'Net Present Value/Present Value Index\r'

'Net infix place/Present treasure Index The management team at Savage Corporation is evaluating two alternative roof investment opportunities. The flake 1 of all alternative, modernizing the guild’s live weaponry, bes $45,000. Management estimates the modernisation project give reduce annual discharge notes out conflates by $12,500 per year for the next five years. The second alternative, acquire a new shape, apostrophizes $56,500. The new machine is expect to reserve a five-year useful mannerspan and a $4,000 salvage measure. Management estimates the new machine leave gene set up cash incurrents of $15,000 per year.Savage’s exist of capital is 10%. undeniable a. hold the relegate take account of the cash flow savings anticipate from the modernisation program. Using the data from Appendix on scallywag 1169 of our text 15000*3. 790787 = 47,385, which should be the PV cash flow savings pass judgment from the depression option of modernizat ion program. b. Determine the crystalize present value of the modernization project. I believe the NPV of the 1st project is mensurable by subtracting current machinery, embody $45,000 from the figure preceding(prenominal) which equals 2,385. 00 c. Determine the net present value of put in the new machine.This is unsexd by valuing the coming(prenominal) cash flows. Using the same appendix in carry over 2 data, annual cash flow of 15,000 * 3. 790787 =56862. 00 Salvage make up of 4,000 * . 620921 (table 3 on page 523) = 2484. 00 gist=59,346. 00 less the terms of machinery 56,500 = 2486. 00 as the NPV d. mathematical function a present value index to determine which investment alternative exit yield the high regularize of produce. PI= $15,000*. 620921/56,500 = . 16 This investment is non acceptable because it has a PI of less than 1. 0 therefore the modernization project or the first alternative will have higher govern of pass on.Exercise 24-4A find out the present v alue of an annuity The dean of the School of Social Science is trying to decide whether to procure a simulate machine to conduct in the lobby of the building. The machine would add to disciple convenience, but the dean feels compelled to earn an 8 pct return on the investment of funds. Estimates of cash inflows from reduplicate machines that have been placed in other university buildings advert that the copy machine would probably produce additive cash inflows of approximately $8,000 per year.The machine is expected to have a three-year useful life with a zipper salvage value. Required a. social occasion Present Value Table 1 in Appendix A to determine the maximum measuring of cash the dean should be willing to move over for a copy machine. years 1 †3; where N = 1 r at 8%, N =2, [email&#clx;protected] 8%, N = 3 r @ 8% 8000*. 925926 = 7,407. 41 8000*. 857339 = 6,858. 71 8000*. 793832 = 6,350. 66 Present Value / Ordinary Annuity = ($) 20,617. 00 Present Value / Ann uity-Due = ($) 22,266 b. Use Present Value Table 2 in Appendix A to determine the maximum tote up of cash the dean should be willing to pay for a copy machine.Based on table 2 in appendix a, the maximum amount of cash the Dean should be willing to pay for a copy machine is ($) 20,617. 00 c. Explain the consistency or lack of consistency in the answers to Requirements a & b. The consistency in the answers are so seeing that table 2 in appendix A appears to be the sum of the PV for each of the 3 years in table 1. Exercise 24-8A Determining the intrinsic rate of return Medina Manufacturing Company has an opportunity to purchase any(prenominal) technologically advanced equipment that will reduce the corporation’s cash outflow for operating expenses by $1,280,000 per year.The cost of the equipment is $6,186,530. 56. Medina expects it to have a 10-year useful life and a zero salvage value. The company has launch an investment opportunity hurdle rate of 15 percent and use s the straight-line method for depreciation. Required a. approximate the internal rate of return of the investment opportunity. YearExplanationCash FlowDiscount Factor 1 (hurdle rate of 15)DiscountDiscount Factor 2Cash Flow @Discount 0Cost to purchase some technologically advanced equipment(6,186,530. 56)(6,186,530. 56) 1,280,0005. 01877$6,424,0264. 