You are considering adding a new software title to those published by your highly successful software company. If you add the new product, it will use capacity on your disk duplicating machines that you had planned on using for your flagship product, “Battlin’ Bobby.” You had planned on using the unused capacity to start selling “BB” on the west coast in two years. You would eventually have had to purchase additional duplicating machines 10 years from today, but using the capacity for your new product will require moving this purchase up to two years from today. If the new machines will cost $101,000 and can be expensed under section 179, your marginal tax rate is 21 percent, and your cost of capital is 10 percent, what is the opportunity cost associated with using the unused capacity for the new product?

You are considering adding a new software title to those published by your highly successful software company. If you add the new product, it will use capacity on your disk duplicating machines that you had planned on using for your flagship product, “Battlin’ Bobby.” You had planned on using the unused capacity to start selling “BB” on the west coast in two years. You would eventually have had to purchase additional duplicating machines 10 years from today, but using the capacity for your new product will require moving this purchase up to two years from today. If the new machines will cost $101,000 and can be expensed under section 179, your marginal tax rate is 21 percent, and your cost of capital is 10 percent, what is the opportunity cost associated with using the unused capacity for the new product?

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter3: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 8EB: Shonda & Shonda is a company that does land surveys and engineering consulting. They have an...

See similar textbooks

Similar questions

our highly successful software company is considering adding a new software title to your list. If you add the new product, it will use the full capacity of your disk duplicating machines that you had planned on using for your flagship product, “Battlin’ Bobby.” You had previously planned on using the unused capacity to start selling “BB” on the West Coast in two years. Eventually, you would have had to purchase additional duplicating machines 10 years from today, but since your new product will use up the extra capacity, this will require moving this purchase up to 2 years from today. If the new machines will cost $101,000 and can be expensed under Section 179, your marginal tax rate is 21 percent, and your cost of capital is 10 percent, what is the opportunity cost associated with using the unused capacity for the new product? Do not round intermediate calculations. Round your answer to 2 decimal places
You are in the mail-order business, selling computer peripherals, including high-speed Internet cables, various storage devices such as memory sticks, and wireless networking devices. You are considering upgrading your mail ordering system to make your operations more efficient and to increase sales. The computerized ordering system will cost $250,000 to install and $50,000 to operate each year. The system is expected to last eight years with no salvage value at the end of the service period. The new order system will save $120,000 in operating costs (mainly, reduction in inventory carrying cost) each year and bring in additional sales revenue in the amount of $40,000 per year for the next eight years. If your interest rate is 12%,justify your investment using the NPW method.
I know this is a lot of information but this is what I would need to solve the problem. Any help would be appreciated! Your company, VR Co., has been approached to bid on a contract to sell 20,000 voice recognition (VR) computer keyboards a 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 $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 $80,000 initially and to be returned at the end of the project, and the equipment can be sold for $200,000 at the end of production. Fixed costs are $700,000 per year, and variable costs are $48 per unit. In addition to the contract, you feel your company can sell 4,000, 12,000, 14,000, and 7,000 additional units to companies in other countries over the next four years, respectively, at a price of $145. This price is fixed.…
Shonda & Shonda is a company that does land surveys and engineering consulting. They have an opportunity to purchase new computer equipment that will allow them to render their drawings and surveys much more quickly. The new equipment will cost them an additional $1.200 per month, but they will be able to increase their sales by 10% per year. Their current annual cost and break-even figures are as follows: A. What will be the impact on the break-even point if Shonda & Shonda purchases the new computer? B. What will be the impact on net operating income if Shonda & Shonda purchases the new computer? C. What would be your recommendation to Shonda & Shonda regarding this purchase?
