Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
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Chapter 6, Problem 25PS
Summary Introduction
To determine: The product which is less expensive to use.
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Grove Audio is considering the introduction of a new model of wireless speakers with the following price and cost characteristics.
Sales price $ 450.00 per unit
Variable costs 210.00 per unit
Fixed costs 764,000 per year
Assume that the projected number of units sold for the year is 4,750. Consider requirements (b), (c), and (d) independently of each other.
What will the operating profit be?
What is the impact on operating profit if the sales price decreases by 20 percent? Increases by 10 percent?
What is the impact on operating profit if variable costs per unit decrease by 10 percent? Increase by 20 percent?
Suppose that fixed costs for the year are 20 percent lower than projected, and variable costs per unit are 10 percent higher than projected. What impact will these cost changes have on operating profit for the year? Will profit go up? Down? By how much?
Econo-Cool air conditioners cost $345 to purchase, result in electricity bills of $159 per year, and last for 5 years. Luxury Air models cost $545, result in electricity bills of $118 per year, and last for 8 years. The discount rate is 25%.
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b. What is the equivalent annual cost of the Luxury Air model? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
c. Which model is more cost-effective?
d-1. Now you remember that the inflation rate is expected to be 10% per year for the foreseeable future. What is the equivalent annual cost of the Econo-Cool and Luxury Air model? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
d-2. Which model is more cost-effective?
Econo-Cool air conditioners cost $380 to purchase, result in electricity bills of $166 per year, and last for 5 years. Luxury
Air models cost $580, result in electricity bills of $132 per year, and last for 8 years. The discount rate is 20%. a. What is
the equivalent annual cost of the Econo-Cool model? Note: Do not round intermediate calculations. Round your answer
to 2 decimal places.
Chapter 6 Solutions
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 6 - Cash flows Which of the following should be...Ch. 6 - Real and nominal flows Mr. Art Deco will be paid...Ch. 6 - Cash flows True or false? a. A projects...Ch. 6 - Depreciation How does the PV of depreciation tax...Ch. 6 - Working capital The following table tracks the...Ch. 6 - Prob. 6PSCh. 6 - Prob. 7PSCh. 6 - Mutually exclusive investments and project lives...Ch. 6 - Replacement decisions Machine C was purchased five...Ch. 6 - Prob. 10PS
Ch. 6 - Prob. 12PSCh. 6 - Working capital Each of the following statements...Ch. 6 - Depreciation Ms. T. Potts, the treasurer of Ideal...Ch. 6 - Project NPV and IRR A project requires an initial...Ch. 6 - Project NPV A widget manufacturer currently...Ch. 6 - Project NPV Marsha Jones has bought a used...Ch. 6 - Project NPV United Pigpen is considering a...Ch. 6 - Project NPV Hindustan Motors has been producing...Ch. 6 - Equivalent annual cash flows As a result of...Ch. 6 - Prob. 25PSCh. 6 - Replacement decisions Hayden Inc. has a number of...Ch. 6 - Prob. 27PSCh. 6 - Prob. 28PSCh. 6 - Prob. 29PSCh. 6 - Prob. 30PSCh. 6 - The cost of excess capacity The presidents...Ch. 6 - Effective tax rates One measure of the effective...Ch. 6 - Equivalent annual costs We warned that equivalent...
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