Exercises – 25 points each

6.      Project UMUC is to produce 200 widgets and is scheduled to take five weeks. Each unit is planned to cost $90. The project is severely cost constrained. Performance data for the project at the end of week three is presented below:

·         120 total units were planned to be produced

·         130 units haveactually been produced

·            The financial manager reported that the business had actually spent $13,000 on the project by the end of week three.

Answer the following questions; show all work:

a.       Quantify cost variance. Is the project ahead or behind budget?

b.      Quantify schedule variance. Is the project ahead or behind schedule?

c.       Quantify cost performance efficiency. Is the project performing better or worse than planned?

d.      Quantify schedule performance efficiency. Is the project performing better or worse than planned?

e.       What is the forecast of project cost at completion assuming current cost performance efficiency remains the same? How much budget variance is expected at completion?

f.       What is the forecast of funding needed to complete the project (from this point forward)?

g.      What cost performance efficiency would be required for the remainder of the project to complete the project within the original budget?

h.      As the project financial manager, what recommendations would you make?

7.      Proust Manufacturing Co. produces personal fitness machines. The once successful line is no longer selling well, so the company is considering production of a new improved cardio-vascular machine. This can be done by buying needed production equipment. The after tax cash flow for buying this equipment is $700,000, at the beginning of Year 0. The alternative to produce the same output, is to lease that same equipment through four equal payments of $185,000 each year paid at the beginning of the year. The required rate of return (hurdle rate) for this business is 12 percent. Assume no taxes. Revenue from sales of the new cardiovascular machines is expected to be:

·         Year 1 – $375,000

·         Year 2 – $250,000

·         Year 3 – $140,000

·         Year 4 – $75,000

Calculate the net present value of both the new purchase option and the lease option. Show all work. Determine the best option for Proust and justify your answer. (20 pts.)

8.      This question is based on the information provided in the abbreviated year-end Income Statement and abbreviated year-end Balance Sheet for NMC Corporation shown below.

8a. Calculate the NMC financial ratios contained in the following table

8b. Compare your results to the industry ratios and describe what NMC should do to improve its position in the market.