Gary's business is booming! Plans are in place to expand the existing facility. But in the meantime, both of the key operating divisions needed storage space for their raw materials. Operating Unit Thumbdrive (OUT) needs 2,000 square feet of space, and Operating Unit Racket (OUR) needs 3,000 square feet of space. OUT's manager got a bid of $592/month for storage space, while OUR's manager received a bid of $888/month for storage space. Gary believes it would be prudent to find space that would fit both of the operating units' needs. The cost of that space-which allows additional room for each unit-would be $1,340/month. He goes ahead and rents this space for 6 months.

Gary's business is booming! Plans are in place to expand the existing facility. But in the meantime, both of the key operating divisions needed storage space for their raw materials. Operating Unit Thumbdrive (OUT) needs 2,000 square feet of space, and Operating Unit Racket (OUR) needs 3,000 square feet of space. OUT's manager got a bid of $592/month for storage space, while OUR's manager received a bid of $888/month for storage space. Gary believes it would be prudent to find space that would fit both of the operating units' needs. The cost of that space-which allows additional room for each unit-would be $1,340/month. He goes ahead and rents this space for 6 months.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter21: Risk Management

Section: Chapter Questions

Problem 5P

See similar textbooks

Similar questions

Hemisphere Electric Coop (HEC) is planning to outsource its 51-person information technology (IT) department to Dyonyx. HEC believes this move will allow it to have access to cutting edge technologies and skill sets that would be cost prohibitive to build on its own. If it is assumed that the loaded cost of an IT employee is $100,000 per year, and that HEC will save 25% of this cost through outsourcing, what is the present worth of the savings to HEC for a 5-year contract at an interest rate of 0.5% per month? Assume the same number of contract employees is needed as are currently employed.
Robert's business is booming! Plans are in place to expand the existing facility. But in the meantime, both of the key operating divisions needed storage space for their raw materials. Operating Unit Thumbdrive (OUT) needs 2,000 square feet of space, and Operating Unit Racket (OUR) needs 3,000 square feet of space. OUT's manager got a bid of $480/month for storage space, while OUR's manager received a bid of $1,120/month for storage space. Robert believes it would be prudent to find space that would fit both of the operating units' needs. The cost of that space-which allows additional room for each unit-would be $1.460/month. He goes ahead and rents this space for 6 months. (a) Your answer is incorrect. Using the stand-alone method, determine how much of the common storage space cost will be allocated to each operating unit. (Round percentage of total to 2 decimal places, eg 15.25% and final answers to 2 decimal places, eg 15.25) Common storage space costs OUT OUR Total
Allied Food Products is considering expanding into the fruit juice business with a new fresh lemon juiceproduct. Assume that you were recently hired as assistant to the director of capital budgeting, and youmust evaluate the new project.The lemon juice would be produced in an unused building adjacent to Allied’s Fort Myers plant; Alliedowns the building, which is fully depreciated. The required equipment would cost $450,000, plus anadditional $38,000 for shipping and installation. In addition, inventories would rise by $40,000, whileaccounts payable would increase by $10,000. All of these costs would be incurred at t = 0. By a specialruling, the machinery could be depreciated under the MACRS system as 4-year property. The applicabledepreciation rates are 40%, 30%, 20%, and 10%.The project is expected to operate for 4 years, at which time it will be terminated. The cash inflows areassumed to begin 1 year after the project is undertaken (t = 1), and to continue out to t = 4. At the endof…
Allied Food Products is considering expanding into the fruit juice business with a new fresh lemon juiceproduct. Assume that you were recently hired as assistant to the director of capital budgeting, and youmust evaluate the new project.The lemon juice would be produced in an unused building adjacent to Allied’s Fort Myers plant; Alliedowns the building, which is fully depreciated. The required equipment would cost $450,000, plus anadditional $38,000 for shipping and installation. In addition, inventories would rise by $40,000, whileaccounts payable would increase by $10,000. All of these costs would be incurred at t = 0. By a specialruling, the machinery could be depreciated under the MACRS system as 4-year property. The applicabledepreciation rates are 40%, 30%, 20%, and 10%.The project is expected to operate for 4 years, at which time it will be terminated. The cash inflows areassumed to begin 1 year after the project is undertaken (t = 1), and to continue out to t = 4. At the endof…
Allied Food Products is considering expanding into the fruit juice business with a new fresh lemon juiceproduct. Assume that you were recently hired as assistant to the director of capital budgeting, and youmust evaluate the new project.The lemon juice would be produced in an unused building adjacent to Allied’s Fort Myers plant; Alliedowns the building, which is fully depreciated. The required equipment would cost $450,000, plus anadditional $38,000 for shipping and installation. In addition, inventories would rise by $40,000, whileaccounts payable would increase by $10,000. All of these costs would be incurred at t = 0. By a specialruling, the machinery could be depreciated under the MACRS system as 4-year property. The applicabledepreciation rates are 40%, 30%, 20%, and 10%.The project is expected to operate for 4 years, at which time it will be terminated. The cash inflows areassumed to begin 1 year after the project is undertaken (t = 1), and to continue out to t = 4. At the endof…
