Part B: QI ProposalQuantum International (QI) would manufacture, sell and distribute the valves. QI has a long history of success in manufacturing high performance valves.However, Piscataway does not expect them to be as successful in marketing as FPS resulting in lower payments from customers as shown below.In the QI proposal, Piscataway would only have operating cash outflows related to administrative expenses as shown below.YearCash In-Flow (Payments from Customers)Total Cash OutflowExplain your choice.1$3,255$315Piscataway would make a payment to QI ofQI would receive an annual fee ofThese payments are not included in the Total Cash Flow above.(i) What required rate of return should Pisctataway use to evaluate the QI proposal?(iii) Should Piscataway choose FPS or QI?2$6,610$58015%(ii) What would be Piscataway's net operating cash flow if they choose QI?3$11,005$935$10,000 in Year 060% of payments to customers to compensate them for manufacturing and marketing.20%4$15,950$1,27025%5$20,055$1,64567$21,670 $23,000$1,600 $1,7198$31,750$2,3329$33,100$2,39210$33,100$2,394

It has been given in the question that all the manufacturing as well as sales and distribution is to…

(i) What required rate of return should Pisctataway use to evaluate the QI proposal? 20% Explain your choice. 15% (ii) What would be Piscataway's net operating cash flow if they choose QI? (iii) Should Piscataway choose FPS or QI? 25%

(i) What required rate of return should Pisctataway use to evaluate the QI proposal? 20% Explain your choice. 15% (ii) What would be Piscataway's net operating cash flow if they choose QI? (iii) Should Piscataway choose FPS or QI? 25%

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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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

Part B: QI Proposal
Quantum International (QI) would manufacture, sell and distribute the valves. QI has a long history of success in manufacturing high performance valves.
However, Piscataway does not expect them to be as successful in marketing as FPS resulting in lower payments from customers as shown below.
In the QI proposal, Piscataway would only have operating cash outflows related to administrative expenses as shown below.
Year
Cash In-Flow (Payments from Customers)
Total Cash Outflow
Explain your choice.
1
$3,255
$315
Piscataway would make a payment to QI of
QI would receive an annual fee of
These payments are not included in the Total Cash Flow above.
(i) What required rate of return should Pisctataway use to evaluate the QI proposal?
(iii) Should Piscataway choose FPS or QI?
2
$6,610
$580
15%
(ii) What would be Piscataway's net operating cash flow if they choose QI?
3
$11,005
$935
$10,000 in Year 0
60% of payments to customers to compensate them for manufacturing and marketing.
20%
4
$15,950
$1,270
25%
5
$20,055
$1,645
6
7
$21,670 $23,000
$1,600 $1,719
8
$31,750
$2,332
9
$33,100
$2,392
10
$33,100
$2,394

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