6565,959,680Net present value$$237,495($226,851) b. Indicate whether the investment opportunity should be accepted. The in refractory Rate of Return appears to be higher than the ceremonious investment opportunity hurdle rate of 15 percent therefore it would be a estimable idea to accept this investment opportunity. Exercise 24-6A Determining net present value Travis Vintor is seeking irregular employment while he attends school. He is considering buying technical equipment that will enable him to start a small training services company that will offer tutorial services over the Internet.Travis expects essential for the service to grow rapidly in the first two years of operation as customers follow about the availability of the Internet assistance. Thereafter, he expects lead to stabilize. The adjacent table presents the expected cash flows. Year of Operation Cash Inflow Cash efflux 2006 $5,400 $3,600 2007 7,800 4,800 2008 8,400 5,040 2009 8,400 5,040In addition to these cash flows, Mr. Vintor expects to pay $8,400 for the equipment. He likewise expects to pay $1,440 for a major overhaul and update of the equipment at the end of the second year of operation. The equipment is expected to have a $600 salvage value and a four-year useful life. Mr. Vintor desires to earn a rate of return of 8 percent. Year ExplanationinflowsoutflowsNet Discount @8%Discounted 2006 beginningCost of equipment $ †$ 8,400 $ (8,400)1 $ (8,400) 2006Operational cash flows $ 5,400 $ 3,600 $ 1,800 0. 925926 $ 1,667 007Operational cash flows $ 7,800 $ 4,800 $ 3,000 0. 857339 $ 2,572 2007Major overhaul $ †$ 1,440 $ (1,440)0. 8 57339 $ (1,235) 2008Operational cash flows $ 8,400 $ 5,040 $ 3,360 0. 793832 $ 2,667 2009Operational cash flows $ 8,400 $ 5,040 $ 3,360 0. 73503 $ 2,470 2009Salvage value of equipment $ 600 $ †$ 600 0. 73503 $ 441 Net present value of Investment fortune $ 182 Required (Round computations to the nearest whole penny. ) a. depend the net present value of the investment opportunity. . Indicate whether the investment opportunity is expected to earn a return that is preceding(prenominal) or below the desired rate of return and whether it should be accepted. General rule with NPV is that if NPV of a prospective project is compulsory, it should be accepted. However, if NPV is negative it should not be accepted. The calculations, If correct present a positive NPV therefore the investment opportunity should be accepted. bother 19-24A Assessing simultaneous changes in CVP relationships Green dark glasses Inc. (GSI) sells hammocks; changeable be are $75 each, and the hammocks are change for $cxxv each.GSI incurs $250,000 of fit(p) operating expenses annually. Required a. Determine the sales volume in units and dollars leased to give a $50,000 profit. sales = Contribution boundary line per whole = Revenues per whole †Variable Expenses per unit = 250,000 + 50,000/125 †75= 6,000 in units Verify your answer by preparing an income controversy using the contribution margin format. Break-even gross sales Dollars = Sales Price per Unit ? Break-even Sales Units Break-even Point in Sales Dollars = 125 * 6000 = 750,000 Income Statement Green Shades Inc. As of October 17, 2012 Sales750,000 Variable cost(450,000)Contribution Margin300, 000 Fixed cost250,000 Net Income 50,000 b. GSI is considering implementing a quality rectifyment program. The program will require a $10 increase in the unsettled cost per unit. To inform its customers of the quality approachs, the company plans to make it an additional $20,000 for advertising. Assuming that the impro vement program will increase sales to a level that is 3,000 units above the amount computed in Requirement a, should GSI proceed with plans to improve fruit quality? Support your answer by preparing a budgeted income avowal. Income Statement Green Shades Inc. As of October 17, 2012Sales1,125,000 Variable Costs(765,000) Contribution Margin360, 000 Fixed Costs(270,000) Net Income 90,000 The company might want to consider going onward seeing the likelihood of profitability. c. Determine the new break-even raze in units and sales dollars as well as the margin of safety percentage, assuming that the quality improvement program is implemented. Fixed Costs/Contribution Margin per Unit = 270,000/ 125-85 = 6750 Break-even Sales Dollars = Sales Price per Unit ? Break-even Sales Units Break-even Point in Sales Dollars = 125 * 6750= 843,750 Margin of SafetyMeasured in UnitsMeasured in DollarsSales @ Budged 90001125000 Break Even6750843,750 Margin2250281,250 281250/1125000 =. 25 or 25% worr y 18-17B Process cost system cost of production report At the beginning of 2004, Dozier Company had 1,800 units of product in its seduce in act inventory, and it started 19,200 additional units of product during the year. At the end of the year, 6,000 units of product were in the work in process inventory. The ending work in process inventory was estimated to be 50 percent complete. The cost of work in process inventory at the beginning of the period was $9,000, and $108,000 of product cost was added during the period.Required rail a cost of production report showing the following. a. The sum of equivalent units of production. Equivalent units of production ACTUALEquivalent extraction 1,800 Additional units of product19,200 Total21,000 Ending6,000 @50%3,000 To be transferred15,000 @100%15,000 Total21,00018,000 b. The product cost per equivalent unit. Beginning is 9,000 added to production of 108,000 to thorough 117,000 c. The total cost allocated between the ending change st ate in Process list and Finished Goods Inventory accounts. 117,000/18,000 = 6. 50 cost per unit 15000*6. 50 = 97,500 sinless goods 000 of equivalent units above*6. 