Week 6 - Break Even Analysis

Waterways Continuing Problem 20 a, b1-b2 (Part 2) Waterways has discovered that a small fitting it now manufactures at a cost of $1.00 per unit could be bought elsewhere for $0.83 per unit. Waterways has fixed costs of $0.20 per unit that cannot be eliminated by buying this unit. Waterways needs 452,000 of these units each year. If Waterways decides to buy rather than produce the small fitting, it can devote the machinery and labor to making a timing unit it now buys from another company. Waterways uses approximately 400 of these units each year. The cost of the unit is $12.56. To aid in the production of this unit, Waterways would need to purchase a new machine at a cost of $2,321, and the cost of producing the units would be $9.70 a unit. ] Your answer is incorrect. Try again. Without considering the possibility of making the timing unit, evaluate whether Waterways should buy or continue to make the small fitting. The company should buy the fitting. Incremental cost / (savings) will…

Activity Frame $1,551.22 $1,163.42 $1,318.54 $1,706.34 Fox spent $1,500 on a marketing study to estimate the number of units that it can sell each year. What should Fox do to take this information into account? The company does not need to do anything with the cost of the marketing study because the marketing study is a sunk cost. Increase the NPV of the project $1,500. Increase the amount of the initial investment by $1,500.

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Question 26, P1-4 (similar to) Part 1 of 5 Marginal cost-benefit analysis and the goal of the firm Ken Allen, capital budgeting analyst for Bally Gears, Inc., has been asked to evaluate a proposal. The manager of the automotive division believes that replacing the robotics used on the heavy truck gear line will produce total benefits of $525,000 (in today's dollars) over the next 5 years. The existing robotics would produce benefits of $423,000 (also in today's dollars) over that same time period. An initial cash investment of $210,000 would be required to install the new equipment. The manager estimates that the existing robotics can be sold for $82,000. Show how Ken will apply marginal cost-benefit analysis techniques to determine the following: a. The marginal benefits of the proposed new robotics. b. The marginal cost of the proposed new robotics. c. The net benefit of the proposed new robotics. d. What should Ken recommend that the company do? Why? e. What factors besides the…

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Problem 6 Given the marginal cost data in the table below for a defender, it is economical to replace the defender in year 1 if EUAC of challenger is $12,500. Year 1 Marginal cost of defender $13,000 2 $12,000 3 $11,000 4 $16,000 5 $15,000

Chapter 10, Question 1

Question 4 of 9 - /0.75 !! View Policies Current Attempt in Progress Ivanhoe's Candles will be producing a new line of dripless candles in the coming years and has the choice of producing the candles in a large factory with a small number of workers or a small factory with a large number of workers. Each candle will be sold for $10. If the large factory is chosen, the cost per unit to produce each candle will be $3.00. The cost per unit will be $7.50 in the small actory. The large factory would have fixed cash costs of $1.8 million and a depreciation expense of $300,000 per year, while those expenses would be $490,000 and $100,000, respectively in the small factory. Calculate the accounting operating profit break-even point for both factory choices for Ivanhoe's Candles. (Round answers to nearest whole units, e.g. 152.) The accounting break-even point for large factory is units and for small factory is eTextbook and Media Save for Later Attempts: 0 of 3 used Submit Answer APR tv

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QUESTION 1 1. (14 MARKS) The Majestic Mulch and Compost Company (MMCC) is investigating the feasibility of a new line of power mulching tools aimed at the growing number of home composters. Based on exploratory conversations with buyers for large garden shops, MMCC projects unit sales as follows: UNIT SALES YEAR 1 2 3 4 5 6 3,000 5,000 6,000 6,500 6,000 5,000 4,000 3,000 7 8 The new power mulcher will sell for $120 per unit to start. When the competition catches up after three years, however, MMCC anticipates that the price will drop to $110.The power mulcher project will require about 20% of the first year sales revenue in net working capital at the start. The variable cost per unit is $60, and total fixed costs are $25,000 per year. It will cost about $800,000 in total to buy the equipment necessary to begin production. This investment is primarily in industrial equipment, which qualifies as seven-year MACRS property. The equipment will be worth about 20 percent of its cost in eight…

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Homework Assignment #13 E Print Item Pompeii's Pizza has a delivery car that it uses for pizza deliveries. The transmission needs to be replaced and there are several other repairs that need to be done. The car is nearing the end of its life, so the options are to either overhaul the car or replace it with a new car. Pompeii's has put together the following budgetary items: Present Car New Car Purchase cost new $32,000 Transmission and other repairs $8,000 Annual cash operating cost 13,000 10,000 Fair market value now 5,000 Fair market value in five years 1,000 5,000 If Pompeii's replaces the transmission of the pizza delivery vehicle, they expect to be able to use the vehicle for another 5 years. If they sell the old vehicle and purchase a new vehicle, they will use that vehicle for 5 years and then trade it in for another new pizza delivery vehicle. If they trade for the new delivery vehicle, their operating expenses will decrease because the new vehicle is more gas efficient and the…

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Exercise 3   The Bremer Co. manufactures cordless telephones Bremer is planning to implement a JIT production system, which requires annual tooling costs of $150,000. Bremer estimates that the following annual benefits would arise from JIT production.   a. Average inventory will decline by $700,000 from $900,000 to $200,00 b. Insurance, space, materials handling, and setup costs, which currently total $200,00 would decline by 30% c. The emphasis on quality inherent in JIT system would reduce rework costs by 20% Bremer currently incurs $350,000 on rework. d. Better quality would eneble Bremer to raise the prices of its products by $3 per unit. Bremer sells $30,000 unit each year. Bremer required rate of return on inventory investment is 12% per year   Required: Claculate the net benefit or cost to the Bremer Corporation From implementing a JIT production system. What other nonfinancial and qualitative factors should Brmeer Consider before deciding on whether it should implement a JIT…

#1 A firm is considering replacing the existing industrial air conditioning unit. They will pick one of two units. The first, the AC360, costs $26,952.00 to install, $5,185.00 to operate per year for 7 years at which time it will be sold for $6,846.00. The second, RayCool 8, costs $41,608.00 to install, $2,102.00 to operate per year for 5 years at which time it will be sold for $8,928.00. The firm’s cost of capital is 5.72%. What is the equivalent annual cost of the AC360? Assume that there are no taxes. Answer format: Currency: Round to: 2 decimal places.

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1. Austin's cell phone manufacturer wants to upgrade their product mix to encompass an exciting new feature on their cell phone. This would require a new high-tech machine. You are excited about his new project and are recommending the purchase to your board of directors. Here is the information you have compiled to complete this recommendation: Unit selling price Unit variable cost Fixed Costs Depreciation costs Expected sales $45, $25, $200,000, $35,000, 10,000 units per year According to the information, the project will last 10 years and require an initial investment of $800,000, depreciated with straight-line over the life of the project until the final value is zero. The firm's tax rate is 30% and the required rate of return is 12%. You believe that the variable cost and sales volume may be as much as 10% higher or lower than the initial estimate. Your boss understands the risks but asks you to explain the alternatives in a brief memo to the board. Write a memo to the Board of…