PROBLEM 5 (15 Points) Alyssa makes scented candles to be sold in flower shops. S

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PROBLEM 5 (15 Points) Alyssa makes scented candles to be sold in flower shops. She sells them for S0.60 each. Her cash production costs are as follows: Variable production costs Fixed Production costs S0.22 S0.07 In addition, Alyssa has agreed to pay her one salesperson, LaShaude, a 10% commission on all sales revenue. Her other nonproduction costs are all fixed and amount to $15,000 per ear. A local grocery store owner, Apu, has asked Alyssa and her competitors to offer bids on providing 1,000 candles for the Christmas season. Since Alyssa's business is reasonably profitable and she wants to win the job, she wonders what price she should offer to provide the candles. The new job will not increase any of her fixed costs. REQUIRED: a. What is the lowest price Alyssa could bid and not lose money on this sale? b. If she wants to earn 5% profit on the job, what price should she bid? c. What other qualitative factors should she also consider? PROBLEM 6 (15 Points) Your grandfather would like to share some of his fortune with you. He offers to give you money under three different scenarios. a. S10,500 per year at the end of each year for the next 10 years. b. $60,000 right now c. $120,000 at the end of 12 years REQUIRED: Calculate the Present value of each alternative using an 8.5% discount rate. PROBLEM 7 (5 Points) What interest rate compounded semi-annually is required to attain $750,000 at the end of 10 years if you start with $10,000?

Explanation / Answer

When analyzing a company's cash flow statement, it is important to consider each of the various sections which contribute to the overall change in cash position. In many cases, a firm may have negative overall cash flow for a given quarter, but if the company can generate positive cash flow from business operations, the negative overall cash flow may be a result of heavy investment expenditures, which is not necessarily a bad thing.

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