**Transcription of the Image:**Paula Boothe, president of the Flint Corporation, has mandated a minimum 8% return on investment for any project undertaken by the company. Given the company's decentralization, Paula leaves all investment decisions to the divisional managers as long as they anticipate a minimum rate of return of at least 10%. The Energy Drinks division, under the direction of manager Martin Koch, has achieved a 13% return on investment for the past three years. This year is not expected to be different from the past three. Koch has just received a proposal to invest $1,812,000 in a new line of energy drinks that is expected to generate $329,000 in operating income. Assume that Flint Corporation's actual weighted-average cost of capital is 9% and its tax rate is 30%.**(a)**Calculate the economic value added of the proposed new line of energy drinks. *(If the economic value added is negative then enter with a negative sign preceding the number, e.g., -5,125 or parenthesis, e.g., (5,125). Round answer to 0 decimal places, e.g., 5,125.)*Economic value added $ _________

The economic value added to the company is the excess cash generated by undertaking the business…

Answered: Paula Boothe, president of the Flint…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

See similar textbooks

Similar questions

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 22% each of the last three years. He has computed the cost and revenue estimates for each product as follows: Product A 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 20%. Click here to view Exhibit 14B-1 and Exhibit 148-2, to determine the appropriate discount factor using tables. $ 370,000 $ 400,000 $ 180,000 $ 74,000 $ 88,000 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 each product. 5. Calculate the simple rate of…
“I know headquarters wants us to add that new product line,” said Dell Havasi, manager of Billings Company’s Office Products Division. “But I want to see the numbers before I make a decision. Our division’s return on investment (ROI) has led the company for three years, and I don’t want any letdown.” Billings Company is a decentralized wholesaler with five autonomous divisions. The divisions are evaluated using ROI, with year-end bonuses given to the divisional managers who have the highest ROIs. Operating results for the company’s Office Products Division for this year are given below: Sales $ 22,440,000 Variable expenses 14,094,600 Contribution margin 8,345,400 Fixed expenses 6,130,000 Net operating income $ 2,215,400 Divisional average operating assets $ 4,480,000 The company had an overall return on investment (ROI) of 18.00% this year (considering all divisions). Next year the Office Products Division has an opportunity to add a new product requiring $2,430,600 of…
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 19% each of the last three years. He has computed the cost and revenue estimates for each product as follows: Product A 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%. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor using tables. $ 180,000 $ 270,000 $ 130,000 Product B $ 44,000 $ 80,000 $ 390,000 $360,000 $ 180,000 $ 86,000 $ 60,000 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…
“I know headquarters wants us to add that new product line,” said Dell Havasi, manager of Billings Company’s Office Products Division. “But I want to see the numbers before I make a decision. Our division’s return on investment (ROI) has led the company for three years, and I don’t want any letdown.” Billings Company is a decentralized wholesaler with five autonomous divisions. The divisions are evaluated using ROI, with year-end bonuses given to the divisional managers who have the highest ROIs. Operating results for the company’s Office Products Division for this year are given below: Sales $ 22,440,000 Variable expenses 14,094,600 Contribution margin 8,345,400 Fixed expenses 6,130,000 Net operating income $ 2,215,400 Divisional average operating assets $ 4,480,000 The company had an overall return on investment (ROI) of 18.00% this year (considering all divisions). Next year the Office Products Division has an opportunity to add a new product requiring $2,430,600 of…
The manager of the Cranston Division of Wynn Manufacturing Corporation is currently producing a 22 percent return on invested capital. Wynn’s desired rate of return is 18 percent. The Cranston Division has $7,300,000 of capital invested in operating assets and access to additional funds as needed. The manager is considering a new investment in operating assets that will require a $1,630,000 capital commitment and promises an 20 percent return. Required Would it be advantageous for Wynn Manufacturing Corporation if the Cranston Division makes the investment under consideration? What effect would the proposed investment have on the Cranston Division’s return on investment? What effect would the proposed investment have on the Cranston Division’s residual income? Would return on investment or residual income be the better performance measure for the Cranston Division’s manager?
Connelly Incorporated, a manufacturer of quality electric ice cream makers, has experienced a steady growth in sales over the past few years. Because her business has grown, Jan DeJaney, the president, believes she needs an aggressive advertising campaign next year to maintain the company’s growth. To prepare for the growth, the accountant prepared the following data for the current year: Variable costs per ice cream maker Direct labor $ 13.50 Direct materials 14.50 Variable overhead 6.00 Total variable costs $ 34.00 Fixed costs Manufacturing $ 82,500 Selling 42,000 Administrative 356,000 Total fixed costs $ 480,500 Selling price per unit $ 67.00 Expected sales (units) 30,000 If the additional $200,000 is spent for advertising in the next year, what is the sales level (in units) needed to equal the current year’s operating profit at 30,000 units?
“I know headquarters wants us to add that new product line,” said Dell Havasi, manager of Billings Company’s Office Products Division. “But I want to see the numbers before I make any move. Our division’s return on investment (ROI) has led the company for three years, and I don’t want any letdown.” Billings Company is a decentralized wholesaler with five autonomous divisions. The divisions are evaluated on the basis of ROI, with year-end bonuses given to the divisional managers who have the highest ROIs. Operating results for the company’s Office Products Division for this year are given below: Sales $ 22,700,000 Variable expenses 14,363,700 Contribution margin 8,336,300 Fixed expenses 6,175,000 Net operating income $ 2,161,300 Divisional average operating assets $ 5,675,000 The company had an overall return on investment (ROI) of 16.00% this year (considering all divisions). Next year the Office Products Division has an opportunity to add a new…
Derrick Iverson is a divisional manager for Holston Company. His annual pay raises are largely determined by his division's return on investment (ROI), which has been above 25% each of the last three years. Derrick is considering a capital budgeting project that would require a $5,160,000 investment in equipment with a useful life of five years and no salvage value. Holston Company's discount rate is 18%. The project would provide net operating income each year for five years as follows: Sales Variable expenses Contribution margin Fixed expenses: pocket costs $ 4,400,000 1,950,000 2,450,000 Advertising, salaries, and other fixed out-of- $ 790,000 1,032,000 1,822,000 $ 628,000 Depreciation Total fixed expenses Net operating income Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using tables. Required: 1. Compute the project's net present value. 2. Compute the project's simple rate of return. 3a. Would the company want Derrick to pursue…
Please help me to solve this problem
A new CEO takes control of Do-Da Industries to turn it around (to make it profitable). Based on market research she wants to focus on two specific product lines. By the end of the first year the company exceeded budgeted profits by 18%. The company’s controller knows his annual bonus depends on exceeding budgeted profit and that next year’s performance would unlikely be similar to this year’s. Profit must exceed budget by 10% before the controller’s bonus kicks in. The controller realizes he can accrue some of next year’s expenses and defer some of this year’s revenue while still exceeding this year’s budgeted profit by 10%. Required: Why would the controller want to defer revenues but accrue expenses? Is this ethical? Why?
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 19% 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 Req 1 Req 2 Complete this question by entering your answers in the tabs below. The company's discount rate is 16%. Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor using tables. Req 3 Internal rate of return 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…
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…

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS