MyLab Finance with Pearson eText -- Access Card -- for Principles of Managerial Finance
15th Edition
ISBN: 9780134479903
Author: Chad J. Zutter, Scott B. Smart
Publisher: PEARSON
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Chapter 1, Problem 1.4WUE
You have been made treasurer for a day at AIMCO, which develops technology for video conferencing. A manager of the satellite division has asked you to authorize a capital expenditure in the amount of $100,000. The manager states that this expenditure is necessary to continue a long-running project designed to use satellites to allow video conferencing anywhere on the planet. The manager admits that the satellite concept has been surpassed by recent technological advances in telephony, but he believes that AIMCO should continue the project because $2.5 million has already been spent over the past 15 years on this project. Although you believe the project will generate future
Use marginal cost- benefit analysis to make your decision regarding whether you should authorize the $100,000 expenditure to continue the project.
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Project Year
Earnings Forecast ($000,000s)
1
2
. . .
9
10
Sales revenue
25.000
25.000
25.000
25.000
−Cost
of goods sold
15.000
15.000
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profit
10.000
10.000
10.000
10.000
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You are a manager at Northem 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 $1.3 million for this report,
and I am not sure their analysis makes sense. Before we spend the $24 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
10
Sales revenue
29.000
17.400
29.000
29.000
29.000
- Cost of goods sold
= Gross profit
- General, sales, and administrative expenses
- Depreciation
= Net operating income
17.400
17.400
17.400
11.600
1.920
2.400
11.600
11.600
11.600
1.920
1.920
1.920
2.400
2.400
2.400
7.2800
7.2800
7.2800
7.2800
- Income tax
2.548
2.548
2.548
2.548
= Net income
4.732
4.732
4.732
4.732
All of the estimates in the report seem correct. You note that the consultants used straight-line depreciation for the new…
Chapter 1 Solutions
MyLab Finance with Pearson eText -- Access Card -- for Principles of Managerial Finance
Ch. 1.1 - What is the goal of the firm and, therefore, of...Ch. 1.1 - For what three main reasons is profit maximization...Ch. 1.1 - What is risk? Why must financial managers consider...Ch. 1.1 - Is maximizing shareholder wealth inconsistent with...Ch. 1.2 - What are the main types of decisions that...Ch. 1.2 - Prob. 1.6RQCh. 1.2 - Prob. 1.7RQCh. 1.2 - What are the major differences between accounting...Ch. 1.2 - Prob. 1.9RQCh. 1.3 - Prob. 1.10RQ
Ch. 1.3 - Prob. 1.11RQCh. 1.3 - What does it mean to say that corporations face a...Ch. 1.3 - Prob. 1.13RQCh. 1.3 - Prob. 1.14RQCh. 1.3 - Prob. 1.15RQCh. 1 - Learning Goal 4 ST1-1 Emphasis on Cash Flows...Ch. 1 - Prob. 1.1WUECh. 1 - Prob. 1.2WUECh. 1 - Learning Goal 4 E1-3 The end-of-year parties at...Ch. 1 - You have been made treasurer for a day at AIMCO,...Ch. 1 - Recently, some branches of Donut Shop, Inc., have...Ch. 1 - Ross Company, a manufacturer of pharmaceuticals,...Ch. 1 - Prob. 1.1PCh. 1 - Prob. 1.2PCh. 1 - Cash flows It is typical for Jane to plan,...Ch. 1 - Marginal cost-benefit analysis and the goal of the...Ch. 1 - Identifying agency problems, costs, and...Ch. 1 - Corporate taxes Tantor Supply, Inc., is a small...Ch. 1 - Prob. 1.7PCh. 1 - Prob. 1.8PCh. 1 - Prob. 1.9PCh. 1 - Interest versus dividend expense Michaels...Ch. 1 - Hemingway Corporation is considering expanding its...Ch. 1 - Prob. 1.12PCh. 1 - Prob. 1SE
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