Star Inc asked you to evaluate their internal control systems. You believed that Star Inc. has serious flaws in their internal control system. You estimated that the impact associated with this problem is $10 million and that the likelihood is currently 9%. Three procedures can be used to deal with this problem. Procedure A would cost $300,000 and reduce the likelihood to 5%; procedure B would cost $400,000 and reduce the likelihood to 3%. If both procedures were implemented, likelihood would be reduced to 1%. a. What is the estimated expected loss associated with ABC Corporation's internal control problem before any new internal control procedures are implemented? b. Determine which procedure should be implemented. Use computation to support your answer. (

Star Inc asked you to evaluate their internal control systems. You believed that Star Inc. has serious flaws in their internal control system. You estimated that the impact associated with this problem is $10 million and that the likelihood is currently 9%. Three procedures can be used to deal with this problem. Procedure A would cost $300,000 and reduce the likelihood to 5%; procedure B would cost $400,000 and reduce the likelihood to 3%. If both procedures were implemented, likelihood would be reduced to 1%. a. What is the estimated expected loss associated with ABC Corporation's internal control problem before any new internal control procedures are implemented? b. Determine which procedure should be implemented. Use computation to support your answer. (

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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(Related to Checkpoint 13.2 and Checkpoint 13.3) (Comprehensive risk analysis) Blinkeria is considering introducing a new line of hand scanners that can be used to copy material and then download it into a personal computer. These scanners are expected to sell for an average price of $95 each, and the company analysts performing the analysis expect that the firm can sell 103,000 units per year at this price for a period of five years, after which time they expect demand for the product to end as a result of new technology. In addition, variable costs are expected to be $21 per unit and fixed costs, not including depreciation, are forecast to be $1,020,000 per year. To manufacture this product, Blinkeria will need to buy a computerized production machine for $9.7 million that has no residual or salvage value, and will have an expected life of five years. In addition, the firm expects it will have to invest an additional $309,000 in working capital to support the new business. Other…
Your company has been approached to bid on a contract to sell 5,000 voice recognition (VR) computer keyboards per year for four years. Due to technological improvements, beyond that time they will be outdated and no sales will be possible. The equipment necessary for the production will cost $3.4 million and will be depreciated on a straight- line basis to a zero salvage value. Production will require an investment in net working capital of $395,000 to be returned at the end of the project, and the equipment can be sold for $325,000 at the end of production. Fixed costs are $595,000 per year, and variable costs are $85 per unit. In addition to the contract, you feel your company can sell 12,300, 14,600, 19,200, and 11,600 additional units to companies in other countries over the next four years, respectively, at a price of $180. This price is fixed. The tax rate is 23 percent, and the required return is 10 percent. Additionally, the president of the company will undertake the project…
You are a manager at Northern Fibre, which is considering expanding its operations in synthetic fibre manufacturing. Your boss comes into your office, drops a consultant's report on your desk, and complains, "We owe these consultants $1.9 million for this report, and I am not sure their analysis makes sense. Before we spend the $28 million on new equipment needed for this project, look it over and give me your opinion." You open the report and find the following estimates (in millions of dollars): 2 9 10 Sales revenue 1 27.000 27.000 16.200 16.200 10.800 10.800 2.240 - Cost of goods sold 27.000 16.200 10.800 27.000 16.200 = Gross profit 10.800 - General, sales, and administrative expenses 2.240 2.240 2.240 - Depreciation 2.800 2.800 2.800 2.800 5.7600 = Net operating income 5.7600 5.7600 5.7600 - Income tax 2.016 2.016 2.016 2.016 = Net income 3.744 3.744 3.744 3.744 All of the estimates in the report seem correct. You note that the consultants used straight-line depreciation for the…
You are a manager at Northern Fibre, which is considering expanding its operations in synthetic fibre manufacturing. Your boss comes into your office, drops a consultant's report on your desk, and complains, "We owe these consultants $1.1 million for this report, and I am not sure their analysis makes sense. Before we spend the $20 million on new equipment needed for this project, look it over and give me your opinion." You open the report and find the following estimates (in millions of dollars): Sales revenue - Cost of goods sold = Gross profit - General, sales, and administrative expenses - Depreciation = Net operating income Income tax = Net income 1 26.000 15.600 2 26.000 15.600 10.400 10.400 1.600 1.600 2.000 2.000 6.800 2.38 4.420 6.800 2.38 4.420 ... 9 26.000 15.600 10.400 1.600 2.000 6.800 2.38 4.420 10 26.000 15.600 10.400 1.600 2.000 6.800 2.38 4.420 All of the estimates in the report seem correct. You note that the consultants used straight-line depreciation for the new…
A chemical engineer is considering two styles of pipes for moving distillate from a refinery to the tank farm. A small pipeline will cost less to purchase (inclucding valves and other appurtenances) but will have a high head loss and, therefore, a higher pumping cost. The small pipeline will cost $17 million installed and will have an operating cost of $12,000 per month. A larger-diameter pipeline will cost $21 million installed, but its operating cost will be only $8000 per month. Assume the salvage value is 10% of the first cost for each pipeline at the end of the 10-year study period. Determine the equivalent annual worth of the small pipieline at a MARR of 12% per year compounded monthly. (Answer should be per month)
