Brandon Production is a small firm focused on the assembly and sale of custom computers.The firm is facing stiff competition from low-priced alternatives, and is looking at varioussolutions to remain competitive and profitable. Current financials for the firm are shown in thetable below. In the first option, marketing will increase sales (and costs) by 50%. The next optionis Vendor (Supplier) changes, which would result in a decrease of 12% in the cost of inputs.Finally, there is an OM option, which would reduce production costs by 25%.Business Function Current ValueCost of Inputs $50,000Production Costs $30,000Revenue $83,000Which of the options would you recommend to the firm if it can only pursue one option? Inaddition, briefly commenton the feasibility and contribution of each option.

Answered: Image /qna-images/answer/42368f60-8d9c-4041-9b19-c2383528dc2f.jpg

Answered: Brandon Production is a small firm…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

See similar textbooks

Similar questions

Heat Inc. sells computer hard drives, and the market is competitive (i.e., sales price will not be affectedby Heat’s sales volume). Its EBIT for 2022 was $69,000 when the sales quantity was 500 units. In 2023,its EBIT was $119,000 when the sales quantity was 700 units.a) Calculate its contribution margin per unit and total fixed costs.b) Calculate the degree of operating leverage for 2022 and 2023.c) If Heat changes its production technology by doubling its fixed costs and the breakeven(indifferent) quantity is 1,120 units, find the new contribution margin.Heat has $40,000 debt that pays annual interest of 15% and 2,000 outstanding common shares that are trading at $25. Its tax rate is 30%. d) Calculate EPS for 2022 and 2023.e) Calculate the degree of financial leverage for 2022 and 2023.f) Calculate the degree of total leverage for 2022 and 2023.g) Heat considers borrowing $20,000 new debts (that also pay 15% interest) to buy back common shares (at current price of $25 per share),…
(Related to Checkpoint 13.4) (Using break-even analysis) Mayborn Enterprises, LLC runs a number of sporting goods businesses and is currently analyzing a new T-shirt printing business. Specifically, the company is evaluating the feasibility of this business based on its estimates of the unit sales, price per unit, variable cost per unit, and fixed costs. The company's initial estimates of annual sales and other critical variables are shown here: a. Calculate the accounting and cash break-even annual sales volume in units. b. Bill Mayborn is the grandson of the founder of the company and is currently enrolled in his junior year at the local state university. After reviewing the accounting break-even calculation done in part a, Bill wondered if the depreciation expense should be included in the calculation. Bill had just completed his first finance class and was well aware that depreciation is not an actual out-of-pocket expense but rather an allocation of the cost of the printing…
Zodiac Sound Company manufactures audio systems, both made-to-order and mass-produced systems that are typically sold to large- scale manufacturers of electronics equipment. For competitive reasons, the company is trying to increase its manufacturing cycle efficiency (MCE) measure. As a strategy for improving its MCE performance, the company is considering a switch to JIT manufacturing. While the company managers have a fairly good feel for the costs of implementing JIT, they are unsure about the benefits of such a move, both in financial and nonfinancial terms. To help inform the ultimate decision regarding a move to a JIT system, you've been asked to provide some input. Fortunately, you've recently attended a continuing professional education (CPE) workshop on the costs and benefits of moving to JIT and therefore feel comfortable responding to management's request. Required: 3. Given the estimated data below, calculate the MCE for both the current manufacturing process and the…
Mindspin Labs Inc. is a manufacturing firm that has experienced strong competition in its traditional business. Management is considering Joining the trend to the "service economy" by eliminating its manufacturing operations and concentrating on providing specialized maintenance services to other manufacturers. Management of Mindspin Labs has had a target ROI of 15% on an asset base that has averaged $8 million. To achieve this ROI, average total asset turnover of 2 was required. If the company shifts its operations from manufacturing to providing maintenance services, it is estimated that average total assets will decrease to $2 million. Required: a. Calculate net Income, margin, and sales required for Mindspin Labs to achieve its target ROI as a manufacturing firm. b. Assume that the average margin of maintenance service firms is 3.10%, and that the average ROI for such firms is also 17% Calculate the net Income, sales, and total asset turnover that Mindspin Labs will have if the…
Greenview Dairies produces a line of organic yogurts for sale at supermarkets and specialty markets in the Southeast. Economic conditions and changing tastes have resulted in slowing demand growth. After recently expanding capacity, the company is now operating at 65 percent of the new capacity. The company is considering dropping one of the yogurt flavors, mixed berry, in hopes of improving profitability. If the mixed berry variety is dropped, the revenue associated with it will be lost and the related variable costs saved. The production manager estimates that the fixed costs will also be reduced by 30 percent. The following quarterly product line income statements (in thousands of dollars) are available: Product Sales Variable costs Contribution margin Fixed costs allocated to each product line Operating profit (loss) Vanilla $21,790 14,700 $7,090 3,095 $3,995 Peach $33,840 26,465 $7,375 4,655 $2,720 Mixed Berry $28,380 25,490 Complete this question by entering your answers in the…
