A manager is trying to decide whether to build a small, medium, or large facility. Demand can be low, average, or high, with the estimated probabilities being 0.40, 0.35, and 0.25, respectively.
Q: Which of the following is NOT a use of CVP (Cost-Volume-Profit) analysis? a.what is the impact on…
A: SOLUTION- CVP ANALYSIS IS USED TO DETERMINE HOW CHANGES IN COSTS AND VOLUME EFFECTS A COMPANY'S…
Q: According to the Productivity Index, which project should be chosen? Explain why people use the…
A: Net present value is the amount which is computed by subtracting the present value of cash outflow…
Q: A typical planning decision would be described as: Select one: O A. Monitoring actual sales…
A: Typically planning is Process of making a detailed proposal for doing or achieving something. In…
Q: What challenges might managers at SES encounter in achieving the target cost and how might they…
A: Target costing: Target costing is a method of determining the cost of a product or service based…
Q: The formula for ROI is simply the gain from the project minus cost of the project divided by the…
A: Return on investment is the actual gain on the project represented as a percentage.
Q: most significant drawback of evaluating investment centers using RO
A: ROI is an accounting metric used to evaluate the return on invested capital of the business.
Q: Faced with a long-run make-or-buy decision, the manager should do all of the following except: a.…
A: Ans. While considering a make - or- buy decision a manager is expected to do a lots of study and…
Q: ect has multiples rates of return (i.e., multiple values of IRR), it means that the project is…
A: IRR is the internal rate of return and is the break even rate of return at which the present value…
Q: ou assign the highest anticipated sales and price and the lowest anticipated costs to a project, you…
A: In doing analysis of projects there is uncertainty regarding sales and cost so due to this different…
Q: “Managers will always choose the alternative that maximizes operating income or minimizes costs in…
A: Operating income: Income that is derived from business revenues after deducting operating expenses…
Q: We can get a sense of how model output responds to changes in inputs from sensitivity analyses. Some…
A: Sensitivity analysis is used to find out the change in input of one value lead to change in the…
Q: 1.) What is sensitivity analysis? 2.) Perform a sensitivity analysis on the cost per unit, unit…
A: It is a statement showing various outcomes with different projections of input variables. With the…
Q: From the sensitivity analysis discussed in the given problem. Capstone's managers are convinced that…
A: Break Even Price is the selling price of product at which in a given volume of sales, the…
Q: A seminar was recently attended by the Managing Director of XYZ Manufacturing Company Limited…
A: "Since you have asked a question with sub-parts more than three, as per guidelines, the first three…
Q: Project 1 50% $120,000 50% -$50,000 Project 2 30% $100,000 40% $50,000 30% -$60,000 Project 3 70%…
A: EMV stands fro expected monetary value. It is nothing but a method to quantify risk.EMV=probability…
Q: Capacity planning has to be done well in advance. If the demand exceeds capacity it can lead to lost…
A: Capacity planning is considered a strategic decision because it has a significant impact on a…
Q: Calculate the project profitability index for each product. 2. Calculate the simple rate of return…
A: Profitability index of a project is calculated as shown below.Simple rate of return of a project is…
Q: Please explain the answer thoroughly and support it with an example. True or False: In…
A: Profitability Index and Internal rate of return (IRR) are the two methods which are used for…
Q: As a manager, you have to choose between two options for new production equipment. Machine A will…
A:
Q: e expected return of Project Y is at least equal to the expected return of Project X, and the…
A: There should be optimal combination of risk and return. Return is important but the risk should be…
Q: Consider a situation in which a firm needs to make a decision regarding the resources to allocate…
A: Cost accounting is the branch of accounting that inspects the cost structure of a business. This…
Q: Which of the following statements is true? The use of return on investment (ROI) as a performance…
A: Return on investment (ROI) is the measure of performance which shows the percentage of return earned…
Q: What challenges might managers at Lagoon encounter in achieving the target cost? How might they…
A:
Step by step
Solved in 5 steps with 5 images
