Part (a)
(1) Calculations indicate that as the Net Present Values (NPV) of Project 1 and Project 2 are greater than zero (0), so
(2) Whereas, the Net Present Value (NPV) of project 3 is way lesser than zero (0). So it won't be profitable for The A

Part (b)
(1) As it is clear from Part (a) results that Project 3 will result in a loss.
(2) So now we will consider project 1 and 2 in order to make preference.
(3) For this, we extend Project 1 life according to Project 2 for apple to apple comparison.
(4) The results replicate that as the NPV of Project 2 is higher than Project 1. So the ABC Company should attempt
 (b) For Apple to Apple Comparison
Project 1 Project 2 Extend Project 1 to Project 2 life
Purchase Price ($80,000) ($175,000) ($80,000)
Required Rate of Return 6% 8% 6%
Time Period (Years) 3 5 3
Cash Flows – Year 1 $ 48,000.00 $ 85,000.00 $ 48,000.00
Cash Flows – Year 2 $ 36,000.00 $ 74,000.00 $ 36,000.00
Cash Flows – Year 3 $ 22,000.00 $ 38,000.00 ($58,000.00)
Cash Flows – Year 4 $ 26,000.00 $ 48,000.00
Cash Flows – Year 5 $ 19,000.00 $ 36,000.00

Net Present Value $29,354.26 $13,546.76

ct 2 are greater than zero (0), so both these project are lucrative for the ABC company.
it won't be profitable for The ABC Company.

rison.
ABC Company should attempt first Project 2 than Project 1 and there is no need to consider Project 3.