5. Acme C
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- 1. A recently retired professor, Melinda Marketing, plans to establish the Hot-Air FanCompany and manufacture circulating fans. She estimates the fixed cost of operations tobe $357,500 annually. The variable cost of producing the fans is forecasted to be $85 perunit.a. How many fans must be sold to break even if the fans are priced at $150?b. If Hot-Air sells 6,000 fans, what will be the EBIT?c. If Hot-Air sells 6,000 fans and has interest expense of $8,125, what is Hot-Air’stimes-interest-earned? Hot-Air does not have any nonoperating expenses.d. If the fans are priced at $150, what is Hot-Air’s breakeven sales? 2. Vapor Lock Motors’ EBIT is $7,000,000, the company’s interest expense is $2,000,000, and its tax rate is 40 percent. Vapor Lock’s beta is 1.5. a. What is Vapor Lock’s DFL? b. If Vapor Lock were able to grow its EBIT by 50%, what would be the percentage increase in net income? c. If Vapor Lock were able to grow its EBIT by 50%, what would be the resulting net income? 3. A…SHOW YOUR SOLUTIONS AND CASHFLOW. THANK YOU! THE LESSON IS ALL ABOUT ALTERNATIVE COSTS 1. In building their plant, the officers of the International Leather Company had the choice between alternatives: One alternative is to build in Metro Manila where the plant would cost P2,000,000. Labor would cost annually P120,000 and annual overhead P40,000. Taxes and insurance would total 5% of the first cost of the plant. The second alternative would be to build in Bulacan a plant costing P2,250,000. Labor would cost annually P100,000 and overhead would be P55,000. Taxes and insurance would total 3% of the first cost. The cost of raw materials would be the same in either plant. If capital must be recovered within 10 years and money is worth at least 20%, which site should the officers of the company choose?A recently retired professor, Melinda Marketing, plans to establish the Hot-Air FanCompany and manufacture circulating fans. She estimates the fixed cost of operations tobe $357,500 annually. The variable cost of producing the fans is forecasted to be $85 perunit.a. How many fans must be sold to break even if the fans are priced at $150?b. If Hot-Air sells 6,000 fans, what will be the EBIT?c. If Hot-Air sells 6,000 fans and has interest expense of $8,125, what is Hot-Air’stimes-interest-earned? Hot-Air does not have any nonoperating expenses.d. If the fans are priced at $150, what is Hot-Air’s breakeven sales?
- A manufacturer of woodworking tools wants to introduce a new power screwdriver. To compete effectively, the screwdriver cannot be priced at more than ₱14. The company requires a 15% rate of return on investment on all new products. In order to produce and sell 80,000 screwdrivers each year, the company will need to make an investment of ₱800,000. The target cost per screwdriver would be: a. ₱15.50 b. ₱1.50 c. ₱14.00 d. ₱12.5015. Project NPV (S6.3) A widget manufacturer currently produces 200,000 units a year. It buys widget lids from an Page 176 outside supplier at a price of $2 a lid. The plant manager believes that it would be cheaper to make these lids rather than buy them. Direct production costs are estimated to be only $1.50 a lid. The necessary machinery would cost $150,000 and would last 10 years. This investment could be written off immediately for tax purposes. The plant manager estimates that the operation would require additional working capital of $30,000 but argues that this sum can be ignored since it is recoverable at the end of the 10 years. If the company pays tax at a rate of 21% and the opportunity cost of capital is 15%, would you support the plant manager's proposal? State clearly any additional assumptions that you need to make.Border Supply Company is considering opening a plant in Vietnam, The company anticipates gross prafit of $3,500,000 from this new plant. It will cost $2,000,000 to set up the plant and $800,000 to train employees. An additional $160,000 will be spent to build relationships with the local suppliers. Do the benefits outweigh the costs or do the costs outweigh the benefits, and by how much? O Benefits outweigh costs by $540,000. O Costs outweigh benefits by $540,000. O Benefits outweigh costs by $700,000. O Costs outweigh benefits by $700,000.
- 1. Hula hoop fabrications cost $100 each. The H2H company is trying to decide how many of these machines to buy. The number of hoops for each year and for each level of capital stock shown as follows: Hula Hoop have a real value of $1 each. There is no other costs besides the cost of fabricators. a. A new innovation doubles the number of hoops fabricator can produce. How many fabricators should H2H buy when the real interest rate is 12% per year? 8% per year? Assume that there are no taxes and that the depreciation rate is still 20% per year.4. What is a Break-even Point and why do managers calculate it? 5. Branton Electric is considering the purchase of an entire cargo container filled with upgraded utility meters for $20,000. Branton can charge $50 for the installation of each upgraded meter, while the actual cost of the installation would be only $15. How many utility meter upgrades are necessary for Branton Electric to break even on this purchase? (Quick Start #16) 6. What are the advantages and disadvantages of using a conservative strategy of Capacity versus an Aggressive strategy?In building their plant, the officers of the International Leather Company had the choice alternatives. One alternative is to build Metro Manila where the plant would cost P2,000,000. Labor would cost annually P120,000 and annual overhead P40,000. Taxes and insurance would total 5% of the first cost of the plant The second alternative would be to build in Bulacan a plant costing P2,250,000. Labor would cost P100,000 annually and overhead would be P55,000. Taxes and insurance would be 3% of the first cost. The cost of raw materials would be the same in either plant. If capital must be recovered within 10 years and money is worth at least 20%, which site should the officers company choose?
- See-Clear Optics is considering producing a new line of eyewear. After considering the costs of raw materials and the cost of some new equipment, the company estimates fixed costs to be Php 1,000,000 with a variable cost of 2,000 per unit produced.a. If the selling price of each new product is set at Php 3500, how many units need to be produced and sold to break even?b. If the selling price of the product is set at Php 3000 per unit, See-Clear expects to sell 2000 units. What would be the total contribution to profit from this product at this price?c. See-Clear estimates that if it offers the product at the original target price of Php 3500 per unit, the company will sell about 1500 units. Will the pricing strategy of Php 3500 per unit or Php 3000 per unit yield a higher contribution to profit?God is King Ltd has been printing all its magazines from Dubai due to the comparative cost advantage. The company is considering establishing its own printing department, and the R&D team have identified a printing machine which will meet the quality and cost specifications of God is King Ltd. The machine also has the capacity to print to meet the market needs of the company. The machine, which has a useful life of 5 years, will cost GHȼ800,000 and immediate installation cost will be GH¢ 50,000. Fixed cost for maintaining the machine will be GH¢170,000 per annum over the machine’s useful life and additional working capital of GH¢ 30,000 will be introduced in year 2. The use of this machine will generate a contribution of GH¢ 500,000 per annum for five (5) years. Corporate income tax rate, payable in areas, is 25% and the companies after tax cost of capital is 20%. No capital allowance is permitted. Required: Calculate the NPV for the project and advise management on whether to…43) A recently retired professor, Melinda Marketing, plans to establish the Hot-Air Fan Company and manufacture circulating fans. She estimates the fixed cost of operations to be $357,500 annually. The variable cost of producing the fans is forecasted to be $85 per unit. a. How many fans must be sold to break even if the fans are priced at $150? b. If Hot-Air sells 6,000 fans, what will be the EBIT? c. If Hot-Air sells 6,000 fans and has interest expense of $8,125, what is Hot-Air’s times-interest-earned? Hot-Air does not have any nonoperating expenses. d. If the fans are priced at $150, what is Hot-Air’s breakeven sales?