Oak plc is considering a project that has the following predicted revenue and expenses in its first year: £000 140 Revenue Salaries (sunk costs - incurred whether or not the project proceeds) (40) Depreciation Other overheads (30) (20) 50 Profit Notes: 1. 'Other overheads' contain £8,000 which represents a fair share of the overheads for the business as a whole. 2. If the project is not undertaken, part of the factory would be freed up and could be sub-let for £15,000 per year. 3. The business employs net present value analysis to appraise its projects. O A. £113,000 B. £111,000 C. £95,000 D. £86,000

Oak plc is considering a project that has the following predicted revenue and expenses in its first year: £000 140 Revenue Salaries (sunk costs - incurred whether or not the project proceeds) (40) Depreciation Other overheads (30) (20) 50 Profit Notes: 1. 'Other overheads' contain £8,000 which represents a fair share of the overheads for the business as a whole. 2. If the project is not undertaken, part of the factory would be freed up and could be sub-let for £15,000 per year. 3. The business employs net present value analysis to appraise its projects. O A. £113,000 B. £111,000 C. £95,000 D. £86,000

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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KrishnaGems Ltd has just installed Equip.-R at a cost of Rs 2,00,000. Themachine has a five yearlife with no residual value. The annual volume ofproduction is estimated at 1,50,000 units, which can be sold at Rs 6 per unit.Annual operating costs are estimated at Rs 2,00,000 (excludingdepreciation) at this output level. Fixed costs are estimated at Rs 3 per unitfor the same level of production. KrishnaGems Ltd has just come acrossanother model called Equip.-S capable of giving the same output at anannual operating cost of Rs 1,80,000 (exclusive of depreciation). There willbe no change in fixed costs. Capital cost of this machine is Rs 2,50,000 andthe estimated life is for 5 years with no residual value.The company has anoffer for sale of Equip.-R at Rs 1,00,000. The cost of dismantling andremoval will be Rs 30,000. As the company has not yet commencedoperations, it wants to sell Machine-R and purchase Equip.-S. Nine GemsLtd will be a zero-tax company, for seven years in view of several…
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KrishnaGems Ltd has just installed Equip.-R at a cost of Rs 2,00,000. Themachine has a five yearlife with no residual value. The annual volume ofproduction is estimated at 1,50,000 units, which can be sold at Rs 6 per unit.Annual operating costs are estimated at Rs 2,00,000 (excluding depreciation) at this output level. Fixed costs are estimated at Rs 3 per unitfor the same level of production. KrishnaGems Ltd has just come acrossanother model called Equip.-S capable of giving the same output at anannual operating cost of Rs 1,80,000 (exclusive of depreciation). There willbe no change in fixed costs. Capital cost of this machine is Rs 2,50,000 andthe estimated life is for 5 years with no residual value. The company has anoffer for sale of Equip.-R at Rs 1,00,000. The cost of dismantling andremoval will be Rs 30,000. As the company has not yet commencedoperations, it wants to sell Machine-R and purchase Equip.-S. Nine GemsLtd will be a zero-tax company, for seven years in view of…
Can you kindly help show the steps for calculating the Working Capital for a product line capable of producing 1.25 Million units per year, total estimated investment cost for the new line is $25 Million, selling price is fixed for the project life at $125 per unit. Working capital based on a 2.5-month supply of raw materials and 1.5 months of combined inventory (WIP and finished goods)? Variable costs per unit include $35 for materials, $20 for manufacturing, and $18 for labor. There are additional fixed operating and maintenance costs totaling $14.25 Million per year. Salvage value equal to 20% of the purchase price at the end of the 6-year project life. The Federal tax rate is 23% and State tax rate is 8.75%. MARR of 18%. Inflation is expected to increase the variable and fixed costs by 6.4% after the first year. In years 3- 6, inflation is expected to decline by 1.2% each year (year 2 inflation is 6.4%, year 3 is 5.2%, etc.) The project falls under a 7-year MACRS class life. The…