Question 1 Analyse the daily payroll report by (i) Identifying the items that ar

Question

Question 1

Analyse the daily payroll report by

(i) Identifying the items that are significantly over or under budget.

(ii) Discussing possible reasons for the deviation from the budget.

(iii) Make recommendations to improve the staffing for Daily Vu

question 2

DDD Inc. reported the following for the period ending Julyst 2011: sales of $2.5 million, cost of food sold of $1,750,000, depreciation expenses of $595,000, dividends of $60,000, accurals of $115,000 and interest expenses of $190,000. DDDs tax rate is 35%.

a. What is the company net income for the period ending July 31st 2011?

b. What is the change in Retained Earnings at July 31st 2011?

Question 3

DDD Inc. has reported its financial results for the year ended December 31st 2010.

Income Statements for the Fiscal Year Ended December 31st 2010

(all figures in $mil)

Net Sales

5.00

Cost of Food

1.75

Labor cost

1.50

Other operating costs

1.00

Depreciation

0.30

Interest Expense

0.08

Taxes

0.15

Net Income

0.22

Question 4

.     Pearson Inc. is currently financed by 30% equity (that is 70% debt). Pearson%u2019s operations are marginally profitability and thus it generates a limited of positive cash flows each year (and in some years the cash flows are negative). Pearson would like to expand its operations by purchasing two new spas. Should Pearson finance the new spas by equity, debt pr a combination of debt and equity? Justify your recommendations by discussing the advantages and disadvantages of equity and debt financing.

b. Carsom Inc. is financing its new restaurant by borrowing 75% of the cost of the resturant @8%. The rest of the funds will be obtained from its current shareholders who demand 15% rate of return. Compute Carsom weighted average cost of capital if its tax rate is 40%.

Net Sales

5.00

Cost of Food

1.75

Labor cost

1.50

Other operating costs

1.00

Depreciation

0.30

Interest Expense

0.08

Taxes

0.15

Net Income

0.22

Explanation / Answer

Question 3

1.Company's net income=2.5*1000000-(1750000)-(595000)+60000+115000-190000

Net income=$140000

2.Change in retained eaning=Net income-Dividends=140000-60000=$80000

Question 4

Pearson must finance the spas by equity as profit and equity are directly proportional because Profit increases equity. Additional investment also increases equity.

Advantages of equity financing:

1.Funding committed to our business and intended projects

2. In common with you, investors have a vested interest in the business' success, ie its growth, profitability and increase in value.

B)Weighted average cost capital=0.75*0.08*(1-0.4)+0.25*0.15

=0.0735*100

=7.35%

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