The Monty Inc., a manufacturer of low-sugar, low-sodium, low-cholesterol TV dinners, would like to increase its market share in theSunbelt. In order to do so, Monty has decided to locate a new factory in the Panama City area. Montyydepending upon which is more advantageous. The site location committee has narrowed down thethree very similar buildings that will meet their needs.Building A: Purchase for a cash price of $613,700, useful life 27 years.Building B: Lease for 27 years with annual lease payments of $70,100 being made at the beginning of the year.Building C: Purchase for $659,100 cash. This building is larger than needed; however, the excess space can be sublet for 27 years at anet annual rental of $6,470. Rental payments will be received at the end of each year. The Monty Inc. has no aversion to being alandlord.Click here to view factor tables.In which building would you recommend that The Monty Inc. locate, assuming a 12% cost of funds? (Round factor values to 5 decimalplaces, e.g. 1.25124 and final answer to O decimal places, e.g. 458,581.)Building ABuilding BBuilding C$$$ther buy or lease a sitealiu sites to the followingNet Present Value

Net present value refers to the method of capital budgeting which is helpful in evaluating the worth…

Answered: The Monty Inc., a manufacturer of…

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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Required information [The following information applies to the questions displayed below.] EagleEye Company, a manufacturer of digital cameras, is considering entry into the digital binocular market. EagleEye Company currently does not produce binoculars of any style, so this venture would require a careful analysis of relevant manufacturing costs to correctly assess its ability to compete. The market price for this binocular style is well established at $125 per unit. EagleEye has enough square footage in its plant to accommodate the new production line, although several pieces of new equipment would be required; their estimated cost is $4,850,000. EagleEye requires a minimum ROI of 14% on any product line investment and estimates that if it enters this market with its digital binocular product at the prevailing market price, it is confident of its ability to sell 21,000 units each year. b. Calculate the target cost per unit for entry into the digital binocular market. (Round your…
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.
XYZ Inc., the Calapan-based computer manufacturer, has developed a new all-in-one device: phone, music-player, camera, GPS, and computer. The device is called the iPip. The following data have been collected regarding the iPip project. The company has identified a prime piece of real estate and must purchase it immediately for $100,000. In addition, R&D expenditures of $175,000 must be made immediately. During the first year the manufacturing plant will be constructed. The plant will be ready for operation at the end of Year 1. The construction costs are $500,000 and will be paid upon completion. At the end of the Year 1, an inventory of raw materials will be purchased costing $50,000. Production and sales will occur during years 2 and 3. (Assume that all revenues and operating expenses are received (paid) at the end of each year.) Annual revenues are expected to be $850,000. Fixed operating expenses are $100,000 per year and variable operating expenses are 25% of sales. The…
Current Attempt in Progress Your answer is partially correct. Vaughn Inc. owns and operates a number of hardware stores in the New England region. Recently, the company has decided to locate another store in a rapidly growing area of Maryland. The company is trying to decide whether to purchase or lease the building and related facilities. Purchase: The company can purchase the site, construct the building, and purchase all store fixtures. The cost would be $1,865,700. An immediate down payment of $415,500 is required, and the remaining $1,450,200 would be paid off over 5 years at $369,000 per year (including interest payments made at end of year). The property is expected to have a useful life of 12 years, and then it will be sold for $508,900. As the owner of the property, the company will have the following out-of-pocket expenses each period. Property taxes (to be paid at the end of each year) Insurance (to be paid at the beginning of each year) Other (primarily maintenance which…
Sarasota Inc., manufactures ice tea and would like to increase its market share in the North. In order to do so, Sarasota has decided to locate a new factory in the Cedar Rapid area. Sarasota will either buy or lease a site depending upon which is more advantageous. The site location committee has narrowed down the available sites to the following three buildings: Building A: Purchase for a cash price of $1,540,000, useful life 26 years. Building B: Lease for 26 years with annual lease payments of $124,000 being made at the beginning of the year. Building C: Purchase for $1,952,000 cash. This building is larger than needed; however, the excess space can be sublet for 26 years at a net annual rental of $18,300. Rental payments will be received at the end of each year. Sarasota Inc. has no aversion to being a landlord. Click here to view factor tables In which building would you recommend that Sarasota Inc. locate, assuming a 10% cost of funds? (Round factor values to 5 decimal places,…
