Lou Barlow, a divisional manager for Sage Company, has an ooportunity to manufacture and sell one of two new products for a five- year period. His annual pay raises are determined by his division's return on investment (ROI), which has exceeded 22% each of the last three years. He has computed the cost and revenue estimates for each product as follows: Product A Product B Initial investment: S 380,000 $ 575,000 Cost of equipment (zero salvage value) Annual revenues and costs: Sales revenues Variable expenses Depreciation expense Fixed out-of-pocket operating costs $ 410,000 $ 490,000 $ 186,000 $ 218,00e $ 76,000 $ 115,800 $ 89,800 s 70,80e The company's discount rate is 20%. Click here to view Exhibit 128-1 and Exhibit 12B-2, to determine the appropriate discount factor using tables. Requlred: 1. Calculate the payback period for each product. 2 Calculate the net present value for each product. 3. Calculate the internal rate of return for each product.

Lou Barlow, a divisional manager for Sage Company, has an ooportunity to manufacture and sell one of two new products for a five- year period. His annual pay raises are determined by his division's return on investment (ROI), which has exceeded 22% each of the last three years. He has computed the cost and revenue estimates for each product as follows: Product A Product B Initial investment: S 380,000 $ 575,000 Cost of equipment (zero salvage value) Annual revenues and costs: Sales revenues Variable expenses Depreciation expense Fixed out-of-pocket operating costs $ 410,000 $ 490,000 $ 186,000 $ 218,00e $ 76,000 $ 115,800 $ 89,800 s 70,80e The company's discount rate is 20%. Click here to view Exhibit 128-1 and Exhibit 12B-2, to determine the appropriate discount factor using tables. Requlred: 1. Calculate the payback period for each product. 2 Calculate the net present value for each product. 3. Calculate the internal rate of return for each product.

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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Casey Nelson Is a divisional manager for Pigeon Company. His annual pay ralses are largely determined by his division's return on Investment (ROI), which has been above 23% each of the last three years. Casey is considering a capital budgeting project that would require a $4,100,000 Investment in equipment with a useful life of five years and no salvage value. Pigeon Company's discount rate is 19%. The project would provide net operating Income each year for five years as follows: Sales $ 4,000, 000 1,840, e0e Variable expenses Contribution margin 2,160,000 Fixed expenses: Advertising, salaries, and other fixed out- of-pocket costs $ 760, 000 820, 000 Depreciation Total fixed expenses 1,580, e00 Net operating income $ 580, 000 Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using tables. Requlred: 1. What is the project's net present value? 2. What is the project's Internal rate of return to the nearest whole percent? 3. What Is the…
ohn (Head of New York's Golf Club) has given you the following per unit estimates going into his second year of operation (beginning May 1,2021) for his only product at this point; the Duffer Club: Direct material: $94 Direct labour: $31 Variable overhead: $7.72 Selling price: $168 Tax rate: 20% Monthly fixed costs: $12.67 ($38,000 total fixed costs) Practical capacity and current production level: 3,000 units A) Calculate New York's Club monthly break-even sales of the Duffer Club in both units and dollars (round to nearest dollar and next unit) B) If New York Golf Club's strategy is to just break-even for the near future, how many additional Duffer clubs (units) above the current break-even point would need to be sold each month if the company wishes to increase their currently budgeted advertising costs by $12,000 per month. Assume no changes to the selling price or to any of Duffmeister'svariable costs given above.