Allied Food Products is considering expanding into the fruit juice business with a new fresh lemon juiceproduct. Assume that you were recently hired as assistant to the director of capital budgeting, and youmust evaluate the new project.The lemon juice would be produced in an unused building adjacent to Allied’s Fort Myers plant; Alliedowns the building, which is fully depreciated. The required equipment would cost $450,000, plus anadditional $38,000 for shipping and installation. In addition, inventories would rise by $40,000, whileaccounts payable would increase by $10,000. All of these costs would be incurred at t = 0. By a specialruling, the machinery could be depreciated under the MACRS system as 4-year property. The applicabledepreciation rates are 40%, 30%, 20%, and 10%.The project is expected to operate for 4 years, at which time it will be terminated. The cash inflows areassumed to begin 1 year after the project is undertaken (t = 1), and to continue out to t = 4. At the endof…
Allied Food Products is considering expanding into the fruit juice business with a new fresh lemon juiceproduct. Assume that you were recently hired as assistant to the director of capital budgeting, and youmust evaluate the new project.The lemon juice would be produced in an unused building adjacent to Allied’s Fort Myers plant; Alliedowns the building, which is fully depreciated. The required equipment would cost $450,000, plus anadditional $38,000 for shipping and installation. In addition, inventories would rise by $40,000, whileaccounts payable would increase by $10,000. All of these costs would be incurred at t = 0. By a specialruling, the machinery could be depreciated under the MACRS system as 4-year property. The applicabledepreciation rates are 40%, 30%, 20%, and 10%.The project is expected to operate for 4 years, at which time it will be terminated. The cash inflows areassumed to begin 1 year after the project is undertaken (t = 1), and to continue out to t = 4. At the endof…
Allied Food Products is considering expanding into the fruit juice business with a new fresh lemon juiceproduct. Assume that you were recently hired as assistant to the director of capital budgeting, and youmust evaluate the new project.The lemon juice would be produced in an unused building adjacent to Allied’s Fort Myers plant; Alliedowns the building, which is fully depreciated. The required equipment would cost $450,000, plus anadditional $38,000 for shipping and installation. In addition, inventories would rise by $40,000, whileaccounts payable would increase by $10,000. All of these costs would be incurred at t = 0. By a specialruling, the machinery could be depreciated under the MACRS system as 4-year property. The applicabledepreciation rates are 40%, 30%, 20%, and 10%.The project is expected to operate for 4 years, at which time it will be terminated. The cash inflows areassumed to begin 1 year after the project is undertaken (t = 1), and to continue out to t = 4. At the endof…
Allied Food Products is considering expanding into the fruit juice business with a new fresh lemon juiceproduct. Assume that you were recently hired as assistant to the director of capital budgeting, and youmust evaluate the new project.The lemon juice would be produced in an unused building adjacent to Allied’s Fort Myers plant; Alliedowns the building, which is fully depreciated. The required equipment would cost $450,000, plus anadditional $38,000 for shipping and installation. In addition, inventories would rise by $40,000, whileaccounts payable would increase by $10,000. All of these costs would be incurred at t = 0. By a specialruling, the machinery could be depreciated under the MACRS system as 4-year property. The applicabledepreciation rates are 40%, 30%, 20%, and 10%.The project is expected to operate for 4 years, at which time it will be terminated. The cash inflows areassumed to begin 1 year after the project is undertaken (t = 1), and to continue out to t = 4. At the endof…
Elise Carpets Inc. has just acquired a new backing division that produces a rubber backing, which it sells for $3.30 per square yard. Sales are about 1,200,000 square yards per year. Since the Backing Division has a capacity of 2,000,000 square yards per year, top management is thinking that it might be wise for the company's Tufting Division to start purchasing from the newly acquired Backing Divi- sion. The Tufting Division now purchases 600,000 square yards per year from an outside supplier at a price of $3.00 per square yard. The current price is lower than the competitive $3.30 price as a result of the large quantity discounts. The Backing Division's cost per square yard follows. Direct materials.. Direct labor.... Variable overhead.. Fixed overhead (1,200,000 level) Total cost.... $1.80 0.45 0.37 0.15 $2.77 Required a. If both divisions are to be treated as investment centers and their performance evaluated by the ROI formula, what transfer price would you recommend? Why? b. If…
Rogers Inc. is considering expanding into the sports drink business with a new product. Assume that you were recently hired as assistant to the director of capital budgeting and you must evaluate the new project. The sports drink would be produced in an unused building adjacent to Rogers’ Jacksonville plant; Rogers owns the building, which is fully depreciated. The required equipment would cost $1,200,000, plus an additional $300,000 for shipping and installation. In addition, inventories would rise by $300,000, while accounts payable would increase by $100,000. All of these costs would be incurred today. The equipment will be depreciated by the straight-line method over the life of the project. The project is expected to operate for 10 years, at which time it will be terminated. The cash inflows are assumed to begin 1 year after the project is undertaken and to continue until the end of the tenth year. At the end of the project’s life, the equipment is expected to have a…
Allied Food Products is considering expanding into the fruit juice business with a new fresh lemon juiceproduct. Assume that you were recently hired as assistant to the director of capital budgeting, and youmust evaluate the new project.The lemon juice would be produced in an unused building adjacent to Allied’s Fort Myers plant; Alliedowns the building, which is fully depreciated. The required equipment would cost $450,000, plus anadditional $38,000 for shipping and installation. In addition, inventories would rise by $40,000, whileaccounts payable would increase by $10,000. All of these costs would be incurred at t = 0. By a specialruling, the machinery could be depreciated under the MACRS system as 4-year property. The applicabledepreciation rates are 40%, 30%, 20%, and 10%.The project is expected to operate for 4 years, at which time it will be terminated. The cash inflows areassumed to begin 1 year after the project is undertaken (t = 1), and to continue out to t = 4. At the endof…