a.
Adequate information:
New sales units for the first year = 1,800
New sales units for the second year = 2,150
New sales units for the third year = 2,600
New sales units for the fourth year = 2,350
New sales units for the fifth year = 2,200
Per unit selling price of the new tables= $5,900
Variable cost of the new tables as a percentage of sales = 37%
Annual fixed costs of the new tables= $2.05 million
Begging inventory as a percentage of sales for both type of tables = 10%
Loss of oak tables per year = 250 units
Selling price of oak tables = $4,300
Variable cost of oak tables as a percentage of sales = 40%
Cost of equipment = $16 million
Pre-tax salvage value = $4.8 million
Tax rate = 21%
Require
To discuss: Whether the new project should be undertaken or not.
Introduction:
b.
Adequate information:
New sales units for the first year = 1,800
New sales units for the second year = 2,150
New sales units for the third year = 2,600
New sales units for the fourth year = 2,350
New sales units for the fifth year = 2,200
Per unit selling price of the new tables= $5,900
Variable cost of the new tables as a percentage of sales = 37%
Annual fixed costs of the new tables= $2.05 million
Begging inventory as a percentage of sales for both type of tables = 10%
Loss of oak tables per year = 250 units
Selling price of oak tables = $4,300
Variable cost of oak tables as a percentage of sales = 40%
Cost of equipment = $16 million
Pre-tax salvage value = $4.8 million
Tax rate = 21%
Require rate of return = 11%
To discuss: Whether
Introduction: IRR is the rate of return where the NPV of the project is zero.
c.
Adequate information:
New sales units for the first year = 1,800
New sales units for the second year = 2,150
New sales units for the third year = 2,600
New sales units for the fourth year = 2,350
New sales units for the fifth year = 2,200
Per unit selling price of the new tables= $5,900
Variable cost of the new tables as a percentage of sales = 37%
Annual fixed costs of the new tables= $2.05 million
Begging inventory as a percentage of sales for both type of tables = 10%
Loss of oak tables per year = 250 units
Selling price of oak tables = $4,300
Variable cost of oak tables as a percentage of sales = 40%
Cost of equipment = $16 million
Pre-tax salvage value = $4.8 million
Tax rate = 21%
Require rate of return = 11%
To interpret: The profitability index
Introduction: The profitability index is a capital budgeting tool that is used while analyzing a project’s value.
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Chapter 6 Solutions
CORPORATE FINANCE
- The 3 A cost us also givenarrow_forwardFree Cash Flow Use the financial statements shown here for Lan & Chen Technologies. The federal-plus-state tax rate is 25%. Lan & Chen Technologies: Income Statements for Year Ending December 31 (Thousands of Dollars) 2023 2022 Sales $960,000 $900,000 Expenses excluding depreciation and amortization 820,000 774,000 EBITDA $140,000 $126,000 Depreciation and amortization 33,000 31,500 EBIT $107,000 $94,500 Interest Expense 10,000 8,900 EBT $97,000 $85,600 Taxes (25%) 24,250 21,400 Net income $72,750 $64,200 Common dividends $43,000 $41,230 Addition to retained earnings $29,750 $22,970 Lan & Chen Technologies: December 31 Balance Sheets (Thousands of Dollars) Assets 2023 2022 Cash and cash equivalents $48,250 $45,000 Short-term investments 3,200 3,600 Accounts Receivable 280,500 270,000 Inventories 141,000 135,000 Total current assets $472,950 $453,600 Net fixed assets 360,750 315,000 Total assets…arrow_forwardThe Talley Corporation had taxable operating income of $365,000 (i.e., earnings from operating revenues minus all operating costs). Talley also had (1) interest charges of $50,000, (2) dividends received of $25,000, and (3) dividends paid of $35,000. Its federal tax rate was 21% (ignore any possible state corporate taxes). Recall that 50% of dividends received are tax exempt. What is the firm’s taxable income? What is the tax expense? What is the after-tax income?arrow_forward
- A real estate broker insures an office building for $500,000 under a Building and Personal Property Coverage Form with a Causes of Loss-Broad Form attached. If smoke from a nearby industrial factory enters the office building and causes $10,000 in damage to the interior, the policy will pay a MAXIMUM of which of the following amounts? a. $0 b. $1,000 c. $5,000 d. $10,000arrow_forwardNational Bank currently has $500 million in transaction deposits on its balance sheet. The current reserve requirement is 10 percent, but the Federal Reserve is decreasing this requirement to 8 percent. Show the balance sheet of the Federal Reserve and National Bank if National Bank converts all excess reserves to loans, but borrowers return only 50 percent of these funds to National Bank as transaction deposits. Show the balance sheet of the Federal Reserve and National Bank if National Bank converts 75 percent of its excess reserves to loans and borrowers return 60 percent of these funds to National Bank as transaction deposits.arrow_forwardThe FOMC has instructed the FRBNY Trading Desk to purchase $500 million in U.S. Treasury securities. The Federal Reserve has currently set the reserve requirement at 5 percent of transaction deposits. Assume U.S. banks withdraw all excess reserves and give out loans. What is the full effect of this purchase on bank deposits and the money supply if borrowers return only 95 percent of these funds to their banks in the form of transaction deposits?arrow_forward
- You bought a bond five years ago for $935 per bond. The bond is now selling for $980. It also paid $75 in interest per year, which you reinvested in the bond. Calculate the realized rate of return earned on this bond. I want to learn how to solve this on my financial calculator. Can you show me how to solve it through there.arrow_forwardWhat are the Cases Not Readily Bound and what is a Dignity in a Research Study? What are the differences between Dignity in a Research Study and Cases Not Readily Bound? Please help to give examples.arrow_forwardWhat are the Case Study Research Design Components. Please help to give examplesWhat are the Case Study Design Tests and Tactics and how would they do?arrow_forward
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