Madetaylor Inc. manufactures financial calculators. The company is deciding whether to introduce a new calculator. This calculator will sell for $130. The company feels that sales will be 18,000, 22,000, 24,000, 22,000, and 18,000 units annually for the next five years. Variable costs will be 21% of sales, and fixed costs are $500,000 annually. The firm hired a marketing team to analyze the product's viability, and the marketing analysis cost $1,250,000. The company plans to manufacture and store the calculators in a vacant warehouse. Based on a recent appraisal, the warehouse and the property are worth $2.5 million after tax. If the company does not sell the property today, it will sell it five years from today at the currently appraised value. This project will require an injection of net working capital at the onset of the project, $250,000. The firm recovers the net working capital at the end of the project. The firm must purchase equipment for $5,000,000 to produce the new calculators. The equipment has a 5-year life and is depreciated using the straight-line method. At the end of the project, the anticipated salvage value is 0. Surprisingly, the firm can sell the machine at the end of the project for $600,000. The firm requires a 10% return on its investment and has a tax rate of 21%. Calculate the after-tax salvage value at the end of year 6. (Round to two decimals)

At Stardust Gems, a faux gem and jewelry company, the setting department is a bottleneck. The company is considering hiring an extra worker, whose salary will be $67,000 per year, to ease the problem. Using the extra worker, the company will be able to produce and sell 9,000 more units per year. The selling price per unit is $20. The cost per unit currently is $15.85 as shown: What is the annual financial impact of hiring the extra worker for the bottleneck process?

Nico Parts, Inc., produces electronic products with short life cycles (of less than two years). Development has to be rapid, and the profitability of the products is tied strongly to the ability to find designs that will keep production and logistics costs low. Recently, management has also decided that post-purchase costs are important in design decisions. Last month, a proposal for a new product was presented to management. The total market was projected at 200,000 units (for the two-year period). The proposed selling price was 130 per unit. At this price, market share was expected to be 25 percent. The manufacturing and logistics costs were estimated to be 120 per unit. Upon reviewing the projected figures, Brian Metcalf, president of Nico, called in his chief design engineer, Mark Williams, and his marketing manager, Cathy McCourt. The following conversation was recorded: BRIAN: Mark, as you know, we agreed that a profit of 15 per unit is needed for this new product. Also, as I look at the projected market share, 25 percent isnt acceptable. Total profits need to be increased. Cathy, what suggestions do you have? CATHY: Simple. Decrease the selling price to 125 and we expand our market share to 35 percent. To increase total profits, however, we need some cost reductions as well. BRIAN: Youre right. However, keep in mind that I do not want to earn a profit that is less than 15 per unit. MARK: Does that 15 per unit factor in preproduction costs? You know we have already spent 100,000 on developing this product. To lower costs will require more expenditure on development. BRIAN: Good point. No, the projected cost of 120 does not include the 100,000 we have already spent. I do want a design that will provide a 15-per-unit profit, including consideration of preproduction costs. CATHY: I might mention that post-purchase costs are important as well. The current design will impose about 10 per unit for using, maintaining, and disposing our product. Thats about the same as our competitors. If we can reduce that cost to about 5 per unit by designing a better product, we could probably capture about 50 percent of the market. I have just completed a marketing survey at Marks request and have found out that the current design has two features not valued by potential customers. These two features have a projected cost of 6 per unit. However, the price consumers are willing to pay for the product is the same with or without the features. Required: 1. Calculate the target cost associated with the initial 25 percent market share. Does the initial design meet this target? Now calculate the total life-cycle profit that the current (initial) design offers (including preproduction costs). 2. Assume that the two features that are apparently not valued by consumers will be eliminated. Also assume that the selling price is lowered to 125. a. Calculate the target cost for the 125 price and 35 percent market share. b. How much more cost reduction is needed? c. What are the total life-cycle profits now projected for the new product? d. Describe the three general approaches that Nico can take to reduce the projected cost to this new target. Of the three approaches, which is likely to produce the most reduction? 3. Suppose that the Engineering Department has two new designs: Design A and Design B. Both designs eliminate the two nonvalued features. Both designs also reduce production and logistics costs by an additional 8 per unit. Design A, however, leaves post-purchase costs at 10 per unit, while Design B reduces post-purchase costs to 4 per unit. Developing and testing Design A costs an additional 150,000, while Design B costs an additional 300,000. Assuming a price of 125, calculate the total life-cycle profits under each design. Which would you choose? Explain. What if the design you chose cost an additional 500,000 instead of 150,000 or 300,000? Would this have changed your decision? 4. Refer to Requirement 3. For every extra dollar spent on preproduction activities, how much benefit was generated? What does this say about the importance of knowing the linkages between preproduction activities and later activities?

Madetaylor Inc. manufactures financial calculators. The company is deciding whether to introduce a new calculator. This calculator will sell for $140. The company feels that sales will be 18,000, 25,000, 24,000, 24,000, and 22,000 units annually for five years. Variable costs will be 20% of sales, and fixed costs are $500,000 annually. The firm hired a marketing team to analyze the product's viability, and the marketing analysis cost $500,000. The company plans to manufacture and store the calculators in a vacant warehouse. Based on a recent appraisal, the warehouse and the property are worth $4 million after tax. If the company does not sell the property today, it will sell it five years from today at the currently appraised value. This project will require an injection of net working capital at the onset of the project, $850,000. The firm recovers the net working capital at the end of the project. The firm must purchase equipment for $6,000,000 to produce the new calculators. The…