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Dr. Claudia Gomez, a plastic surgeon, had just returned from a conference in which she learned of a new surgical procedure for removing wrinkles around eyes, reducing the time to perform the normal procedure by 50%. Given her patient-load pressures, Dr. Gomez is excited to try out the new technique. By decreasing the time spent on eye treatments or procedures, she can increase her total revenues by performing more services within a work period. In order to implement the new procedure, special equipment costing $88,800 is needed. The equipment has an expected life of 4 years, with a salvage value of $7,200.
Dr. Gomez estimates that her cash revenues will increase by the following amounts:
Year Revenue Increases
1. $23,760
2. $32,400
3. 38,880
4. 38,880
Conceptual Connection: Compute the NPV for the project, using 14% as the
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- You have been commissioned to estimate the demand curve for admission to Lake Saint- Michel, a recreational fishing site in France. To do this, you spend a day surveying visitor to the site. You divide the area around the site into 3 zones. You ask each person you interview where they come from. Based on that information, and figures on annual attendance at the park, you are able to calculate the annual number of visitors from each zone. Your data are shown below. For each zone, the total travel cost 1 euro per person for each kilometer traveled to and from the site. One-Way Distance from Park Origin Total Number of Population Users (in kilometer) A 6.25 125,000 18,750 B 12.5 937,500 93,750 18.75 1,250,000 62,500 b. Suppose a fee were charged to enter the site. What is the per capita demand function for each origin? Please express the relationship in an equation. Calculate the number of visitors and consumer surplus if no fee were C. charged to enter the park.arrow_forwardDixie Irwin is the department manager for Religious Books, a manufacturer of religious books that are sold through Internet companies. Irwin’s bonus is based on reducing production costs. Irwin has identified a supplier, Cheap Paper, that can provide paper products at a 10% cost reduction. The paper quality is not the same as that of the current paper used in production. If Irwin uses the supplier, she will certainly achieve her personal bonus goals; however, other company goals may be in jeopardy. What is the ethical issue? Identify the key performance issues at risk, and recommend a plan of action for Irwin.arrow_forwardYou are a manager at Northern Fibre, which is considering expanding its operations in synthetic fibre manufacturing. Your boss comes into your office, drops a consultant's report on your desk, and complains, "We owe these consultants $1.5 million for this report, and I am not sure their analysis makes sense. Before we spend the $28 million on new equipment needed for this project, look it over and give me your opinion." You open the report and find the following estimates (in millions of dollars): 1 2 Sales revenue 29.000 29.000 9 29.000 10 29.000 -Cost of goods sold 17.400 17.400 17.400 17.400 = Gross profit 11.600 11.600 11.600 11.600 - General, sales, and administrative expenses 2.240 2.240 2.240 2.240 - Depreciation 2.800 2.800 2.800 2.800 = Net operating income 6.5600 6.5600 6.5600 6.5600 - Income tax = Net income 2.296 4.264 2.296 2.296 2.296 4.264 4.264 4.264 All of the estimates in the report seem correct. You note that the consultants used straight-line depreciation for the…arrow_forward
- You are a manager at Percolated Fiber, which is considering expanding its operations in synthetic fiber manufacturing. Your boss comes into your office, drops a consultant's report on your desk, and complains, "We owe these consultants $ 1.1 million for this report, and I am not sure their analysis makes sense. Before we spend the $ 29 million on new equipment needed for this project, look it over and give me your opinion." You open the report and find the following estimates (in millions of dollars): Project Year Earnings Forecast ($ million) 1 2 . . . 9 10 Sales revenue 28.00028.000 28.00028.000 28.00028.000 28.00028.000 minus−Cost of goods sold 16.80016.800 16.80016.800 16.80016.800 16.80016.800 equals=Gross profit 11.20011.200 11.20011.200 11.20011.200 11.20011.200 minus−Selling, general, and administrative expenses 2.3202.320 2.3202.320 2.3202.320 2.3202.320…arrow_forwardYou are a manager at Northern Fibre, which is considering expanding its operations in synthetic fibre manufacturing. Your boss comes into your office, drops a consultant's report on your desk, and complains, "We owe these consultants $1.1 million for this report, and I am not sure their analysis makes sense. Before we spend the $20 million on new equipment needed for this project, look it over and give me your opinion." You open the report and find the following estimates (in millions of dollars): Sales revenue - Cost of goods sold = Gross profit - General, sales, and administrative expenses - Depreciation = Net operating income Income tax = Net income 1 26.000 15.600 2 26.000 15.600 10.400 10.400 1.600 1.600 2.000 2.000 6.800 2.38 4.420 6.800 2.38 4.420 ... 