Problem 2 Homely Development Corporation is considering bidding on a contract for a new office complex. The company needs to decide if it should bid on the contract. The codt of preparing the bid is $200,000. The company estimates that it has an 80% chance of winning the contract and 20% of losing the bid. If the company wins the bid it will have to pay $2,000,000 to become a partner in the contract. Once they are partners in the contract, they could conduct a market research study at $150,000. The research project could return with a forecast of a high market demand or low market demand. Regardless of the survey result must decide if they want to build the office complex or sell the rights to another company. Homely estimates that selling the contract rights will generate revenues of $3,500,000. If Homely decides to build the office complex they will generate $5,000,000 in revenue if demand is high and $3,000,000 if demand is low. Information for this project is listed below. Cost of bid: $200,000 Partnership fee (if bid is won): $2,000,000 Market research study: $150,000 Sell the rights: $3,500,000 in revenue Build the complex: $5,000,000 in revenue if demand is high, $3,000,000 in revenue if demand is low

Problem 2 Homely Development Corporation is considering bidding on a contract for a new office complex. The company needs to decide if it should bid on the contract. The codt of preparing the bid is $200,000. The company estimates that it has an 80% chance of winning the contract and 20% of losing the bid. If the company wins the bid it will have to pay $2,000,000 to become a partner in the contract. Once they are partners in the contract, they could conduct a market research study at $150,000. The research project could return with a forecast of a high market demand or low market demand. Regardless of the survey result must decide if they want to build the office complex or sell the rights to another company. Homely estimates that selling the contract rights will generate revenues of $3,500,000. If Homely decides to build the office complex they will generate $5,000,000 in revenue if demand is high and $3,000,000 if demand is low. Information for this project is listed below. Cost of bid: $200,000 Partnership fee (if bid is won): $2,000,000 Market research study: $150,000 Sell the rights: $3,500,000 in revenue Build the complex: $5,000,000 in revenue if demand is high, $3,000,000 in revenue if demand is low

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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Identify two types of such a company and explain why. QUESTION TWO Total [12 marks] Finozest Solutions is considering setting up a facility to manufacture computers. The manufacturing facility will cost K15 million to build and will have the capacity to sell 50,000 computers a year. Each computer is expected to sell retail for K2,800, and the cost of making each computer is expected to be K1,400. The fixed costs amount to K150,000 per year are expected to be incurred. The business will run for five years, at which time you estimate the market value of the facility to be zero. The discount rate is estimated at 10%, and the tax rate is 40%. [5 marks] (b) Using the net present value technique for project evaluation, advise Finozest solutions on whether they should undertake this project. (a) Estimate the accounting rate of return expected from his investment. [10 marks] (c) After the release of the latest GDP projections for the country, you now estimate that at the end of 5 years, you…
Question The product development department of Very Trusty plc is contemplating renting a factory building on a four-year lease from Year 1, investing in some new plant and using it to produce a new product, code named C15. Since there appears to be no possibility of the plant continuing to be economically viable beyond a four-year life, it has been decided to assess the new product over a four-year manufacturing and sales life. Under the lease the business will pay $100,000 annually in advance on 1 January. The plant is expected to cost $600,000. This will be bought and paid for in Year 0 and is expected to be scrapped (zero proceeds) on 31 December Year 4. The business will depreciate this asset, in its accounts, on a straight-line basis (25 per cent each year). Each unit of C15 is estimated to give rise to a variable labour cost of $200 and a variable material cost of $100. C15 manufacture will be charged with an annual share of the business’s administrative costs, totalling…
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Problem 9 A contractor is considering the following three alternatives: a. Purchase a new microcomputer system for $15,000. The system is expected to last 6 years with salvage value of $1,000. b. Lease a new microcomputer system for $3,000 per year, payable in advance. The system should last 6 years. c. Purchase a used microcomputer system for $8,200. It is expected to last 3 with no salvage value. Use a common-multiple-of-lives approach. If MARR of 8% is used, which alternative should be selected using a discounted present worth analysis? If the MARR is 12%, which alternate should be selected? years
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