Fatta’s Corporate Garage Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Question 1

Part 2

Briefly explain the difference between adjusting entries and entries that would be made to correct errors.

Adjusting Entries:

Adjusting entries are the essential entries that are made by every organization, whether it is small proprietorship business or large public companies. These entries are required to record various entries of the companies showcasing the accrual method of accounting. These include entries to record accrued and deferred expenses and revenues.

Correcting Entries:

Correcting entries are made to rectify the errors that were made during the recording of adjusting entries. These entries may be made either to rectify the recorded amount or to rectify an entry that was recorded in a wrong account.

Question 3

Part 2

On the basis of the cash budget prepared in part (1), what recommendation should be made to the controller?

Cash Budget:

The cash budget for the three months shows a positive balance at the end of all three years. The company’s minimum balance requirement was $35000 at the end of the month.

This balance requirement is met in all the three months which shows that the financial position of the company is strong and the company does not require any type of financing. By analysing the cash budget, it is recommended that the controller should follow the same policy as it is profitable for the company.

Question 5

Part 1

Advise the capital investment committee, advising it on the relative merits of the two projects.

The investment value of both projects is $480,000. The project of warehouse has an IRR of 13% while the project of tracking technology has an IRR of 15%. The cost of capital in both projects is 15%

The only worth investment is project of tracking technology because it gives positive NPV of $3,721 while warehouse gives negative NPV of ($17,403).

The only merit of project warehouse is that its IRR is lower than tracking technology which means it could break even at lower rate.Fatta’s Corporate Garage Case Solution

Part 2

Advising management on the relative merits of each of the two products.

The investment in both projects is $270,000. The projects of Home & Garden and Music Beats could give equal cash inflows and yields. Both projects have positive NPV’s which is a good sign and with low payback period.

The merit of project of Home & Garden is that it has higher NPV value than Music Beats, means it could have much higher than expected.

The merit of project of Music Beats is since it has low returns as compared to Home & Garden it could be paid much quicker than expected payback period.....................

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