9 26.000 15.600 10.400 1.600 2.000 6.800 2.38 4.420 10 26.000 15.600 10.400 1.600 2.000 6.800 2.38 4.420 All of the estimates in the report seem correct. You note that the consultants used straight-line depreciation for the new…arrow_forwardDr. Whitley Avard, a plastic surgeon, had just returned from a conference in which she learnedof a new surgical procedure for removing wrinkles around eyes, reducing the time to performthe normal procedure by 50%. Given her patient-load pressures, Dr. Avard is excited to try outthe new technique. By decreasing the time spent on eye treatments or procedures, she can increase her total revenues by performing more services within a work period. In order to implement the new procedure, special equipment costing $74,000 is needed. The equipment has anexpected life of 4 years, with a salvage value of $6,000. Dr. Avard estimates that her cash revenueswill increase by the following amounts: She also expects additional cash expenses amounting to $3,000 per year. The cost of capital is12%. Assume that there are no income taxes.Required:1. Compute the payback period for the new equipment.2. Compute the ARR. Round the percentage to two decimal places.3. CONCEPTUAL CONNECTION Compute the NPV and…arrow_forward
- Dinesh bhaiarrow_forwardYou are a manager at Northern Fibre, which is considering expanding its operations in synthetic fibre manufacturing. Your boss comes into your office, drops a consultant's report on your desk, and complains, "We owe these consultants $1.5 million for this report, and I am not sure their analysis makes sense. Before we spend the $28 million on new equipment needed for this project, look it over and give me your opinion." You open the report and find the following estimates (in millions of dollars): Sales revenue - Cost of goods sold = Gross profit - General, sales, and administrative expenses - Depreciation = Net operating income - Income tax = Net income 1 31.000 18.600 2 31.000 18.600 12.400 2.240 12.400 2.240 2.800 2.800 7.360 7.360 2.576 2.576 4.784 4.784 9 31.000 18.600 12.400 2.240 2.800 7.360 2.576 4.784 10 31.000 18.600 12.400 2.240 2.800 7.360 2.576 4.784 All of the estimates in the report seem correct. You note that the consultants used straight-line depreciation for the new…arrow_forwardA nonprofit decides to provide free food for the homeless in Thanksgiving holidays. The manager wants to write a proposal to raise money from their donors. Assume that the project requires a fixed cost of $5,000 for staff and equipment. The variable cost such as utensils and food is $5 per person served. Based on the manager's experience, the manager estimates there will be 200 homeless people to serve. What is the price per person that the manager should put into his/her proposal? a.$5 b.$30 c.$25 d.$5,000arrow_forward
- - After closing her beloved restaurant due to the pandemic, Kiki started to sell her signature sauces to consumers. The ingredients for a sauce bottle cost $1.25 and packaging costs another $0.50. A distribution company handles the storage and distribution of the sauce and charges $0.75 or each bottle. Kiki has calculated that the overhead cost is $5000 per month. She sells one sauce bottle at $5.00 to the customers. a. How many sauce bottles must Kiki sell to break-even? What is the total revenue for breakeven? b. If she can sell only 1000 bottles, what should be the selling price to break-even?arrow_forwardYou are a manager at Percolated Fiber, which is considering expanding its operations in synthetic fiber manufacturing. Your boss comes into your office, drops a consultant's report on your desk, and complains, "We owe these consultants $1.0 million for this report, and I am not sure their analysis makes sense. Before we spend the $25 million on new equipment needed for this project, look it over and give me your opinion." You open the report and find the following estimates (in millions of dollars): (Click on the following icon in order to copy its contents into a spreadsheet.) Project Year Sales revenue - Cost of goods sold = Gross profit - General, sales, and administrative expenses - Depreciation = Net operating income 1 30.000 18.000 12.000 2.000 2.500 7.500 2 30.000 18.000 12.000 2.000 2.500 7.500 9 30.000 18.000 12.000 2.000 2.500 7.500 10 30.000 18.000 12.000 2.000 2.500 7.500 a. Given the available information, what are the free cash flows in years 0 through 10 that should be…arrow_forwardYou are a manager at Percolated Fiber, which is considering expanding its operations in synthetic fiber manufacturing. Your boss comes into your office, drops a consultant's report on your desk, and complains, "We owe these consultants $1.9 million for this report, and I am not sure their analysis makes sense. Before we spend the $18 million on new equipment needed for this project, look it over and give me your opinion." You open the report and find the following estimates (in millions of dollars): (Click on the following icon in order to copy its contents into a spreadsheet.) Sales revenue - Cost of goods sold = Gross profit - General, sales, and administrative expenses - Depreciation = Net operating income - Income tax 1 34.000 20.400 13.600 1.440 1.800 10.360 2.072 Project Year 2 34.000 20.400 13.600 1.440 1.800 10.360 2.072 9 34.000 20.400 13.600 1.440 1.800 10.360 2.072 10 34.000 20.400 13.600 1.440 1.800 10.360 2.072 a. Given the available information, what are the free cash…arrow_forward
- Essentials Of InvestmentsFinanceISBN:9781260013924Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.Publisher:Mcgraw-hill Education,
- Foundations Of FinanceFinanceISBN:9780134897264Author:KEOWN, Arthur J., Martin, John D., PETTY, J. WilliamPublisher:Pearson,Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage LearningCorporate Finance (The Mcgraw-hill/Irwin Series i...FinanceISBN:9780077861759Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan ProfessorPublisher:McGraw-Hill Education
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