analysis of cash flow | Custom PHD Thesis

analysis of cash flow
Question 1 (50 marks)
The following table is an analysis of cash flow for a proposed surveying firm. The surveyor has made several assumptions in order to prepare the analysis in a spreadsheet.
It is proposed to commence trading in January 2015.
The estimated value of work increases slowly from January until May when it becomes constant. Fixed costs are constant for each month. Variable costs are as shown as a percentage of the Value of Work Performed.
The surveyor has an initial amount of $15,000 for use as cash on hand.
Assume the surveyor uses the cash-based accounting system and that GST payments/refunds will be made to the Australian Taxation Office (ATO) at the end of (rather than on 21st of) October, January, April and July. (For simplicity assume that calculations of GST are for the end of those Months.)
Assume there is a 10% GST Input Tax Credit claimable on all fixed and variable costs.
Assume there is a 10% GST payable on all receipts for work performed.
a. Use a spreadsheet to prepare a table similar to the following example (the table has been provided to allow you to confirm your calculations and is an example only, the estimated value of work performed and initial amount will not be as per the assignment requirements). Some cells (eg Fixed Costs) are constant values only. The remaining cells are calculated from formula using the constant cells and the percentages shown in the cells above the table. The remaining questions require changes to those cells which must then recalculate the amounts in the Cash on Hand column, using the data above.
(5 marks)

b. Suppose the values in the Estimated Value of Work Performed column were as follows. What would be the resultant amounts in the Cash on Hand column? Comment on this. These values are to be used for the rest of the question parts.
(4 + 6 marks)
Estimated value of work performed
Dec-14
Jan-15 $3,000
Feb-15 $5,500
Mar-15 $6,500
Apr-15 $7,000
May-15 $7,000
Jun-15 $7,000
Jul-15 $11,000
Aug-15 $15,000
Sep-15 $17,000
Oct-15 $14,000
Nov-15 $12,000
Dec-15 $11,000
Jan-16
Feb-16
c. Suppose the values in the Estimated Value of Work Performed column stayed the same as in (b) but greater effort was made to invoice earlier. (See table below.) What would the resultant amounts in the Cash on Hand column? Comment on this.
(4 + 6 marks)
Suppose the values in the Estimated Value of Work Performed column stayed the same as in (b) but a greater effort was made to invoice earlier. i.e.
75% of work performed will be invoiced in the same month
20% of work performed will be invoiced in the following month
5% of work performed will be invoiced 2 months later
100%

50% of accounts due at the end of the month will be paid
25% of accounts dsue at the end of the month will be paid by the end of the following month
20% of accounts due at the end of the month will be paid 2 months later
5% of accounts will never be paid
100%

25% of Value of Work equals the Variable Costs and is paid at the end of the month of use
d. Suppose the values in the Estimated Value of Work Performed column stayed the same as in (b) but greater effort was made to collect accounts earlier. (See table below.) What would the resultant amounts in the Cash on Hand column? Comment on this.
(4 + 6 marks)
Suppose the values in the Estimated Value of Work Performed column stayed the same as in (b) but a greater effort was made to collect accounts earlier. i.e.
50% of work performed will be invoiced in the same month
25% of work performed will be invoiced in the following month
25% of work performed will be invoiced 2 months later
100%

75% of accounts due at the end of the month will be paid
15% of accounts due at the end of the month will be paid by the end of the following month
5% of accounts due at the end of the month will be paid 2 months later
5% of accounts will never be paid
100%

25% of Value of Work equals the Variable Costs and is paid at the end of the month of use
e. Suppose the values in the Estimated Value of Work Performed column stayed the same as in (b) but greater effort was made to invoice earlier and greater effort was made to collect accounts earlier. (See table below.) What would the resultant amounts in the Cash on Hand column? Comment on this. Calculate the firm’s break-even point in terms of gross fees.
(4 + 6 + 5 marks)
Suppose the values in the Estimated Value of Work Performed column stayed the same as in (b) but a greater effort was made to invoice earlier and a greater effort was made to collect accounts earlier. i.e.
75% of work performed will be invoiced in the same month
20% of work performed will be invoiced in the following month
5% of work performed will be invoiced 2 months later
100%