- . A manager is trying to decide whether to build a small, medium, or large facility. Demand can be low, average, or high, with the estimated probabilities being 0.25, 0.40, and 0.35, respectively. A small facility is expected to earn an after-tax net present value of just $18,000 if demand is low. If demand is average, the small facility is expected to earn $75,000; it can be increased to medium size to earn a net present value of $60,000. If demand is high, the small facility is expected to earn $75,000 and can be expanded to medium size to earn $60,000 or to large size to earn $125,000. A medium-sized facility is expected to lose an estimated $25,000 if demand is low and earn $140,000 if demand is average. If demand is high, the medium-sized facility is expected to earn a net present value of $150,000; it can be expanded to a large size for a net payoff of $145,000. If a large facility is built and demand is high, earnings are expected to be $220,000. If demand is average for the…Your boss wants you to conduct a sensitivity and scenario analysis to determine whether the following project is a winner. You are entering an established market, and you know the market size will be 1,100,000 units. You are unsure of your exact market share, the price you will be able to charge, and your variable cost per unit, but have determined a range of possible values for each (in the table below). Your initial investment cost is $150 million, and that investment will depreciate in straight-line form over the 20-year life of the project. There are no new NWC requirements, and there will be no salvage value at the end of the 20 years. The tax rate is 35%. The discount rate is 18%. a) Use the following table to conduct a full sensitivity analysis for the project. Make sure to include the NPV for the expected outcome as part of the full sensitivity analysis. Also add the best- and worst-case scenarios to the full sensitivity analysis. Show all of your work (written out, not an…The J.R. Ryland Computer Company is considering a plant expansion to enable the company to begin production of a new computer product. The companys president must determine whether to make the expansion a medium- or large-scale project. Demand for the new product is uncertain, which for planning purposes may be low demand, medium demand, or high demand. The probability estimates for demand are 0.20, 0.50, and 0.30, respectively. Letting x and y indicate the annual profit in thousands of dollars, the firms planners developed the following profit forecasts for the medium-and large-scale expansion projects. a. Compute the expected value for the profit associated with the two expansion alternatives. Which decision is preferred for the objective of maximizing the expected profit? b. Compute the variance for the profit associated with the two expansion alternatives. Which decision is preferred for the objective of minimizing the risk or uncertainty?
- Southland Corporation’s decision to produce a new line of recreational products resulted in the need to construct either a small plant or a large plant. The best selection of plant size depends on how the marketplace reacts to the new product line. To conduct an analysis, marketing management has decided to view the possible long-run demand as low, medium, or high. The following payoff table shows the projected profit in millions of dollars: What is the decision to be made, and what is the chance event for Southland’s problem? Construct a decision tree. Recommend a decision based on the use of the optimistic, conservative, and minimax regret approaches.Spencer Enterprises is attempting to choose among a series of new investment alternatives. The potential investment alternatives, the net present value of the future stream of returns, the capital requirements, and the available capital funds over the next three years are summarized as follows: Develop and solve an integer programming model for maximizing the net present value. Assume that only one of the warehouse expansion projects can be implemented. Modify your model from part (a). Suppose that if test marketing of the new product is carried out, the advertising campaign also must be conducted. Modify your formulation from part (b) to reflect this new situation.Poulsen Industries is analyzing an average-risk project, and the following data have been developed. Unit sales will be constant, but the sales price should increase with inflation. Fixed costs will also be constant, but variable costs should rise with inflation. The project should last for 3 years. Under the new tax law, the equipment for the project is eligible for 100% bonus depreciation, so it will be fully depreciated at t = 0. At the end of the project's life, the equipment will have no salvage value. No change in net operating working capital (NOWC) would be required for the project. This is just one of many projects for the firm, so any losses on this project can be used to offset gains on other firm projects. The marketing manager does not think it is necessary to adjust for inflation since both the sales price and the variable costs will rise at the same rate, but the CFO thinks an inflation adjustment is required. What is the difference in the expected NPV if the inflation…
