2. Your company is evaluating a switch from a cash policy to a net 30 policy. The priceper unit is $49, and the variable cost per unit is $20. The company currently sells 100units per month. Under the proposed policy, the company expects to sell 110 unitsper month. The required monthly return is 2%.a) What is the NPV of the switch?Part 1:Incremental cash flow = (P – V)(S' – 5)Incremental cash flow = ($49 – $20)($110 – 100)Incremental cash flow = $29 * $10 = $290t 2:Incremental cash flowCost of capitalIncremental cash flowIncremental cash flow =02$290= $14500Part 3:Switch Cost = (P + S) + V(S' – 5)Switch cost = ($49 + 100) + $20($110 – $100)Switch cost = $4900 + $200 = $5100Therefore:NPV of Switch = $14500 – $5100 = $9400

Here, Selling Price per unit (P) = $49 Variable cost per unit (V) = $20 Sales units (S) = 100 units…

Answered: Your company is evaluating a switch…

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

See similar textbooks

Similar questions

= Your factory has been offered a contract to produce a part for a new printer. The contract would last for 3 years and your cash flows from the contract would be $4.93 million per year Your upfront setup costs to be ready to produce the part would be $7.97 million Your discount rate for this contract is 7.7% a. What is the IRR? b. The NPV is $4.80 million, which is positive, so the NPV rule says to accept the project. Does the IRR rule agree with the NPV rule? a. What is the IRR? The IRR is (Round to two decimal places)
Your factory has been offered a contract to produce a part for a new printer. The contract would last for 3 years and your cash flows from the contract would be $4.83 million per year. Your upfront setup costs to be ready to produce the part would be $8.13 million. Your discount rate for this contract is 7.9%. a. What does the NPV rule say you should do? b. If you take the contract, what will be the change in the value of your firm?
Your factory has been offered a contract to produce a part for a new printer. The contract would last for three years, and your cash flows from the contract would be $5.09 million per year. Your upfront setup costs to be ready to produce the part would be $7.92 million. Your discount rate for this contract is 8.3%. a. What is the IRR? b. The NPV is $5.13 million, which is positive so the NPV rule says to accept the project. Does the IRR rule agree with the NPV rule? a. What is the IRR? The IRR is %. (Round to two decimal places.) b. The NPV is $5.13 million, which is positive so the NPV rule says to accept the project. Does the IRR rule agree with the NPV rule? (Select from the drop-down menu.) The IRR rule with the NPV rule.
A fleet manager must choose between two trucks to purchase for a company's fleet. The company uses an interest rate of 6% and will keep either truck for 3 years. Truck A costs $29,000 and has a market value of $18,000 after 3 years. Truck B costs $33,000 and has a market value of $20,000 after 3 years. Determine the equivalent uniform annual cost (EUAC) for the truck the fleet manager should buy. Express your answer as a positive number is $ to the nearest $10.
Machine A costs $500,000 to purchase, result in electricity bills of $100,000 per year, and last for 12 years. Machine B costs $600,000 to purchase, result in electricity bills of $85,000 per year, and last for 15 years. The discount rate is 9%. What are the equivalent annual costs for two models? Which model is more cost-effective?
Your factory has been offered a contract to produce a part for a new printer. The contract would last for three years, and your cash flows from the contract would be $5.17 million per year. Your upfront setup costs to be ready to produce the part would be $8.17 million. Your discount rate for this contract is 8.3% a. What does the NPV rule say you should do? b. If you take the contract, what will be the change in the value of your firm?
21. Your factory has been offered a contract to produce a part for a new printer. The contract would last for 3 years and your cash flows from the contract would be $5.00 million per year. Your upfront setup costs to be ready to produce the part would be $8.00 million. Your discount rate for this contract is 8.0%. a. What does the NPV rule say you should do? b. If you take the contract, what will be the change in the value of your firm? a. The NPV of the project is $____million. (Round to two decimal places.) What should you do? (Select the best choice below.) b. If you take the contract, the value added to the firm will be $____million. (Round to two decimal places.)
Your factory has been offered a contract to produce a part for a new printer. The contract would last for 3 years and your cash flows from the contract would be $4.83 million per year. Your upfront setup costs to be ready to produce the part would be $8.02 million. Your discount rate for this contract is 8.1%. a. What does the NPV rule say you should do? b. If you take the contract, what will be the change in the value of your firm? Question content area bottom Part 1 a. What does the NPV rule say you should do? The NPV of the project is $XXX enter your response here million. (Round to two decimal places.) Part 2 What should you do? (Select the best choice below.) A. The NPV rule says that you should accept the contract because the NPV less than 0. B. The NPV rule says that you should not accept the contract because the NPV less than 0. C. The NPV rule says that you should not accept the contract because the NPV greater…
Minden Co. is considering buying new computer software that will assist customers in their product choices. The cost is $50,000. The benefit will be an additional cash inflow of $25,000 for four years, at which point the software will need replacing with a more modern version. The return on average investment is _______________. Question 15 options: 25.0% none of the options 42.5% 50.0% 30.0%

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS