42. The manager of Stock Division projects the following for next year:Sales$185,000Operating incomeOperating assetsThe manager can invest in an additional project that would require $40,000 investment inadditional assets and would generate $6,000 of additional income. The company's minimum rate$60,000$375,000of return is 14%.What is the residual income for Stock Division without the additional investment? *$6,000$7,500$40,000$6,200$6,600

Residual income: It can be defined as the leftover income or profits of the business after providing…

Answered: 42. The manager of Stock Division…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Sales are 150,000. COGS are 100,000. SG&A Overhead is 20,000. Depreciation is 15,000. Interest Expense is 10,000. Capital Expenditures is 15,000. Net Working Capital is not expected to rise by 1,000. The tax rate is 20%. What is FCF?
Jordan Corporation is considering a new product that will be very popular for a couple of years and then slowly lose its commercial appeal. Sales are projected to be $90,000 in year one, $100,000 in year two, $60,000 in year three, $40,000 in year four, $20,000 in year five, and $10,000 in the final year six. Expenses are expected to be 40% of sales with net working capital requirements to be 15% of the following time period’s revenue. Equipment of $126,000 will be required for the launch of the product; this equipment can be depreciated straight-line over six years and will be worthless at the end of the project. The Tax Rate is 20% and the opportunity cost of capital is 14.5%. What is the Internal Rate of Return (rounded to two places)? Multiple Choice 32.61% None of the above 13.39% 18.32% 19.46%
The company had an overall return on investment (ROI) of 15% this year (considering all divisions). Next year the Office Products Division has an opportunity to add a new product line that would require an additional investment that would increase average operating assets by $1,000,000. The cost and revenue characteristics of the new product line per year would be: Sales $2,000,000 Variable expenses 60% of sales Fixed expenses $640,000 Required: 1. Compute the Office Products Division's margin, turnover, and ROI for this year. 2. Compute the Office Products Division's margin, turnover, and ROI for the new product line by itself. 3. Compute the Office Products Division's margin, turnover, and ROI for next year assuming that it performs the same as this year and adds the new product line. 4. If you were in Dell Havasi's position, would you accept or reject the new product line? Explain. 5. Why do you suppose headquarters is anxious for the Office Products Division to add the new product…
Bronze It Tanning Salon expects annual sales of $1,175,000, annual fixed cash outlays are $586,000 a year at each location, variable cash outlays are 12 percent of sales, depreciation is $115,000 per year, and taxes are 32% (of pretax income). Initial outlay for the building is $2,140,000. The company does its analysis based on a 20-year store life. We believe the business can be sold for $580,000 after taxes at the end of its 20 year operating life. 1. Using an 12% required return, what is the net present value of this venture? 2. Please rework the prior problem to determine the net present value level of annual sales volume that is needed to generate a net present value of $0?
A company has a capital employed of P 200,000. It has a cost of capital of 12% per year. Its residual income is P 36,000. What is the company’s return on investment? a. 30% b. 12% c. 18% d. 22%
The Western Division of Claremont Company had net operating income of $154,000 and average invested assets of $557,000. Claremont has a required rate of return of 14.75 percent. Western has an opportunity to increase operating income by $48,000 with a $84,000 investment in assets. Compute Western Division's return on investment and residual income currently and if it undertakes the project. Note: Enter your ROI answers as a percentage rounded to two decimal places, (i.e., 0.1234 should be entered as 12.34%). Round your Residual Income (Loss) answers to the nearest whole dollar. Return on Investment (ROI) Residual Income (Loss) Current % Proposed Project
An investment with total costs of $10,000 will generate total revenues of $11,000 for one year. Management thinks that since the investment is profitable, it should be made. Do you agree? What additional infromation would you want? If funds cost 12 percent, what would be your advice to management? Would your answer be different if the cost of capital is 8 percent?
None
6
Accounting Rate of Return Vanderhoort Company invested $10,370,000 in a new product line. The life cycle of the product is projected to be seven years with the following net income stream: $360,000, $360,000, $600,000, $1,080,000, $1,200,000, $2,520,000, and $1,444,000. Required: Calculate the ARR. Enter your answer as a decimal, do not convert to a percent. Round your answer to two decimal places.
A proposed project has fixed costs of $48,000 per year. The operating cash flow at 11,000 units is $85,000 units. What is the new degree of operating leverage?
An advertising campaign will cost $306,000 for planning and $48,000 in each of the next six years. It is expected to increase revenues permanently by $48,000 per year. Additional revenues will be gained in the pattern of an arithmetic gradient with $24,000 in the first year, declining by $6,000 per year to zero in the fifth year. What is the IRR of this investment? If the company's MARR is 8 percent, is this a good investment? the MARR, so the advertising campaign The IRR is percent, which is good investment. (Round to one decimal place as needed.) a

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