This-Test-Is-a-Breeze, Inc. owns a warehouse in Wilmington, DE. The company has decided touse the warehouse for the production of plastic polymers. To do so the company will forgo theoption of renting the warehouse to a third party, which would have generated $50,000 of annualcash inflow. The $50,000 that the company is forgoing to pursue another investment is:Sunk CostOpportunity CostErosion CostVariable Cost

Option b is correct.Explanation: Option b: This option is correct because Opportunity cost is the…

Answered: This-Test-Is-a-Breeze, Inc. owns a…

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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Carl's Connection manufactures add-on products for the automobile industry. The manager at Carl's Connections has just been presented the opportunity to invest in two independent projects. The first is an air conditioner for the back seats of vans. The second opportunity is turbocharger for sedans. Withoud either investment, the company currently expects average assets for the coming year to be $28.9 million and expects operating income to be $4.335 million. Below is the expected cost for each investment and their expected operating income. It can be assumed that the outlay is the value of the asset. Air Conditioner TurboCharger Outlay $750,000.00 $600,000.00 Operating Income $90,000.00 $82,080.00 Compute the ROI for each investment by itself and round to nearest hundreth after in percent form
Legendary Motors has 7,000 defective autos on hand, which cost $12, 880,000 to manufacture. Legendary can either sell these defective autos as scrap for $8,000 per auto, or spend an additional $18, 320, 000 on repairs and then sell them for $12,000 per unit. What is the net advantage to repair the autos compared to selling them for scrap? Group of answer choices $84,000,000 $18, 320, 000 $9, 680,000 $56,000,000
Kim Inc. must install a new air conditioning unit in its main plant. Kim must install one or the other of the units; otherwise, the highly profitable plant would have to shut down. Two units are available, HCC and LCC (for high and low capital costs, respectively). HCC has a high capital cost but relatively low operating costs, while LCC has a low capital cost but higher operating costs because it uses more electricity. The costs of the units are shown here. Kim's WACC is 6%. 1 2 3 4 НСС -$600,000 -$45,000 -$45,000 -$45,000 -$45,000 -$45,000 LCC -$90,000 -$175,000 -$175,000 -$175,000 -$175,000 -$175,000 a. Which unit would you recommend? I. Since all of the cash flows are negative, the IRR's will be negative and we do not accept any project that has a negative IRR. II. Since all of the cash flows are negative, the NPV's cannot be calculated and an alternative method must be employed. III. Since all of the cash flows are negative, the NPV's will be negative and we do not accept any…
Applying Differential Analysis to Equipment Replacement Decision TaylorMade - Adidas Golf Company a subsidiary of Adidas, manufactures golf clubs using "adjustable weight technology" or AWT. Suppose a European machine company has proposed to sell TaylorMade a new highly automated machine that would reduce significantly the labor cost of producing its golf clubs. The cost of the machine is $ 7,800,000, and would have an expected life of six years, at the end of which it would have a residual value of 10% of its original cost. The machine has an estimated operating cost of $39,000 per month. The direct labor cost savings per club from using the machine is estimated to be $16 per club, per month. In addition, other fixed overhead costs of $20,800 per month would be eliminated if the new machine is purchased. Also, the new machine would free up about 13,000 square feet of space from the displaced workers. Assume TaylorMade's building is held under a 10-year lease that has eight years…
Juice WORLD Company makes and sells gourmet juices and is looking to purchase a new, more efficient fruit peeler system. Which of the following would not be relevant in making the decision? The per-year power cost of the new system The installation cost of the new system The per year power cost of the current system The original price of the current system O The capacity of the current freezer system
Kim Inc. must install a new air-conditioning unit in its main plant. Kim must install one or the other of the units; otherwise, the highly profitable plant would have to shut down. Two units are available, HCC and LCC (for high and low capital costs, respectively). HCC has a high capital cost but relatively low operating costs, while LCC has a low capital cost but higher operating costs because it uses more electricity. The costs of the units are shown here. Kim's WACC is 5%. HCC LCC 0 1 2 3 5 -$590,000 -$110,000 -$45,000 -$170,000 -$45,000 -$45,000 -$170,000 -$170,000 -$45,000 -$170,000 -$45,000 -$170,000 a. Which unit would you recommend? 1. Since all of the cash flows are negative, the NPV's cannot be calculated and an alternative method must be employed. II. Since all of the cash flows are negative, the NPV's will be negative and we do not accept any project that has a negative NPV. III. Since we are examining costs, the unit chosen would be the one that had the lower NPV of costs.…
A company is trying to decide whether to buy a new delivery truck to replace their old one. The old truck originally cost $32,000. The new truck will cost $45,000. If they buy the new truck, they will sell the old truck to a used truck dealer for $4,000. Based on the information given, what is the immediate total incremental cost or benefit of buying the new truck? (Indicate a net benefit as a positive number and a net cost as a negative number.)
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