Can this be solved by hand and what are the formulas?
Assume that you are the team leader of strategic planning and advisory board of M/S XYZ company. The company has decided to enter the market with a new electronic product. Your team conducted a marker research and presented the following two strategies along with the necessary data. Strategy A: Build a large plant with an estimated cost of 20,00,000 Rials. This alternative can face two states of nature on market conditions: High demand with a probability of 0.70, or a low demand with a probability of 0.30. If the demand is high, the company can expect to receive an annual revenue of 5,00,000 Rials for 7 years. If the demand were low the annual revenue would be only 1,00,000 Rials.
2. The Anderson Machine Company's main product is a GPS tracking device that is only one square inch in size but can be tracked on the internet from nearly any location in the world. Their device is relatively new and is still working out some problems, but there are no other GPS trackers in the world that are as small in size as Anderson's device. Investors in Anderson told the company they expected to earn a risk-adjusted return of 12% on their investment, and the device has been profitable with a 7% return on investment. From a VRIS perspective, which of the following is a correct description of Anderson's situation? (F&E) The device is valuable, rare, and difficult to copy, but has a lot of substitutes so the company has a temporary competitive advantage The device is valuable but not rare, so the company is experiencing competitive parity O None of these are correct The device is valuable and rare and a source of competitive advantage The device is not considered to be valuable…
You are a manager at Percolated Fiber, which is considering expanding its operations in synthetic fiber manufacturing. Your boss comes into your office, drops a consultant's report on your desk, and complains, "We owe these consultants $1.0 million for this report, and I am not sure their analysis makes sense. Before we spend the $25 million on new equipment needed for this project, look it over and give me your opinion." You open the report and find the following estimates (in millions of dollars): (Click on the following icon in order to copy its contents into a spreadsheet.) Project Year Sales revenue - Cost of goods sold = Gross profit - General, sales, and administrative expenses - Depreciation = Net operating income 1 30.000 18.000 12.000 2.000 2.500 7.500 2 30.000 18.000 12.000 2.000 2.500 7.500 9 30.000 18.000 12.000 2.000 2.500 7.500 10 30.000 18.000 12.000 2.000 2.500 7.500 a. Given the available information, what are the free cash flows in years 0 through 10 that should be…
You are a manager at Percolated Fiber, which is considering expanding its operations in synthetic fiber manufacturing. Your boss comes into your office, drops a consultant's report on your desk, and complains, "We owe these consultants $1.9 million for this report, and I am not sure their analysis makes sense. Before we spend the $18 million on new equipment needed for this project, look it over and give me your opinion." You open the report and find the following estimates (in millions of dollars): (Click on the following icon in order to copy its contents into a spreadsheet.) Sales revenue - Cost of goods sold = Gross profit - General, sales, and administrative expenses - Depreciation = Net operating income - Income tax 1 34.000 20.400 13.600 1.440 1.800 10.360 2.072 Project Year 2 34.000 20.400 13.600 1.440 1.800 10.360 2.072 9 34.000 20.400 13.600 1.440 1.800 10.360 2.072 10 34.000 20.400 13.600 1.440 1.800 10.360 2.072 a. Given the available information, what are the free cash…
You are a manager at Percolated Fiber, which is considering expanding its operations in synthetic fiber manufacturing. Your boss comes into your office, drops a consultant's report on your desk, and complains, "We owe these consultants $1.2 million for this report, and I am not sure their analysis makes sense. Before we spend the $29 million on new equipment needed for this project, look it over and give me your opinion." You open the report and find the following estimates (in millions of dollars): (Click on the following icon in order to copy its contents into a spreadsheet.) Project Year Sales revenue Cost of goods sold = Gross profit - General, sales, and administrative expenses - Depreciation = Net operating income - Income tax 1 25.000 15.000 10.000 2.320 2.900 4.780 1.434 2 25.000 15.000 10.000 2.320 2.900 4.780 1.434 9 25.000 15.000 10.000 2.320 2.900 4.780 1.434 10 25.000 15.000 10.000 2.320 2.900 4.780 1.434 a. Given the available information, what are the free cash flows in…
You are a manager at Northern Fibre, which is considering expanding its operations in synthetic fibre manufacturing. Your boss comes into your office, drops a consultant's report on your desk, and complains, "We owe these consultants $1.6 million for this report, and I am not sure their analysis makes sense. Before we spend the $29 million on new equipment needed for this project, look it over and give me your opinion." You open the report and find the following estimates (in millions of dollars): Sales revenue - Cost of goods sold = Gross profit - General, sales, and administrative expenses - Depreciation = Net operating income Income tax = Net income 1 2 34.000 34.000 20.400 20.400 13.600 13.600 2.320 2.320 2.900 2.900 8.380 8.380 2.933 2.933 5.447 5.447 9 34.000 20.400 13.600 2.320 2.900 8.380 2.933 5.447 10 34.000 20.400 13.600 2.320 2.900 8.380 2.933 5.447

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