Rowe Tool and Die (RTD) produces metal fittings as a supplier to various manufacturing firms in the area. The following is the forecasted income statement for the next quarter, which is the typical planning horizon used at RTD. RTD expects to sell 47,000 units during the quarter. RTD carries no inventories. Sales revenue Costs of fitting produced Gross profit Administrative costs Operating profit Amount $ 1,250, 200 958, 800 $ 291,400 220,900 $ 70,500 Per Unit $ 26,60 20.40 $6.20 4.70 $ 1.50 Fixed costs included in this income statement are $305,500 for depreciation on plant and machinery and miscellaneous factory operations and $95,500 for administrative costs. RTD has received a request for 10,000 fittings to be produced in the next quarter from Endicott Manufacturing. Endicott has never purchased from RTD, although they have been a local company for many years. Endicott has offered to pay $20.20 per unit. RTD can easily produce the 10,000 units with its existing capacity. Production…
Astro Company sold 22,000 units of its only product and reported income of $70,200 for the current year. During a planning session for next year's activities, the production manager notes that variable costs can be reduced 46% by installing a machine that automates several operations. To obtain these savings, the company must increase its annual fixed costs by $154,000. Total units sold and the selling price per unit will not change. ASTRO COMPANY Contribution Margin Income Statement For Year Ended December 31 Sales ($54 per unit) Variable costs ($48 per unit) Contribution margin Fixed costs Income Sales level required in dollars Numerator: 3. Compute the sales level required in both dollars and units to earn $240,000 of target income for next year with the machine installed. (Do not round intermediate calculations. Round your answers to 2 decimal places. Round "Contribution margin ratio" to nearest whole percentage) Sales level required in units Numerator: $ 1,188,000 1,056,000 1…
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The company had an overall return on investment (ROI) of 15% this year (considering all divisions). Next year the Office Products Division has an opportunity to add a new product line that would require an additional investment that would increase average operating assets by $1,000,000. The cost and revenue characteristics of the new product line per year would be: Sales $2,000,000 Variable expenses 60% of sales Fixed expenses $640,000 Required: 1. Compute the Office Products Division's margin, turnover, and ROI for this year. 2. Compute the Office Products Division's margin, turnover, and ROI for the new product line by itself. 3. Compute the Office Products Division's margin, turnover, and ROI for next year assuming that it performs the same as this year and adds the new product line. 4. If you were in Dell Havasi's position, would you accept or reject the new product line? Explain. 5. Why do you suppose headquarters is anxious for the Office Products Division to add the new product…
Balcom Enterprises is planning to introduce a new product that will sell for $120 a unit. Manufacturing cost estimates for 28,000 units for the first year of production are: Direct materials $1,372,000. Direct labor $1,008,000 (based on $18 per hour × 56,000 hours). Although overhead has not be estimated for the new product, monthly data for Balcom's total production for the last two years has been analyzed using simple linear regression. The analysis results are as follows: Dependent variable Factory overhead costs Independent variable Direct labor hours Intercept $ 136,000 Coefficient on independent variable $ 5.00 Coefficient of correlation 0.959 R2 0.846 Based on this information, how much is the variable manufacturing cost per unit, using the variable overhead estimated by the regression (assuming that direct materials and direct labor are variable costs)? Multiple Choice $72 $92 $95 $77
Astro Company sold 23,000 units of its only product and reported income of $264, 600 for the current year. During a planning session for next year's activities, the production manager notes that variable costs can be reduced 44% by installing a machine that automates several operations. To obtain these savings, the company must increase its annual fixed costs by $156,000. Total units sold and the selling price per unit will not change. ASTRO COMPANY Contribution Margin Income Statement For Year Ended December 31 Sales ($56 per unit) $ 1, 288,000 Variable costs ($35 per unit ) 805, 000 Contribution margin 483,000 Fixed costs 218,400 Income $ 264,600 Problem 18 - 3A (Algo) Part 1 1. Compute the break - even point in dollar sales for next year assuming the machine is installed. (Round your answers to 2 decimal places.)
Hoffman Ceramics, a division of Fielding Corporation, has an operating income of $64,000 and total assets of $400,000. The required rate of return for the company is 10%. The company is evaluating whether it should use return on investment (ROI) or residual income (RI) as a measurement of performance for its division managers. The manager of Hoffman Ceramics has the opportunity to undertake a new project that will require an investment of $100,000. This investment would earn $14,000 for the company. Read the requirements. From the standpoint of Fielding Corporation this investment is is more than Fielding's required rate of return. desirable. The ROI of the investment opportunity Requirement 4. What would the residual income (RI) be for Hoffman Ceramics if this investment opportunity were to be undertaken? Would the manager of the Hoffman Ceramics division want to make this investment if she were evaluated based on RI? Why or why not? First determine the formula to calculate the RI.…
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N5.
Casey Nelson is a divisional manager for Pigeon Company. His annual pay raises are largely determined by his division's return on investment (ROI), which has been above 24% each of the last three years. Casey is considering a capital budgeting project that would require a $4,450,000 investment in equipment with a useful life of five years and no salvage value. Pigeon Company's discount rate is 20%. The project would provide net operating income each year for five years as follows: $ 4,300,000 1,960,000 2,340,000 Sales Variable expenses Contribution margin Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs Depreciation Total fixed expenses $ 790,000 890,000 1,680,000 660,000 Net operating income