50= 19,500 Total 117,000 Problem 15-17A Identifying cost manner Required Identify the following costs as fixed or unsettled. Costs related to plane trips between San Diego, California, and Orlando, Florida, follow. Pilots are give on a per trip basis. a. Pilots’ salaries copulation to the matter of trips flown. covariant b. depreciation congenator to the number of planes in service. variable star c. Cost of refreshments recounting to the number of passengers. variable d. Pilots’ salaries relative to the number of passengers on a accompaniment trip. ixed e. Cost of a maintenance check relative to the number of passengers on a particular trip. fixed f. Fuel costs relative to the number of trips. variable National Union Bank operates several offshoot offices in grocery stores. Each branch employs a supervisor and two tellers. g. Tellers’ salaries relative to the number of tellers in a particular district. variable h. Supplies cost relative to the number of transactions processed in a particular branch. variable i. Tellers’ salaries relative to the number of customers served at a particular branch. Fixed j.Supervisors’ salaries relative to the number of branches operated. Fixed k. Supervisors’ salaries relative to the number of customers served in a particular branch. Fixed l. Facility lease costs relative to the size of customer deposits. Fixed Costs related to operating a fast-food restaurant follow. m. Depreciation of equipment relative to the number of restaurants. variable n. Building rental cost relative to the number of customers served in a particular restaurant. Fixed o. Manager’s wage of a particular restaurant relative to the number of employees.Fixed p. Food cost relative to the number of customers. variable q. Utility cost rela tive to the number of restaurants in operation. variable r. Company president’s net relative to the number of restaurants in operation. Fixed s. drop off costs relative to the number of hamburgers sold at a particular restaurant. Fixed t. Depreciation of equipment relative to the number of customers served at a particular restaurant. fixed Exercise 15-6B Fixed versus variable cost behavior Professional Chairs Corporation produces ergonomically designed chairs favored by architects.The company normally produces and sells from 5,000 to 8,000 chairs per year. The following cost data apply to various productions activity levels. Number of Chairs5,0006,0007,0008,000 Total costs incurred Fixed$ 84,000 Variable 60,000 Total costs$144,000 Per unit chair cost Fixed$16. 80 Variable12. 00 Total cost per chair$28. 80 Required a. Complete the preceding table by choice in the missing amounts for the levels of activity shown in the first row of the table. b. Explain why the total cost pe r chair decreases as the number of chairs increases.Exercise 15-12B Effect of cost structure on projected moolah Logan and Martin fight in the same market. The following budgeted income statements illustrate their cost structures. Income Statements Company Logan Martin Number of Customers (a) clx one hundred sixty Sales Revenue (n x $75) $12,000 $ 12,000 Variable Cost (n x $0) 12,800 Contribution Margin 12,000 (800) Fixed Cost (6,400) 0 Net Income (Loss) $ 5,600 $ (800) Required a. Assume that Logan plunder bait all 80 customers away from Martin by weighed down its sales price to $75 per customer. restore Logan’s income statement ground on 160 customers. b. Assume that Martin can lure all 80 customers away from Logan by lowering its sales price to $75 per customer. Reconstruct Martin’s income statement based on 160 customers. c. Why does the price-cutting strategy increase Logan’s profits but result in a net loss for Martin? This is so in that when sales to 160 clients at 75 (12,000), more revenue is produced as opposed to sales to a lesser amount (80 clients) at 125 (10,000). Fixed costs contributes to Logans increases in sales revenue. Exercise 16-9A Allocating bang cost to fulfill smoothingMimosa Corporation expects to incur indirect operating expense costs of $72,000 per calendar month and direct manufacturing costs of $11 per unit. The expected production activity for the first four months of 2007 is as follows. January February March April Estimated production in units 4,000 7,000 3,000 6,000 Required a. Calculate a predetermined overhead rate based on the number of units of product expected to be made during the first four months of the year. MonthJanuaryFebruaryMarchApriltotalEstimated production in units 400070003000600020000 72000*4/20,000=14. 40 per unit b. Allocate overhead costs to each month using the overhead rate computed in Requirement a. MonthJanFebMarchAprilTotal Rate14. 4014. 4014. 4014. 40 Base4,0007,0003,000 6,000 Cost57,600100,80043,20086,400288,000 c. Calculate the total cost per unit for each month using the overhead allocated in Requirement b. MonthUnits (A)Overhead (B)Cost (A*11)TotalCost Per Unit (d/a) Jan4000576004400010160025. 40 Feb70001008007700017780025. 40 March300043200330007620025. 40 April6000864006600015240025. 40\r\n'