NPV is negative.8.16 Replacement Decision. Wisconsin Products Company manufactures several different products.One of the firm's principal products sells for $20 per unit. The sales manager of WisconsinProducts has stated repeatedly that he could sell more units of this product if they were available.In an attempt to substantiate his claim the sales manager conducted a market research study lastyear at a cost of $44,000 to determine potential demand for this product. The study indicated thatWisconsin Products could sell 18,000 units of this product annually for the next 5 years. flows. Explain why your corected calculations differ from the original analysis prepared by theflow analysis for this investment proposal. The controller has asked you to prepare correctedcalculations of (a) the required investment in the new equipment and (6) the recurring annual cash236The controller of Wisconsin Products Company plans to prepare a discounted cashsales manager. (c) Calculate the net present value of the proposed investment in the newCAPITAL BULzero in 5 years.ment costs $300,000 and has an estimated useful life of 5 years, with no salvage value at the endif purchased, would provide increased production efficiencies that would reduce the varisproduction costs to $7 per unit.Wisconsin Products Company uses straight-line depreciation on all its equipment fortax purposes. The firm is subject to a 40 percent tax rate, and its after-tax cost of capital15 percent.The sales manager felt so strongly about the need for additional capacity that he attemptedto prepare an economic justification for the equipment although this was not one of biresponsibilities. His analysis, presented below and on the next page, disappointed him becauseit did not justify acquisition of the cquipment.He computed the required investment as follows:$300,000Purchase price of new equipmentDisposal of existing equipmentLoss on disposalLess tax benefit (40%)Cost of market research studyS60,00024,00036,00044,000Total investment$380,000He computed the annual returns as follows:Contribution margin from productUsing the new equipment[18,000 x (S20 - $7)]Using the existing equipment[11,000 x (S20 - S9)]Increase in contribution marginLess depreciationIncrease in before-tax incomeIncome tax (40%)$234,000121,000$113,00060,000$53,00021.200$31,800Increase in incomeLess 15% cost of capital on theadditional investment required(0.15 x $380,000)57,000Net annual return on proposedinvestment in new equipmentS(25,200)equipment.

Cash flow is defined as the net amount of cash and cash equivalents carried into and out of a…

Answered: Replacement Decision. Wisconsin…

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

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* Your answer is incorrect. Crane Company sells 302 units of its products for $20 each to John Inc. for cash. Crane allows John to return any unused product within 30 days and receive a full refund. The cost of each product is $13. To determine the transaction price, Crane decides that the approach that is most predictive of the amount of consideration to which it will be entitled is the probability-weighted amount. Using the probability-weighted amount, Crane estimates that (1) 9 products will be returned and (2) the returned products are expected to be resold at a profit. (a) Indicate the amount of net sales. Net sales $ (b) Indicate the amount of estimated liability for refunds. Liability for refunds $ Cost of goods sold 5869 (c) Indicate the amount of cost of goods sold that Crane should report in its financial statements Lassume that none of the products fave been returned at the financial statement date) 5 eTextbook and Media 171 Q Search 3913 (7
View Policies Show Attempt History Current Attempt in Progress Your answer is incorrect. Cullumber's Candles will be producing a new line of dripless candles in the coming years and has the choice of producing the candles in a large factory with a small number of workers or a small factory with a large number of workers. Each candle will be sold for $10. If the large factory is chosen, the cost per unit to produce each candle will be $3.60. The cost per unit will be $7.50 in the small factory. The large factory would have fixed cash costs of $2.30 million and a depreciation expense of $300,000 per year, while those expenses would be $470,000 and $100,000, respectively, in the small factory. Calculate the pretax operating cash flow break-even point for both factory choices for Cullumber's Candles. (Round answers to nearest whole units e.g. 152.) pretax operating cash flow breakeven point for the large factory is units and for the small factory is eTextbook and Media Save for Later Last…
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Use the following information for all questions. McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $700 per set and have a variable cost of $340 per set. The company has spent $150,000 for a marketing study that determined the company will sell 46,000 sets per year for seven years. The marketing study also determined that the company will lose sales of 12,000 sets of its high-priced clubs. The high-priced clubs sell at $1,100 and have variable costs of $550. The company will also increase sales of its cheap clubs by 20,000 sets. The cheap clubs sell for $300 and have variable costs of $100 per set. The fixed costs each year will be $8,000,000. The company also spent $1,000,000 on research and development for the new clubs. The plant and equipment required will cost $16,100,000 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $900,000 that will be returned at the end of the project.…
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