Austins cell phone manufacturer wants to upgrade their product mix to encompass an exciting new feature on their cell phone. This would require a new high-tech machine. You are excited about his new project and are recommending the purchase to your board of directors. Here is the information you have compiled in order to complete this recommendation: According to the information, the project will last 10 years and require an initial investment of $800,000, depreciated with straight-line over the life of the project until the final value is zero. The firms tax rate is 30% and the required rate of return is 12%. You believe that the variable cost and sales volume may be as much as 10% higher or lower than the initial estimate. Your boss understands the risks but asks you to explain the alternatives in a brief memo to the board, Write a memo to the Board of Directors objectively weighing out the pros and cons of this project and make your recommendation(s).
You are evaluating a new project for Globex Corporation as the company is planning to launch a new and very efficient mobile device named Meta-5050. The new product is expected to run for 5 years. To produce this new product, Globex needs to purchase new equipment that will cost $750,000. The company needs to spend another $10,000 for shipping and installation. You estimate the sales price of Meta-5050 to be $650 per unit and sales volume to be 800 units in year 1; 1,400 units in years 2-4; and 500 units in year 5. The cost of the contents, packaging and shipping are expected to be $225 per unit and the annual fixed costs for this project are $150,000 per year. The equipment will be depreciated straight-line to zero over the 5-year project life. The actual market value (salvage value) of these assets at the end of year 5 is expected to be $35,000. If this project is taken up, inventory will increase by $72,000, accounts receivable will increase by $36,850, and accounts payable will…
Your firm receives an offer from the supplier who provides computer chips used to manufacture cell phones. Due to poor planning, the supplier has an excess amount of chips and is willing to sell $600,000 worth of chips for only $500,000. You already have two years' supply on hand. It would cost you $7,500 today to store the chips until your firm needs them in two years. What implied interest rate would you be earning if you purchased and store
A property title search firm is contemplating using online software to increase its search productivity. Currently an average of 40 minutes is needed to do a title search. The researcher cost is $2 per minute. Clients are charged a fee of $400. Company A's software would reduce the average search time by 10 minutes, at a cost of $3.50 per search. Company B's software would reduce the average search time by 12 minutes at a cost of $3.60 per search. a. Calculate the productivity in terms of revenue per dollar of input. (Round your intermediate calculations and final answers to 2 decimal places. Omit the "$" sign in your response.) Productivity (Revenue per Dollar Input) $ Approach Current Company A Company B $ b. Which option would have the highest productivity in terms of revenue per dollar of input? Company A Company B Current
I need help with this problem.
Perot Corporation is developing a new CPU chip based on a new type of technology. Its new chip, the Patay2 chip, will take two years to develop. However, because other chip manufacturers will be able to copy the technology, it will have a market life of two years after it is introduced. Perot expects to be able to price the chip higher in the first year, and it anticipates a significant production cost reduction after the first year as well. The relevant information for developing and selling the Patay2 is given as follows: Development cost Pilot testing PATAY2 CHIP PRODUCT ESTIMATES $20,000,000 $ 5,000,000 $ 3,300,000 Debug Ramp-up cost Advance marketing $ 3,000,000 $ 5,600,000 Marketing and support cost Unit production cost year 1 $ 1,000,000 per year $ 655.00 Unit production cost year 2 Unit price year 1 $ 545.00 $ 820.00 Unit price year 2 $ 650.00 Sales and production volume year 1 250,000 Sales and production volume year 2 Interest rate 150,000 10 % PATAY2 CHIP PROJECT TIMING…
Perot Corporation is developing a new CPU chip based on a new type of technology. Its new chip, the Patay2 chip, will take two years to develop. However, because other chip manufacturers will be able to copy the technology, it will have a market life of two years after it is introduced. Perot expects to be able to price the chip higher in the first year, and it anticipates a significant production cost reduction after the first year as well. The relevant information for developing and selling the Patay2 is given as follows: PATAY2 CHIP PRODUCT ESTIMATES Development cost $ 20,000,000 Pilot testing $ 5,000,000 Debug $ 2,800,000 Ramp-up cost $ 3,000,000 Advance marketing $ 4,600,000 Marketing and support cost $ 1,000,000 per year Unit production cost year 1 $ 655.00 Unit production cost year 2 $ 545.00 Unit price year 1 $ 820.00 Unit price year 2 $ 650.00 Sales and production volume year 1 250,000 Sales and production volume year 2 150,000 Interest rate 10 % Assume all cash flows occur…
Dinesh bhai