The Cheyenne Inc., a manufacturer of low-sugar, low-sodium, low-cholesterol TV dinners, would like to increase its market share in the Sunbelt. In order to do so, Cheyenne has decided to locate a new factory in the Panama City area. Cheyenne will either buy or lease a site depending upon which is more advantageous. The site location committee has narrowed down the available sites to the following three very similar buildings that will meet their needs. Building A: Purchase for a cash price of $615,000, useful life 28 years. Building B: Lease for 28 years with annual lease payments of $71,570 being made at the beginning of the year. Building C: Purchase for $659,900 cash. This building is larger than needed; however, the excess space can be sublet for 28 years at a net annual rental of $6,870. Rental payments will be received at the end of each year. The Cheyenne Inc. has no aversion to being a landlord. Show Transcribed Text In which building would you recommend that The Cheyenne Inc.…
Finisterra, S.A. Finisterra, S.A., located in the state of Baja California, Mexico, manufactures frozen Mexican food which enjoys a large following in the U.S. states of California and Arizona to the north. In order to be closer to its U.S. market, Finisterra is considering moving some of its manufacturing operations to southern California. Operations in California would begin in year 1 for three years and have the following attributes: E The operations in California will pay 81% of its accounting profit to Finisterra as an annual cash dividend. Mexican taxes are calculated on grossed up dividends from foreign countries, with a credit for host-country taxes already paid. The corporate income tax rate in U.S. is 28% (the tax rate in Mexico is lower than the rate in the U.S.), the current spot exchange rate is Ps10.00/$, and the exchange rates for the next three years will be Ps11.00/S, Ps12.00/S, and Ps13.00/S, respectively. Assume the after-tax dividends received by the parent in years…
The cost of introducing the products in selected geographic areas for gauging consumer response is $150K. If the company decides to introduce the product this way, it would need to see the responses to the products before they decide to launch the product line nationally. The probability of a favorable response in the selected geographical areas is estimated at O.60. La Comida can also decide not to go for the launching in the product in selected geographical areas and go ahead with the nationwide launch or not. If La Comida Foods decides to go full-blast in launching the products nationally and are a success, the company estimates that they will gain an annual income of $1.6 million. If the products are not a hit, the company will realize losses to the tune of $700K. La Comida estimates the probability of success for the sauces and marinades to be 0.50, if these are introduced without gauging consumer response.
Due to increased product demand, the Jax Company has insufficient floor space in its current production facility. Three alternative solutions have been identified: (A1) do nothing, (A2) rearrange an area of the existing floor space, or (A3) build an addition to the present plant. Analysis is conducted assuming a five-year planning horizon and an MARR of 30%. There is some uncertainty as to whether Jax will face competition for the new business. If alternative A1 is pursued, the estimated Present Worth will be $0. If alternative A2 is chosen, the Present Worth realized will depend on whether competition arises. Under A2, there is a 60% chance of competition occurring. The estimated PW under A2 will be $50,000 if competition arises; $30,000 if there is no competition. Under A3, there is a 20% chance of competition. The estimated PW under A3 will be -$100,000 if competition arises; $90,000 if there is no competition. (a) Based on expected PW, what course should Jax follow? (b)…
A firm that manufactures paper is considering a project to set up a logging operation. Wood pulp generated by the project - normally an unwanted by-product of a logging operation - is an input to the paper manufacturing process. This will save the company $340,000 in wood pulp purchases, but it will cost $50,000 more to transport the wood pulp to the paper factory than it would cost to dump it as waste. How would you describe this situation in terms of the NPV analysis for the logging operation? Question 2Answer a. There is a positive externality equal to $290,000 which should be included in the NPV analysis. b. There is a positive externality equal to $340,000 which should be included in the NPV analysis. c. There is a negative externality equal to $290,000 which should be included in the NPV analysis. d. There is a negative externality equal to $340,000 which should be included in the NPV analysis.
A component of the direct materials cost requires the nectar of a specific plant in South America. If the company could eliminate this special ingredient, the materials cost would decrease by 25%. However, this would require design changes of $300,000 to engineer a chemical equivalent of the ingredient. Will this design change allow the product to meet its target cost?
The Bathtub Division of Pronghorn Plumbing Corporation has recently approached the Faucet Division with a proposal. The Bathtub Division would like to make a special "ivory" tub with gold-plated fixtures for the company's 50-year anniversary. It would make only 5,200 of these units. It would like the Faucet Division to make the fixtures and provide them to the Bathtub Division at a transfer price of $164. If sold externally, the estimated unit variable cost would be $148. However, by selling internally, the Faucet Division would save $7 per unit on variable selling expenses. The Faucet Division is currently operating at full capacity. Its standard unit sells for $52 per unit and has variable costs of $35. Compute the minimum transfer price that the Faucet Division should be willing to accept. Minimum transfer price $ Should they accept this offer? They this offer.

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