Answered: Oakmont Company has an opportunity to…

Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period. After careful study, Oakmont estimated the following costs and revenues for the new 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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Lou Barlow, a divisional manager for Sage Company, has an opportunity 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 18% each of the last three years. He has computed the cost and revenue estimates for each product as follows: Initial investment: Cost of equipment (zero salvage value) Annual revenues and costs: Sales revenues Variable expenses Depreciation expense Fixed out-of-pocket operating costs The company's discount rate is 16%. Product A Product B $ 170,000 $ 380,000 $ 250,000 $ 350,000 $ 120,000 $ 34,000 $ 70,000 $ 170,000 $ 76,000 $ 50,000 Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor using tables. Required: 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. 4. Calculate the profitability…
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Bianca Company incurred the following costs during 2021:- Testing in search for process alternative = 230,000- Adaptation of an existing capability to a particular requirement or customer's need = 140,000- Design, construction, and testing of pre-production prototypes and models = 120,000- Routine design of tools, jigs, molds, and dies = 125,000 Required:How much is the research and development expense in 2021?
Lou Barlow, a divisional manager for Sage Company, has an opportunity 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 20% 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: Cost of equipment (zero salvage value) $ 260,000 $ 470,000 Annual revenues and costs: Sales revenues $ 310,000 $ 410,000 Variable expenses $ 144,000 $ 194,000 Depreciation expense $ 52,000 $ 94,000 Fixed out-of-pocket operating costs $ 76,000 $ 58,000 The company’s discount rate is 18%. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor using tables. Required: 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…
Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period. After careful study, Oakmont estimated the following costs and revenues for the new product: (Attached table) When the project concludes in four years the working capital will be released for investment elsewhere within the company. Required: Using Excel (this will save you time and effort) answer the following: Oakmont’s cost of capital is 15%, and management does not feel it should have any adjustment for risk, compute the NPV. Same situation as (a), but management does feel this project does possess a greater than average risk, so 19% should be the required rate of return. Compute the NPV. Management thinks that if they can spend another $10,000 on advertising each of the next 4 years (at the end of the year), it will cause sales volume to increase by 10% for each of the next 4 years. (Assume all cash flows occur at the end of the year) Compute NPV using a 15% cost of capital.
A company purchases a component, which is critical in the production process, from an international supplier. Recently, quality problems with this component have increased. For this reason, managers of the company are considering of producing this part in-house. The economic life of the new production system will be 8 years. The savings and expenditures related to the new production system are given below. The MARR is 15%. According to the information, answer the questions from 8 to 9. Capital expenditures (Investment costs): Building: 500,000 TL Machines and equipment: 2,200,000 TL The annual saving from material and quality control: 5,000,000 TL Annual operating cost: 1,500,000 TL Annual income tax: 800,000 TL Salvage value: 1,500,000 TL 8. What is the discounted payback period of the new production system? A.Less than 1 year B.1 year C.between 1 and 2 years D.between 2 and 3 years 9. What is the net present worth of the new production system? A.9,415,000 TL…
In conducting an EVA analysis for year two for a newly introduced product line, Bethune, Inc., which manufactures pre-assembled blower packages and other water treatment components, determined the EVA to be $28,000. Bethune’s CEO knew that the gross income was $700,000, but he asked you to find out how much expense was associated with the new product line for year 2. The company uses an after-tax interest rate of 14% and a Te of 35%. The initial investment capital required for the new product was $550,000 and all equipment is 3-year MACRS depreciated.
Lou Barlow, a divisional manager for Sage Company, has an opportunity 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 18% 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: Cost of equipment (zero salvage value) Annual revenues and costs: $ 170,000 $ 380,000 Sales revenues Variable expenses $350,000 $ 250,000 $ 120,000 $ 170,000 Depreciation expense $ 34,000 $ 76,000 Fixed out-of-pocket operating costs $ 70,000 $ 50,000 The company's discount rate is 15% Click here to view Exhibit 148-1 and Exhibit 148-2, to determine the appropriate discount factor using tables Required: 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. 4 Calculate the profitability Index for…
Magnificent Modems has excess production capacity and is considering the possibility of making and selling security tokens. The following estimates are based on a production and sales volume of 1,000 security tokens. Unit-level manufacturing costs are expected to be $20. Sales commissions will be established at $1 per unit. The current facility-level costs, including depreciation on manufacturing equipment ($60,000), rent on the manufacturing facility ($50,000), depreciation on the administrative equipment ($12,000), and other fixed administrative expenses ($71,950), will not be affected by the production of the security tokens. The chief accountant has decided to allocate the facility-level costs to the existing product (modems) and to the new product (security tokens) on the basis of the number of units of product made (i.e., 5,000 modems and 1,000 security tokens). Required a. Determine the per-unit cost of making and selling 1,000 security tokens. Note: Do not round intermediate…
A company is considering two types of equipment for its manufacturing plant. Pertinent data are as follows in the given figure below. If the minimum required rate of return is 15%, which equipment should be selected ? Use present worth cost method.
You are given the following financial data about an assembly machine to be implemented at a company: - Investment cost at year 0 (n=0) is $22,000 - Investment cost at the end of the first year (n=1) is $18,500 - Useful life: 15 years - Salvage value (at the end of 15 years): $7,000 Annual revenues: $18,000 per year - Annual expenses: $5,000 per year Assuming the first revenues and expenses will occur starting from the end of year 2, determine the conventional (non-discounted) payback period.
The Chief Operations Officer (COO) of a manufacturing firm recommends one of the manufacturing sites to undergo a process improvement initiative. He claims that this project will enable the company to realize a net savings of at least $3.25 Mln. The Chief Financial Officer (CFO) of the company tasked you to conduct a financial analysis to verify the claims of the COO. After performing cost analysis, you estimated that the project will require an initial investment of $2 Mln today and $1 Mln in Year 1. Afterwards, the initiative will yield an annual cost savings of $850k from Year 2 to Year 10. You assume that these cost savings are realized at the end of each year. (a) Suppose that you use a discount rate of 5%. Will the resulting net savings support the claim of the COO? (b) Determine the Internal Rate of Return (IRR) of the process improvement initiative. (c) Show the NPV profile of the project.