The Cupcake World Factory plans to open a new retail store in St. Louis, Missouri. The store will sell specialty cupcakes for $6 per cupcake (each cupcake has a variable cost of $3.) The company is negotiating its lease for thenew store. The landlord has offered two leasing options: 1) a lease of $2,000 per month; or 2) a monthly lease cost of $800 plus 5% of the company's monthly sales revenue.RequirementsIf the Cupcake World Factory plans to sell 3,000 cupcakes a month, which lease option would cost less each month? Why?If the company plans to sell 5,500 cupcakes a month, which lease option would be more attractive? Why?1.2.←Requirement 1. If the Cupcake World Factory plans to sell 3,000 cupcakes a month, which lease option would cost less each month? Why?Begin by calculating the indifference point. Select the equation to determine the indifference point. (Abbreviations used: FC = Fixed costs, VCU = Variable costs per unit)(VCU (option 1) × Units) + FC (option 1) = (VCU (option 2) × Units) + FC (option 2)The indifference point (in number of cupcakes) is

Lease for month $2000Another option monthly lease=800 +5% of sales revenue.

Answered: Cupcake World Factory plans to open a…

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

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AD Construction, a property developer, is building a property complex consisting of 50 apartments. Apartments are similar in size and proportion - however, can be adapted to suit client needs. AD Construction enters into a contract with customer A. The client wants to buy an apartment and agrees to a total price of CU100,000 per apartment. The payment schedule is as follows:- After signing the contract, clients pay a deposit of CU 10,000 each.- Milestone: 1 year before the planned completion, AD Construction will send a progress report to the client and the client will have to pay CU 50,000 each.- Completion: After construction is completed, the legal ownership of the apartment is transferred to the client and they pay the remaining amount of CU40,000 each. The assumed construction period is 2 years from the contract date. AD Construction has the right to withhold payment from any client in the event that that client fails to pay for the contract prior to its completion. There is no…
AD Construction, a property developer, is building a property complex consisting of 50 apartments. Apartments are similar in size and proportion - however, can be adapted to suit client needs. AD Construction enters into a contract with customer B. The client wants to buy an apartment and agrees to a total price of CU100,000 per apartment. The payment schedule is as follows: After signing the contract, clients pay a deposit of CU 10,000 each. Milestone: 1 year before the planned completion, AD Construction will send a progress report to the client and the client will have to pay CU 50,000 each. Completion: After construction is completed, the legal ownership of the apartment is transferred to the client and they pay the remaining amount of CU40,000 each. The assumed construction period is 2 years from the contract date. AD Construction has the right to withhold payment from any client in the event that that client fails to pay for the contract prior to its completion. The contract…
Wildhorse Company manufactures a check-in kiosk with an estimated economic life of 10 years and leases it to Sheffield Chicken for a period of 9 years. The normal selling price of the equipment is $172,124, and its unguaranteed residual value at the end of the lease term is estimated to be $26,200. Sheffield will pay annual payments of $20,800 at the beginning of each year. Wildhorse incurred costs of $141,100 in manufacturing the equipment and $2,400 in sales commissions in closing the lease. Wildhorse has determined that the collectibility of the lease payments is probable and that the implicit interest rate is 5%. Sheffield Chicken has an incremental borrowing rate of 5%. The lessor's implicit rate is unknown to the lessee.
U.S. Fax has been granted a loan from a commercial finance company for $1 million at a stated interest rate of 10 percent. The loan requires that interest payments be made at the end of each of the next 5 years. At the end of 5 years, the entire loan balance must be repaid. The finance company requires U.S. Fax to pay a $25,000 loan-processing fee at the time the loan is approved. What is the effective cost of this loan?