25% of Value of Work equals the Variable Costs and is paid at the end of the month of use
Question 2 (80 marks)
This question deals with how NPV can be used to help decide between different projects. Assume that the discount rate is 6% and ignore the effect of inflation on costs and revenue.
Suppose that a client has requested your assistance in helping to decide which of two development schedules should be adopted with a view to developing a parcel of land into residential lots for sale.
The Parcel can be purchased for $700,000 right now plus $150,000 per year for 6 years. You estimate that the land can be subdivided into 90 residential allotments. Your client wants to develop the land for sale in 9 equal stages (Years 1 to 9), i.e. one stage each year for the next 9 years. You further estimate that the development costs will be approximately $67,000 per allotment. You estimate it will take one year to have the lots ready for release. The real estate agent advises that all lots for each stage will be sold in the year following release (Years 2 to 10) and advises that the lots will sell for $120,000 for Years 2 to 5 and $140,000 for Years 6 to 10.
The Parcel can be purchased outright for $1,500,000 right now. You have already estimated that the land can be subdivided into 90 residential lots. Your client wants to release the land for sale for all lots in one stage, as soon as possible (Year 1). You further calculate that the development costs will be approximately $65,000 per allotment in one stage for Year 1, having allowed one year for the lots to be ready for release. The real estate agent is confident that 30 lots will be sold in the year following release (Year 2) and 20 lots will be sold each year after that (Years 3 to 5) and advises that the lots will sell for $120,000.
a. Create a 10 year DCF and a 5 year DCF respectively for the two development schedules.(30 marks)
b. Assess and discuss the two projects on a financial basis and the advice you would give your client regarding both projects with particular emphasis on feasibility, risks, profit and return, costs and funding? (30 marks)
c. Discuss and describe the warnings you would place on your information and advice? (20 marks)
Question 3 (70 marks)
Given the information in the following table, you are required to:
a. Draw the work flow network (CPM network diagram). You should use the ‘Activity-on-Node’ method. (10 marks)
b. Calculate the critical path and project completion time. (10 marks)
c. Prepare a resource loading diagram for the resource ‘Surveyor’. Assume that all non-critical activities start at their ES times. (10 marks)
d. Smooth the resource ‘Surveyor’without changing the critical path or the expected completion time, and without splitting activities and resources. (15 marks)
e. Comment on the effect of your changes in (d). (5 marks)
f. Assume the resource ‘Surveyor’ is limited to 4. Comment on the effect this has on the critical path and project completion time? (without splitting activities or resources) Demonstrate your answer with the appropriate calculations. (15 marks)
g. Discuss alternative actions available to complete the project in the shortest possible time if your firm was limited to only 4 Surveyors on staff. (Assume the client wants the project completed as per the original critical path) (5 marks)
Activity Time duration (days) Immediate predecessor Resource‘Surveyor’
1 – Start 0
2 3 1 2
3 3 1 1
4 2 1 1
5 4 2, 3 2
6 8 4 2
7 1 5, 8 1
8 10 6 3
9 3 7 1
10 7 6 3
11 3 10 2
12 4 9 1
13 3 11, 12 1
14 1 13 2
15 3 11 3
16-End 0 15, 14
Question 4 (50 marks)
The following Gantt bar chart depicts project activities with the critical path activities at the top of the chart:

The following table shows the units of resources used for each activity.

The following table shows unit costs for each resource.
Weekly cost of resources
1
2
3 $8,000
$5,000
$4,000

You are required to calculate the activity costs in dollars per week, the total activity cost, earned value and planned value from the information given. The reporting date is week 6. (10 marks)
It is estimated that the percentage of each activity completed to this date is as follows:
Activity At week
6
A
B
C
D
E
F
G
H
I
J
K
L 100%
100%
100%
100%
100%
80%
70%
60%
0%
0%
0%
0%
Actual expenditure on the project to date = $360 000
You should analyse the results and give an opinion as to the health of this project. (20 marks)
Your answer should include forecasts about the project including the final expected project cost at completion. (20 marks)
Question 5 (50 marks)
You are required to calculate the charge–out rate for a survey party which includes both the surveyor and surveyor’s assistant. The base salary for the surveyor is $60,000 and the surveyors assistant is $40,000. The standard working days are 7.5 hours per day for 5 days per week for 52 weeks per year with a provision of 45 days as non-working days (leave, public holidays, sickness etc.). The profit factor is one third of the gross fees or one half of the total costs of employment. Calculate the survey party charge rate per hour.
The costs attached to the surveyor and surveyors assistant are as follows:
Description % of salary surveyor % of salary surveyor’s assistant
Base salary 100 100
Direct Salary on-costs
Annual leave + loading 10.25 10.25
Public holidays and sick leave 9.3 9.3
Long service leave 2.6 2.6
Payroll tax 4.75 4.75
Work cover insurance 1.303 1.303
Superannuation 9 9

Indirect costs
Non-chargeable salaries (support staff) 15.25 13.13
Proposals 5 0
Non-chargeable/non-productive time 10 15
CPD 5 5

Overhead costs
Vehicle running expenses 10 10
Premises, vehicle, office and survey equipment 35 35
Consumables 10 10
Depreciation of vehicle, office and survey equipment 10 10
Bad debts 5 5

Question 6 (50 marks)
The following financial transactions have occurred for the Spatialisation Company (SC). Compile ledger entries and calculate a trial balance for the following accounts:
Transaction #1: On April 1, 2015, SC starts a survey practice by your capital injection of $100,000 for shares in the company.
Transaction #2: On April 2, 2015 the business acquired a $120,000 bank loan liability (Loans Payable).
Transaction #3: On April 2 , 2015, SC paid business registration and licensing fees for the business, $500 by cheque.
Transaction #4: On April 5, 2015, the business acquired office equipment to a total of $13,000. The entire amount was paid in cash.
Transaction #5: On April 6, 2015, the business acquired surveying equipment at $76,000. The business paid a 50% down payment and the balance will be paid after 60 days. Note this will result in a split journal entry.
Transaction #6: Also on April 6, 2015, SC purchased supplies ‘on account’ amounting to $1,500.
Transaction #7: On April 9, 2015, the business received $2,000 cash for services rendered.
Transaction #8: On April 10, 2015, the business invoiced a client for services rendered, $1,500 on an account settlement date of 30 days.
Transaction #9: On April 11, 2015, the business invoiced a client for services rendered, $3,500 on an account settlement date of 30 days.
Transaction #10: On April 11, the business paid some of its liability in transaction #6 by issuing a cheque. The business paid $500 of the $1,500 balance. The balance of theaccounts payable in transaction number #6 would now be $1,000 credit ($1,500 initial credit and a $500 debit).
Transaction # 11: On April 12, the business paid rent for April, $2,500.
Transaction #12: On April 12, the business paid salaries to its employees, $4,500.
Ledger names as follows:
Cash
Capital
Loans payable
Accounts payable
Accounts receivable
Service revenue
Surveying supplies
Surveying equipment
Office equipment
Rent expense
Salaries expense
Fees and licences
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