Define in your own words the meaning of phrases relevant cash costs and relevant cash benefit

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Florida Atlantic University *

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3300

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Finance

Date

Feb 20, 2024

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docx

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Uploaded by bmdejesus3

1. Define in your own words the meaning of phrases relevant cash costs and relevant cash benefit. Relevant cash flows are all the incremental cost that occur when an investment or project is in place. It is caused by the course of action a cash inflow. A relevant cash benefit is the cash payment that happens because of the investment or project that is taking place. 2. Why is an increase in working capital considered and relevant cash costs? An increase in working capital is considered an relevant cash cost because cash outflow is needed to increase capital. 3. For a movie producer give an example of sunk cost that might exist when the release of a new picture is being considered Sunk cost which are expenditures that occurred prior to the time when the decisions were being made. It is money that is already spent and cannot be recovered. Examples would include salaries, insurance, rent, nonrefundable deposits. 4. An airline is considering a new promotional campaign to attract college students by offering them the right to fly standby at low prices when seats are not otherwise filled list several examples of relevant and de relevant costs from the airlines point of view. There are several examples of relevant and irrelevant cost from the airlines point of view. Irrelevant cost would be the gas that would have occurred anyway and the purchase of the airplane. Relevant cost would be the amount that is taken away since they have a discounted price now. Also, promotional cost and advertisement cost to bring your promotion to new viewers. 6. Why is interest expense not treated as irrelevant relevant cash cost in the capital budgeting process? Interest expense is not treated as irrelevant cash cost in the capital budgeting process because 1. Fort Wayne corporation expects the following revenues cash expenses and depreciation charges as a result of the recent openings of affiliated store in Lansing Fort Wayne is in the 40% track tax bracket, please compute the after-tax cash flows from this investment in the Lansing store

2. Right before opening the Lansing store discussing problem one you have discovered that a Fort Wayne forgot to budget 10% of revenues as the cash balance 20% cash expenses as the inventory balance and 10% of cash expenses as the accounts payable a balance of these balances would be needed at the beginning of each year in our estimated from the year end annual estimates of revenues and cash expenses given earlier please calculate the cash flows for the Lansing store investment 5. You may have observed the increased popularity of fashionable pool halls these pool halls are nothing like they're often violent and smoke filled predecessors these establishments target an upscale clientele who like to meet for pool rather than dancing or some other activity assume that you build one of the establishments and spent 500,000 for the building and 100,000 for equipment tax life for five years and place it into service on January 1st the pool hall will bring in 10,000 per week in revenue and cost 4300 per week in cash expenses assume A50 week year the building will be sold for 400,000 at the end of the fifth year and the equipment will be sold for 10,000 at the end of the fifth year no other cash flows to occur during the five-year operation what is the net present value at a 50% interest rate. 18. Mason James corporation expects to install $100,000 machine in 2004 and another $120,000 machine in 2007 the first machine has a five-year tax life and the second machine has a seven-year tax life what is the total expectation expected depreciation expense for these two machines in 2009

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