A young mechanical engineer is considering establishing his own small company. An investment of P400,000 will be required which will be recovered in 15 years. It is estimated that sales will be P800,000 per year and that operating expenses will be as follows. (see attached photo) The man will give u his regular job paying P216,000 per year and devote full time to the operation of the business; this will result in decreasing labor cost by P40,000 per year, material cost by P28,000 per year and overhead cost by P32,000 per year. If the man expects to earn at least 20% of his capital, should he invest?

A young mechanical engineer is considering establishing his own small company. An investment of P400,000 will be required which will be recovered in 15 years. It is estimated that sales will be P800,000 per year and that operating expenses will be as follows. (see attached photo) The man will give u his regular job paying P216,000 per year and devote full time to the operation of the business; this will result in decreasing labor cost by P40,000 per year, material cost by P28,000 per year and overhead cost by P32,000 per year. If the man expects to earn at least 20% of his capital, should he invest?

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter12: Activity-based Management

Section: Chapter Questions

Problem 19E: A company is spending 70,000 per year for inspecting, 60,000 per year for purchasing, and 56,000 per...

See similar textbooks

Similar questions

A company is spending 70,000 per year for inspecting, 60,000 per year for purchasing, and 56,000 per year for reworking products. What is a good estimate of non-value-added costs? a. 126,000 b. 70,000 c. 56,000 d. 130,000
Exercise (NPV) - 20 mins Project A, B and C have the following cash-flow projections: Year Project A (S) -10,000 3.000 0 1 2 3 3,000 3.000 3,000 Project B (S) -10,000 1,000 2,000 . 4,000 8,000 Project C (S) -14,000 8,000 8,000 -3,000 -5,000 * Calculate the Payback Period and Net Present Value (NPV) for each of the projects shown. Assume, i=10% Decide which is the best project. Justify! What is the advantages of IRR over NPV as a measure of profitability?
A4 9c We find the following information on NPNG (No-Pain-No-Gain) Inc.: EBIT = $2,000,000Depreciation = $250,000Change in net working capital = $100,000Net capital spending = $300,000 These numbers are projected to increase at the following supernormal rates for the next three years, and 5% after the third year for the foreseeable future: EBIT: 20%Depreciation: 10%Change in net working capital: 15%Net capital spending: 10% The firm’s tax rate is 35%, and it has 1,000,000 outstanding shares and $8,000,000 in debt. We have estimated the WACC to be 15%. c. Calculate the firm’s share price at time 0.
Compute the project cost. Gross income 1,000,000 Life of project Operating cost Rate of project 500,000 5 years 20% Benefit ratio 1.08 O a. P1,384,543.00 O b. P1,348,543.00 O c. P1,384,534.00 O d. P1,384,453.00
Asap
1) $400,000 20,000 80,000 Machinery cost Working capital required Annual net cash receipts Required rate of return Life of the project 6 years Using net present value, would you make this investment? 10% Net Present Value ($60,320)
Period A B D -3500 -3000 1500 1800 2100 -3000 -3600 3000 1800 1800 1800 2 2000 1=13% 5500 1000 Which among the four projects has an annual equivalent worth of around P570k?
21 What is the equivalent annual cost for a project that requires a $40,000 investment at time-period zero, and a $10,000 annual expense during each of the next 4 years, if the opportunity cost of capital is 10%? g OD A $20,000.00 B. $21,356.95 С. $22,618.83 D. $25,237.66 O A OB ос
project requires $ 80,000 md produces a A on initial outlay of return of $20,00 end of year 1 , $ 30000 at the at the end Of If the at the end of year 2, ond $R Determine te Value of 10 % . R year 3. internal rate of return
Sales/Revenue GH¢5.00/kg Production rate @ 100% = 375,000kg/yr • Total Initia) Fixed Capital Investment (CT) = GH¢850,000 = 15% of Total Initial fixed Capital Investment %3D • Working Capital (Cw) (CT) Manufacturing Cost at 100% Production Raw Materials = GH¢40,000 Labour GH¢30,000 Electricity = GH¢15,000 %3D Water = GH¢ 3,000 %3D Maintenance & Repair = GH¢ 5,000 • General Expenses at 100% Production Administration = GH¢16,000
Initial Equipment $65,000 Project Life 3 Years Sales $55,000 Variable Costs $25,000 Fixed Costs $ 10,000 Tax rate 26% Cost of Capital 10% Ending Book Value $10,000 Sales Price at Year 3 $5,000 Net Working Capital $10,000 CALCULATE THE INITIAL COSTS, CALCULATE THE OPERATING CASH FLOW, CALCULATE THE TERMINAL NON OPERATING CASH FLOW, CALCULATE THE NPV. please show your work and formulus for the answers
A firm whose cost of capital is 10% is considering two mutually exclusive projects X and Y, the details of which are: Year Project X Project Y Cost Rs. 70,000 Rs. 70,000 Cash Inflows 1 Rs. 10,000 Rs. 50,000 Rs. 20,000 Rs. 40,000 3 Rs. 30,000 Rs. 20,000 4 Rs. 45,000 Rs. 10,000 5 Rs. 60,000 Rs. 10,000 Compute the Net Present Value at 10%, Profitability Index, and Internal Rate of Return of the two projects. 2.