Cost-plus, target return on investment pricing. Sweet Tastings makes candy bars for vending machines and sells them to vendors in cases of 30 bars. Although Sweet Tastings makes a variety of candy, the cost differences are insignificant, and the cases all sell for the same price. Sweet Tastings has a total capital investment of $10,000,000. It expects to produce and sell 400,000 cases of candy next year. Sweet Tastings requires a 12% target return on investment. Expected costs for next year are: Variable production costs Variable marketing and distribution costs Fixed production costs Fixed marketing and distribution costs $3.00 per case $2.00 per case $400,000 $700,000 $500,000 Other fixed costs Sweet Tastings prices the cases of candy at full cost plus markup to generate profits equal to the target return on capital.

Cost-plus, target return on investment pricing. Sweet Tastings makes candy bars for vending machines and sells them to vendors in cases of 30 bars. Although Sweet Tastings makes a variety of candy, the cost differences are insignificant, and the cases all sell for the same price. Sweet Tastings has a total capital investment of $10,000,000. It expects to produce and sell 400,000 cases of candy next year. Sweet Tastings requires a 12% target return on investment. Expected costs for next year are: Variable production costs Variable marketing and distribution costs Fixed production costs Fixed marketing and distribution costs $3.00 per case $2.00 per case $400,000 $700,000 $500,000 Other fixed costs Sweet Tastings prices the cases of candy at full cost plus markup to generate profits equal to the target return on capital.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

I need help figuring out how the Break Even units. You have conducted some market research for style and size of products you want to use to launch your business. The market research has indicated the following sales price ranges will be optimal for your area depending on style of products you choose to sell: ● Collars o With pricing at $20 per collar, you can expect to sell 30 collars per day. o With pricing at $24 per collar, you can expect to sell 25 collars per day. o With pricing at $28 per collar, you can expect to sell 20 collars per day ● Leashes o With pricing at $22 per leash, you can expect to sell 28 leashes per day. o With pricing at $26 per leash, you can expect to sell 23 leashes per day. o With pricing at $30 per leash, you can expect to sell 18 leashes per day. ● Harnesses o With pricing at $25 per harness, you can expect to sell 25 harnesses per day. o With pricing at $30 per harness, you can expect to sell 22 harnesses per day. o With pricing at $35 per harness, you…
A beauty product company is developing a new fragrance named Happy Forever. There is a probability of 0.50 that consumers will love Happy Forever, and in this case, annual sales will be 1.00 million bottles; a probability of 0.36 that consumers will find the smell acceptable and annual sales will be 218,000 bottles; and a probability of 0.14 that consumers will find the smell unpleasant and annual sales will be only 53,000 bottles. The selling price is $36, and the variable cost is $8 per bottle. Fixed production costs will be $1.06 million per year, and depreciation will be $1.20 million. Assume that the marginal tax rate is 27 percent. What are the expected annual incremental after-tax free cash flows from the new fragrance? (Round answer to O decimal places, e.g. 5,275.) Annual incremental cash flows
Earl Massey, director of marketing, wants to reduce the selling price of his company’s products by 15% to increase market share. He says, “I know this will reduce our gross profit rate, but the increased number of units sold will make up for the lost margin.” Before this action is taken, what other factors does the company need to consider?
Myers Business Systems is evaluating the introduction of a new product. The possible levels of unit sales and the probabilities of their occurrence are given next: Possible Market Reaction Sales in Units Probabilities Low response 25 0.20 Moderate response 30 0.10 High response 50 Very high response 70 0.10 0.60 a. What is the expected value of unit sales for the new product? (Do not round intermediate calculations and round your answer to the nearest whole unit.) Expected value units b. What is the standard deviation of unit sales? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Standard deviation units
Tesla’s decision to produce a new line of compact and full sized cars 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: Long Run Demand Plant size Low Medium High Small 80 200 350 Large 120 180 190 Construct an influence diagram. Construct a decision tree. Recommend a decision based on the use of the optimistic, conservative, and minimax regret approaches.
The company you work for is considering a new product line projected to have the net cash flows (NCF) shown. The values are in future dollars, which have been inflated by 5% per year. Because the plant manager is unsure how the present worth is calculated, he asked you to do it in two ways over the 4-year planning horizon: (1) using the company’s market rate of 20% per year, and (2) converting all of the estimates into CV dollars and using the company’s real rate. You said both ways will provide the same answer, but he asked you to show him the calculations. What is the present worth by method (1) and method (2)? Solve by hand and spreadsheet. Year 0 1 2 3 4 NCF, $1000 −10,000 2000 5000 5000 5000
Office of Business Administration tells you that Villa Apartment has a project to expand the current operations and the estimated internal rate of return is 12.2%. The Villa Apartment's WACC is 11.8%. Based on all of these, you can safely conclude the: O appropriate discount rate for the project is between 11.8% and 12.2%. O expansion should be undertaken as it has a positive net present value. O project has slightly more risk than the firm's current operations. O project will have a lower debt-equity ratio than the firm's current operations.
Please solve and provide the steps for the problem provided below
A number of investment projects are under consideration at your company. You've calculated the cost of capital based on market values and rates, and analyzed the projects using IRR and NPV. Several projects are marginally acceptable. While watching the news last night you learned that most economists predict a rise in interest rates over the next year. Should you modify your analysis in light of this information? Why?
Peter's Pet Foods has a WACC of 12.5 percent and is considering manufacturing pet toys. Tim's Toys specializes in pet toys and has a WACC of 10.5 percent. What discount rate should Peter's Pet Foods use to evaluate this investment? 10.5 percent because that is appropriate given the risk of the project The risk-free rate. A weighted average of 12.5 and 10.5 with the weights based on the proportion in each business 11.5 percent because after investment Peter's will be a combination of the two businesses 12.5 percent because that is the appropriate rate for the company
Consider the basic setup of the Diamond-Dybvig (1983) model. Specifically, there are three periods, denoted t = 0, 1, 2, a single consumption good, and an illiquid investment opportunity that pays gross return 1 if liquidated at t = 1, or gross return 2.2 if liquidated at t = 2. There are 500 people in the economy, each endowed with 1 unit of the consumption good at t = 0. At t = 1, exactly 200 will randomly realize that they need to consume at t = 1 (the early consumers), the remaining 300 people will need to consume at t = 2 (the late consumers). The utility derived from consumption is 1 − (1/c1) 2 for early consumers, 1−(1/c2) 2 for late consumers, where the subscript denotes the time of consumption. Suppose a bank can offer an asset that is more liquid, with gross returns Rd 1 = 1.33 and Rd 2 = 1.71 (depending on the time of liquidation). (i) Calculate the bank’s profit after t = 2. In other words, what amount of funds remains at the bank once all depositors have withdrawn? Now…
ou are considering setting up a firm to produce widgets. The cost of the project is $30 today. The demand for widgets is uncertain. It can be either high or low with equal probability. When the demand is high, cash flows in t = 1 are $66 and when the demand is low, cash flows in t = 1 are $34. The discount rate is 10%. What is the NPV of the project? Suppose you can commission a study that tells you whether the demand for widgets will be high or low. The study takes one year to complete. That is, if you commission the study you must decide in t = 1 whether to invest. If you invest the cash flows will arrive in t = 2. What is the maximum amount you are willing to pay for the study today?