Part 1: Assume ABC Company has asked you to prepare their 20X1 year-end Balance Sheet based upon the below information.
End of the year information:
Account 12/31/X1
Ending Balance
Cash 50,000
Accounts Receivable 175,000
Inventory 126,000
Equipment 480,000
Accumulated Depreciation 90,000
Accounts Payable 156,000
Short-term Notes Payable 12,000
Long-term Notes Payable 200,000
Common Stock 235,000
Retained Earnings solve
Part 2: ABC Company’s management is also considering 3 new projects consisting of the purchase of new equipment. The company has limited resources, and may not be able to complete/make all 3 purchases. Therefore, calculate the NPV for each, and place the projects in the order in which they should be completed using NPV as the reasoning. The information is as follows for the purchases below.
Project 1 Project 2 Project 3
Purchase Price $80,000 $175,000 $22,700
Required Rate of Return 6% 8% 12%
Time Period 3 years 5 years 2 years
Cash Flows – Year 1 $48,000 $85,000 $13,000
Cash Flows – Year 2 $36,000 $74,000 $13,000
Cash Flows – Year 3 $22,000 $38,000 N/A
Cash Flows – Year 4 N/A $26,800 N/A
Cash Flows – Year 5 N/A $19,000 N/A
Required Action:
Part 1:
• Prepare the year-end balance sheet for 20X1. Be sure to use proper headings and labels. This should be done in Excel, using the first tab in the worksheet.
Part 2:
• Using Excel formulas, calculate the NPV for each of the 3 potential projects.
• It is possible that ABC Company may not be able to complete all 3 projects. Therefore, advise ABC Company as to the order in which they should pursue the projects (i.e., which project should ABC Company attempt to do first, second, and last).
• This portion should be completed on a separate tab in Excel.