- Suppose you are considering a project with an initial investment of $500,000. This project has an estimated net present value (NPV) of $750,000. How would you explain the meaning of the $750,000 net present value (NPV) to a nonfinancial manager? O The positive NPV indicates this project is expected to increase the value of the firm by $250,000. The positive NPV indicates this project is expected to increase the value of the firm by $750,000. The project benefits outweigh the costs by $250,000 on a present value basis. O The project benefits outweigh the costs by $500,000 on a present value basis.Desai Industries is analyzing an average-risk project, and the following data have been developed. Unit sales will be constant, but the sales price should increase with inflation. Fixed costs will also be constant, but variable costs should rise with inflation. The project should last for 3 years. Under the new tax law, the equipment used in the project is eligible for 100% bonus depreciation, so it will be fully depreciated at t = 0. At the end of the project’s life, the equipment would have no salvage value. No change in net operating working capital (NOWC) would be required for the project. This is just one of many projects for the firm, so any losses on this project can be used to offset gains on other firm projects. What is the project's expected NPV? WACC 10.0% Equpiment cost $200,000 Units sold 56,000 Average price per unit, Year 1 $25.00 Fixed op. costs (constant) $150,000 Variable op. cost/unit, Year 1 $20.20 Expected annual inflation rate 5.00% Tax rate…Desai Industries is analyzing an average-risk project, and the following data have been developed. Unit sales will be constant, but the sales price should increase with inflation. Fixed costs will also be constant, but variable costs should rise with inflation. The project should last for 3 years. Under the new tax law, the equipment used in the project is eligible for 100% bonus depreciation, so it will be fully depreciated at t = 0. At the end of the project’s life, the equipment would have no salvage value. No change in net operating working capital (NOWC) would be required for the project. This is just one of many projects for the firm, so any losses on this project can be used to offset gains on other firm projects. What is the project's expected NPV? Do not round the intermediate calculations and round the final answer to the nearest whole number. WACC 10.0% Equpiment cost $200,000 Units sold 58,000 Average price per unit, Year 1 $25.00 Fixed op. costs (constant)…
- Desai Industries is analyzing an average-risk project, and the following data have been developed. Unit sales will be constant, but the sales price should increase with inflation. Fixed costs will also be constant, but variable costs should rise with inflation. The project should last for 3 years. Under the new tax law, the equipment used in the project is eligible for 100% bonus depreciation, so it will be fully depreciated at t = 0. At the end of the project’s life, the equipment would have no salvage value. No change in net operating working capital (NOWC) would be required for the project. This is just one of many projects for the firm, so any losses on this project can be used to offset gains on other firm projects. What is the project's expected NPV? WACC 10.0% Equpiment cost $200,000 Units sold 46,000 Average price per unit, Year 1 $28.00 Fixed op. costs (constant) $150,000 Variable op. cost/unit, Year 1 $22.00 Expected annual inflation rate 5.00% Tax rate 25.0%…Desai Industries is analyzing an average-risk project, and the following data have been developed. Unit sales will be constant, but the sales price should increase with inflation. Fixed costs will also be constant, but variable costs should rise with inflation. The project should last for 3 years. Under the new tax law, the equipment used in the project is eligible for 100% bonus depreciation, so it will be fully depreciated at t = 0. At the end of the project’s life, the equipment would have no salvage value. No change in net operating working capital (NOWC) would be required for the project. This is just one of many projects for the firm, so any losses on this project can be used to offset gains on other firm projects. What is the project's expected NPV? Do not round the intermediate calculations and round the final answer to the nearest whole number. WACC 10.0% Equipment cost $200,000 Units sold 56,000 Average price per unit, Year 1 $25.00 Fixed op. cost excl.…Companies are presented with viable alternatives that sometimes produce nearly identical results and profitability goals. If they have the ability to invest in both alternatives, they may do so. But what about when resources are constrained? How do they choose which investment is best for their company? Consider this: you have two projects that met the payback period and accounting rate of return screenings identically. Project 1 produced an NPV of $45,000 and had an IRR between 5% and 8%. Project 2 produced a NPV of $35,000 and had an IRR of 10%. This leaves you with a difficult choice, since each alternative has a measurement that exceeds the other and the other variables are the same. Which project would you invest in and why?