Clark Paints

Other annual benefits per employee-% of wages 18% Cost of raw materials per can 0.25 Other variable production costs per can 0.05

These annual amounts I used to calculate annual tax savings by multiplying annual interest amount by tax rate. In order to be able to compare the amounts received in different years, I found present values of each cash flow. I added up the PVs of tax savings for every year to get total tax savings (all 15 years for option 1 and first 5 years for option 2).

1. For financial accounting purposes, what is the total amount of product costs incurred to make 10,000 units?

Your company is installing a new piece of machining equipment and a robotic arm. Your manager asks for the project costs by cost category as well as the total amount. Given the following information, develop a base cost estimate by grouping costs by Equipment / Material (items 1 – 4), Installation / Labor (items 5 and 6), and Overhead (items 7-9).

Peter’s Peripherals assembles multimedia upgrade kits --- sets of components for adding sound and video to desktop computers. The demand for their kits for the next four quarters is estimated in the table below. Unit manufacturing cost for each kit is $160. Holding costs on each kit is $80 per quarter. Any kit that must be delivered late is assessed a backorder cost of $120. Each worker is capable of finishing 10 kits per quarter. If the company chooses to vary work force levels, it will incur costs of $400 for each additional worker; $600 for each termination. The company currently has 28 employees.

Thus, by year three the company will be making a profit off the investment as year three is 86.73 million profit by 55.35 cost giving the company a 31.38 million dollar surplus. Generally, a period of payback of three year or less is acceptable (Reference Entry) causing this project to be viable based off the payback analysis. Although, these calculations are flawed. The reason for this is because the time value of money is not taken into effect when calculating payback periods which is where IRR can further assist in a more realistic financial picture (Reference Entry).

The total amount of the costs which should be matched with Revenues for 2003 is $71,129. This is done by taking the capitalization amount shown above (217,520), dividing it by the 200,000 unit estimate, and multiplying it by the units that were sold in 2003. The calculation is shown below.

| | | | | | | | | | | | | |75000 | |100000 | |125000 | |150000 | |175000 | |200000 | | |  | |  | |  | |  | |  | |  | |Direct Labor |4.00 |  |3.90 |  |3.80 |  |3.70 |  |3.80 |  |4.00 | |Material |2.00

The IRR for this agreement ranges between 11.87% and 13.01%. The return on investment (ROI) for this particular agreement ranges between 52% and 58%. In either case, the numbers range because of provision (c) listed in the case’s Exhibit 1. The “deferred setup fee” fluctuates depending on potential sales of RMT’s assets.

The present value of the net incremental cash flows, totaling $5,740K, is added to the present value of the Capital Cost Allowance (CCA) tax shield, provided by the Plant and Equipment of $599K, to arrive at the project’s NPV of $6,339K. (Please refer to Exhibit 4 and 5 for assumptions and detailed NPV calculations.) This high positive NPV means that the project will add a significant amount of value to FMI. In addition, using the incremental cash flows (excluding CCA) generated by the NPV calculation, we calculated the project’s IRR to be 28%. This means that the project will generate a higher rate of return than the company’s cost of capital of 10.05%. This is also a positive indication that the company should undertake the project.

Assuming that the debit interest is 7% and the licensing will last 5 years. According to NPV – there is profit of ~7.9M$, which is IRR = 30%.

budget for production costs and expenses, and for changing the curent portion packs. There are two

Therefore, the project team has provided an alternative scenario, where the market shares are 1%, 2% and 3% for short, mid and long term respectively. In this scenario, the initial capital required still remains the same. However, the firm will have increased cycle of sales (for example 7.5 cycles/year of 1000 units instead of 3.75 cycles/year). This increased turnaround time increases the net present value of the cash flows for the firm from $121,800 to $649,621 at 10% expected rate of return. 1.4.5 Grants available for Canadian

Rainbow Products is considering the purchase of a paint-mixing machine to reduce labor costs.The savings are expected to result in additional cash flows to Rainbow of $5,000 per year. Themachine costs $35,000 and is expected to last for 15 years. Rainbow has determined that the cost ofcapital for such an investment is 12%.[A] Compute the payback, net present value (NPV), and internal rate of return (IRR) for this machine.Should Rainbow purchase it? Assume that all cash flows (except the initial purchase) occur at the endof the year, and do not consider taxes. Rainbow Products is considering the purchase of a paint-mixing machine to reduce labor costs.The savings are expected to result in additional cash flows to Rainbow of $5,000 per

To find the internal rate of return, one needs to find the values of r that satisfies the following equation:YearCash Flow0-1001+302+353+404+45Internal Rate of Return (IRR)IRR = r,IRR = 17.09%Net Present Value (NPV)Thus using r = IRR = 17.09%,If the NPV is close to zero then r is the IRR.