A store has 5 years remaining on its lease in a mall. Rent is $2,000 per month, 60 payments remain, and the next payment is due in 1 month. The mall's owner plans to sell the property in a year and wants rent at that time to be high so that the property will appear more valuable. Therefore, the store has been offered a "great deal" (owner's words) on a new 5-year lease. The new lease calls for no rent for 9 months, then payments of $2,750 per month for the next 51 months. The lease cannot be broken, and the store's WACC is 12% (or 1% per month). a. Should the new lease be accepted? (Hint: Be sure to use 1% per month.) No b. If the store owner decided to bargain with the mall's owner over the new lease payment, what new lease payment would make the store owner indifferent between the new and old leases? (Hint: Find FV of the old lease's original cost at t = 9; then treat this as the PV of a 51-period annuity whose payments represent the rent during months 10 to 60.) Do not round…
Fame purchases and then leases small aircraft to intereste parties. The Co is currently determing the required rental for a small aircraft that cost them $860,000 if the lease is for 20 years and annual lease payments are required to be made at the end of each year What will be the annual rental if Fame wants to earn a retun of 10% $47,300 is my answer is that correct? Thank you Brenda
Fidelity Life Insurance has a document imaging system that needs replacement. A local salesperson quoted a cost of $10,000 with an estimatedsalvage of $900 after 5 or more years. If the system is expected to save $1700 per year in clerical time, find the payback time at 8% per year. As a practice, the office manager purchases equipment only when the payback is less than 6 years. Otherwise, he prefers to lease. Should the imaging system be purchased or leased?
Cullumber Inc manufactures an X-ray machine with an estimated life of 12 years and leases it to Chambers Medical Center for a period of 10 years. The normal selling price of the machine is $505,456. and its guaranteed residual value at the end of the non- cancelable lease termis estimated to be $16,400. The hospital will pay rents of $61,100 at the beginning of each year. Cullumber incurred costs of $227,000 in manufacturing the machine and $13400 in legal fees directly related to the signing of the lease. Cullumber has determined that the collectibility of the lease payments is probable and that the implicit interest rate is 5%. Discuss the nature of this lease in relation to the lessor. The nature of this lease in relation to the lessor is Compute the amount of each of the following items. (Round present value factor calculations to 5 decimal places, eg. 1.25124 and the final answers to 0 decimai places, eg. 5,275.) (1) Lease receivable at commencement of the lease (2) Sales price…
Yummy Food is expanding its business and wants to open a new facility to make frozen lasagna, which requires a new automated lasagna maker. A lasagna maker can be purchased for $420,000 or leased under a finance lease over 7 years, with lease payments to be made at the beginning of each year. If the company purchases the lasagna maker, it can be fully depreciated to zero using the straight-line method over seven years. The management expects the scrap/residual value of the lasagna maker to be $20,000 at the end of the lease. After a detailed analysis of the project, Yummy Food determines the appropriate after-tax cost of capital of the project to be 15% per annum. Yummy Food pays a corporate tax rate of 30% and it can borrow funds at a before-tax interest rate of 6% per annum. All cash-flows have been quoted on a before-tax basis. Given this information, what is the lease payment (per annum) that would make Yummy Food indifferent between leasing and borrow-to-buy the machine? (Using…
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Bishop Sheen Hospital is evaluating a lease arrangement for its ambulance fleet. The total value of the lease is $620,000. The hospital will be making equal monthly payments starting today. What is the monthly interest rate if the lease payments are $50,000 per month for 24 months? What is the monthly interest rate if the lease payments are $50,000 per month for 36 months? What is the monthly interest rate if the lease payments are $60,000 per month for 36 months?
Crane SA manufactures an X-ray machine with an estimated life of 12 years and leases it to Chambers Medical Center for a period of 10 years. The normal selling price of the machine is R$594,813, and its guaranteed residual value at the end of the non-cancelable lease term is estimated to be R$18,000. The hospital will pay rents of R$72,000 at the beginning of each year. Crane incurred R$410,000 in manufacturing cost and R$14,200 in legal fees directly related to the signing of the lease. Crane has determined that the collectibility of the lease payments is probable and that the implicit interest rate is 5%. Click here to view factor tables. Discuss the nature of this lease in relation to the lessor. The nature of this lease in relation to the lessor is Compute the amount of each of the following items. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answers to O decimal places, e.g. 5,275.) (1) (2) (3) Lease receivable at commencement of the…

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