Cullumber Company is considering introducing a new line of filtration products. Cullumber believes that if the filters can be priced competitively at $45 then approximately 300,000 units can be sold. The controller has determined that an investment in new equipment totaling $4,240,000 will be required. Cullumber requires a minimum rate of return of 12% on all investments. Compute the target unit cost of the filter. (Round answer to 2 decimal places, e.g. 15.25.) Target unit cost

Cullumber Company is considering introducing a new line of filtration products. Cullumber believes that if the filters can be priced competitively at $45 then approximately 300,000 units can be sold. The controller has determined that an investment in new equipment totaling $4,240,000 will be required. Cullumber requires a minimum rate of return of 12% on all investments. Compute the target unit cost of the filter. (Round answer to 2 decimal places, e.g. 15.25.) Target unit cost

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 15E: Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided...

See similar textbooks

Similar questions

OptiLux is considering investing in an automated manufacturing system. The system requires an initial investment of $6.0 million, has a 20-year life, and will have zero salvage value. If the system is implemented, the company will save $740,000 per year in direct labor costs. The company requires a 10% return from its investments. Using Excel, compute the internal rate of return for the proposed investment. (Round your answer to 2 decimal places.) Internal rate of retum
MKM International is seeking to purchase a new CNC ma-chine in order to reduce costs. Two alternative machines arein consideration. Machine 1 costs $500,000 but yields a 15 per-cent savings over the current machine used. Machine 2 costs$900,000 but yields a 25 percent savings over the current ma-chine used. In order to meet demand, the following forecastedcost information for the current machine is also provided.a. Based on the NPV of the cash flows for these five years,which machine should MKM International Purchase? As-sume a discount rate of 12 percent.b. If MKM International lowered its required discount rate to8 percent, what machine would it purchase?Year Projected Cost1 1,000,0002 1,350,0003 1,400,0004 1,450,0005 2,550,000
Maize Water is considering introducing a water filtration device for its 20-ounce water bottles. Market research indicates that 1,000,000 units can be sold if the price is no more than $3. If Maize Water decides to produce the filters, it will need to invest $2,000,000 in new production equipment. Maize Water requires a minimum rate of return of 16% on all investments. Determine the target cost for the filter. Use cost-plus pricing to determine various amounts.
Acme Products, Inc. is interested in producing and selling an improved widget. Market research indicates that customers would be willing to pay $90 for such a widget and that 50,000 units could be sold each year at this price. If Acme Products requires a 75% return on sales to undertake production, what is the target cost for the new widget? Select one: O a. $31.50. O b. $67.50. OC. $58.50. Od. $22.50.
The Fence Company is setting up a new production line to produce top rails. The relevant data for two alternatives are shown below. Solve, a. Based on MARR of 8%, determine the annual rate of production for which the alternatives are equally economical. b. If it is estimated that production will be 300 top rails per year, which alternative is preferred and what will be the total annual cost?
Seattle Radiology Group plans to invest in a new CT scanner. The group estimates $1,500 net revenue per scan. Preliminary market assessments indicate that demand will be less than 5,000 scans per year. The group is considering a scanner (Scanner B) that would result in total fixed costs of $800,000 and would yield a profit of $450,000 per year at a volume of 5,000 scans. What is the estimated breakeven volume (in number of scans) for Scanner B?
FastTrack Bikes Inc. is thinking of developing a new composite road bike. Development will take six years and the cost is $184,000 per year. Once in production, the bike is expected to make $276,000 per year for 10 years. Assume the cost of capital is 10%. a. Calculate the NPV of this investment opportunity. Should the company make the investment? b. Calculate the IRR and use it to determine the maximum deviation allowable in the cost of capital estimate to leave the decision unchanged (Hint: Use Excel to calculate the IRR.) c. Calculate the NPV of this investment opportunity assuming the cost of capital is 13%. Should the company make the investment given this new assumption? Note: Assume that all cash flows occur at the end of the appropriate year and that the the inflows do not start until year 7. a. Calculate the NPV of this investment opportunity. Should the company make the investment? The present value of the costs is $ (Round to the nearest dollar.)
OptiLux is considering investing in an automated manufacturing system. The system requires an initial investment of $4 million, has a 20-year life, and will have zero salvage value. If the system is implemented, the company will save $500,000 per year in direct labor costs. The company requires a 10% return from its investments. 1. Compute the proposed investment’s net present value. 2. Using your answer from part 1, is the investment’s internal rate of return higher or lower than 10%?
Dinshaw Company is considering the purchase of a new machine. The invoice price of the machine is $87,306, freight charges are estimated to be $2,620, and installation costs are expected to be $7,370. The annual cost savings are expected to be $14,980 for 11 years. The firm requires a 20% rate of return. Ignore income taxes. What is the internal rate of return on this investment? Internal rate of return % Round to 0 decimal placese
eEgg is considering the purchase of a new distributed network computer system to help handle its warehouse inventories. The system costs $55,000 to purchase and install and $32,000 to operate each year. The system is estimated to be useful for 4 years. Management expects the new system to reduce the cost of managing inventories by $61,500 per year. The firm’s cost of capital (discount rate) is 11%. Required: 1. What is the net present value (NPV) of the proposed investment under each of the following independent situations? (Use the appropriate present value factors from Appendix C, TABLE 1 and Appendix C, TABLE 2.) 1a. The firm is not yet profitable and therefore pays no income taxes. 1b. The firm is in the 30% income tax bracket and uses straight-line (SLN) depreciation with no salvage value. Assume MACRS rules do not apply. 1c. The firm is in the 30% income tax bracket and uses double-declining-balance (DDB) depreciation with no salvage value. Given a four-year life, the DDB…
Shimada Products Corporation of Japan plans to introduce a new electronic component to the market at a target selling price of $15 per unit. The company is investing $7,380,000 to purchase the equipment it needs to produce and sell 492,000 units per year. Its required rate of return on all investments is 12%, Required: Compute the component's target cost per unit. (Round your answer to 2 decimal places.) ok Tarpet cost per unit
OptiLux is considering investing in an automated manufacturing system. The system requires an initial investment of $6.0 million, has a 20-year life, and will have zero salvage value. If the system is implemented, the company will save $740,000 per year in direct labor costs. The company requires a 10% return from its investments. (PV of $1, FV of $1, PVA of $1, and FVA of $1) Note: Use appropriate factor(s) from the tables provided. a. Compute the proposed investment's net present value. b. Using the answer from part a, is the investment's internal rate of return higher or lower than 10%? Hint: It is not necessary to compute IRR to answer this question. Complete this question by entering your answers in the tabs below. Required A Required B Compute the proposed investment's net present value. Net present value