Industry analysts have predicted a sharp decline in housing demand in the months ahead. After learning of this prediction, Nest Home Builders opts to convert as many of its variable costs to fixed costs as possible. This decision O is a wise one, because it will decrease the firm's degree of operating leverage and thus reduce the firm's degree of risk. O is a poor one, because it will increase the firm's degree of operating leverage and thus increase the firm's degree of risk. O is a poor one, because it will decrease the firm's degree of operating leverage and thus increase the firm's degree of risk. O is a wise one, because it will increase the firm's degree of operating leverage and thus reduce the firm's degree of risk. Save for Later Submit Answer
A bicycle manufacturer currently produces 237,000 units a year and expects output levels to remain steady in the future. It buys chains from an outside supplier at a price of $2.20 a chain. The plant manager believes that it would be cheaper to make these chains rather than buy them. Direct in-house production costs are estimated to be only $1.60 per chain. The necessary machinery would cost $293,000 and would be obsolete after 10 years. This investment could be depreciated to zero for tax purposes using a 10-year straight-line depreciation schedule. The plant manager estimates that the operation would require $44,000 of inventory and other working capital upfront (year 0), but argues that this sum can be ignored since it is recoverable at the end of the 10 years. Expected proceeds from scrapping the machinery after 10 years are $21,975. If the company pays tax at a rate of 35% and the opportunity cost of capital is 15%, what is the net present value of the decision to produce the…
Mindspin Labs Inc. is a manufacturing firm that has experienced strong competition in its traditional business. Management is considering joining the trend to the "service economy" by eliminating its manufacturing operations and concentrating on providing specialized maintenance services to other manufacturers. Management of Mindspin Labs has had a target ROI of 16% on an asset base that has averaged $8 million. To achieve this ROI, average total asset turnover of 2 was required. If the company shifts its operations from manufacturing to providing maintenance services, it is estimated that average total assets will decrease to $5 million.Required: Calculate net income, margin, and sales required for Mindspin Labs to achieve its target ROI as a manufacturing firm. Assume that the average margin of maintenance service firms is 2.50%, and that the average ROI for such firms is also 17%. Calculate the net income, sales, and total asset turnover that Mindspin Labs will have if the change…
After preparing the original estimates, management determined that its variable manufacturing cost of leaf blowers would increase by 20 percent, and the variable selling cost of hedge clippers could be expected to increase by $1.00 per unit. However, management has decided not to change the selling price of either product. In addition, management has learned that its leaf blower has been perceived as the best value on the market, and it can expect to sell three times as many leaf blowers as each of its other products. Under these circumstances, determine how many units of each product CTC would have to sell in order to break even in 20x2.
Zodiac Sound Company manufactures audio systems, both made-to-order and mass-produced systems that are typically sold to large- scale manufacturers of electronics equipment. For competitive reasons, the company is trying to increase its manufacturing cycle efficiency (MCE) measure. As a strategy for improving its MCE performance, the company is considering a switch to JIT manufacturing. While the company managers have a fairly good feel for the costs of implementing JIT, they are unsure about the benefits of such a move, both in financial and nonfinancial terms. To help inform the ultimate decision regarding a move to a JIT system, you've been asked to provide some input. Fortunately, you've recently attended a continuing professional education (CPE) workshop on the costs and benefits of moving to JIT and therefore feel comfortable responding to management's request. Required: 3. Given the estimated data below, calculate the MCE for both the current manufacturing process and the…
Barbour Corporation, located in Buffalo, New York, is a retailer of high-tech products and is known for its excellent quality and innovation. Recently, the firm conducted a relevant cost analysis of one of its product lines that has only two products, T-1 and T-2. The sales for T-2 are decreasing and the purchase costs are increasing. The firm might drop T-2 and sell only T-1. Barbour allocates fixed costs to products on the basis of sales revenue. When the president of Barbour saw the income statements (see below), he agreed that T-2 should be dropped. If T-2 is dropped, sales of T-1 are expected to increase by 10 percent next year, but the firm's cost structure will remain the same. Sales Variable costs: Cost of goods sold Selling & administrative Contribution margin Fixed expenses: Fixed corporate costs. Fixed selling and administrative Total fixed expenses Operating income Required: T-1 $ 200,000 70,000 20,000 $ 110,000 58,700 14,300 $ 73,000 T-2 $ 260,000 130,000 50,000 $ 80,000…

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS