Larkspur International is considering a significant expansion to its product line. The sales force is excited about the opportunities thatthe new products will bring. The new products are a significant step up in quality above the company's current offerings, but offer atcomplementary fit to its existing product line. Fred Ridtdick, senior production department manager, is very excited about the high-tech new equipment that will have to be acquired to produce the new products. Barbara Dyson, the company's CFO, has provided thefollowing projections based on results with and without the new products.Sales revenueNet incomeAverage total assetsWithout NewProducts$11,734,000$469,360$5,867,000With New ProductsWithout New Products$16,350,840$817,542$13,625,700(a) Compute the company's return on assets, profit margin, and asset turnover, both with and without the new product line. (Roundreturn on assets and profit margin to O decimal places, e.g. 15% and asset turnover to 2 decimal places, e.g. 15.25.)With New Products Larkspur International is considering a significant expansion to its product line. The sales force is excited about the opportunities thatthe new products will bring. The new products are a significant step up in quality above the company's current offerings, but offer atcomplementary fit to its existing product line. Fred Ridtdick, senior production department manager, is very excited about the high-tech new equipment that will have to be acquired to produce the new products. Barbara Dyson, the company's CFO, has provided thefollowing projections based on results with and without the new products.Sales revenueNet incomeAverage total assetsWithout NewProducts$11,734,000$469,360$5,867,000With New ProductsWithout New Products$16,350,840$817,542$13,625,700(a) Compute the company's return on assets, profit margin, and asset turnover, both with and without the new product line. (Roundreturn on assets and profit margin to O decimal places, e.g. 15% and asset turnover to 2 decimal places, e.g. 15.25.)With New Products

Return on assets means the amount of return earned by the entity on its assets. It shows the…

Larkspur International is considering a significant expansion to its product line. The sales force is excited about the opportunities that the new products will bring. The new products are a significant step up in quality above the company's current offerings, but offer a complementary fit to its existing product line. Fred Ridtdick, senior production department manager, is very excited about the high- tech new equipment that will have to be acquired to produce the new products. Barbara Dyson, the company's CFO, has provided the following projections based on results with and without the new products. Sales revenue Net income Average total assets Without New Products $11,734,000 $469,360 $5,867,000 With New Products $16,350,840 $817,542 $13,625,700 (a) Compute the company's return on assets, profit margin, and asset turnover, both with and without the new product line. (Round return on assets and profit margin to O decimal places, eg 15% and asset turnover to 2 decimal places, eg. 15.25)

Larkspur International is considering a significant expansion to its product line. The sales force is excited about the opportunities that the new products will bring. The new products are a significant step up in quality above the company's current offerings, but offer a complementary fit to its existing product line. Fred Ridtdick, senior production department manager, is very excited about the high- tech new equipment that will have to be acquired to produce the new products. Barbara Dyson, the company's CFO, has provided the following projections based on results with and without the new products. Sales revenue Net income Average total assets Without New Products $11,734,000 $469,360 $5,867,000 With New Products $16,350,840 $817,542 $13,625,700 (a) Compute the company's return on assets, profit margin, and asset turnover, both with and without the new product line. (Round return on assets and profit margin to O decimal places, eg 15% and asset turnover to 2 decimal places, eg. 15.25)

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Sandhill International Inc. is considering a significant expansion to its product line. The sales force is excited about the opportunities that the new products will bring. The new products are a significant step up in quality above the company's current offerings, but offer a complementary fit to its existing product line. Frank Peralta, senior production department manager, is very excited about the high-tech new equipment that will have to be acquired to produce the new products. Carol Herbert, the company's CFO, has provided the following projections based on results with and without the new products. Without New Products With New Products Sales $9,725,000 $16,808,500 Net income 605,600 1,254,800 Average total assets 5,457,000 13,863,000 (a) Calculate the company's return on assets, profit margin, and asset turnover, both with and without the new product line. (Round answers to 1 decimal place, e.g. 15.2% or 15.2.) Without New Products With New Products Return on assets % Profit…
Eve Corporation is considering a significant expansion to its product line. The sales force is excited about the opportunities that the new products will bring. The new products are a significant step up in quality above the company’s current offerings but offer a complementary fit to its existing product line. Sergei Bates, senior production department manager, is very excited about the high-tech new equipment that will have to be acquired to produce the new products. Will Smith, the company’s CFO, has provided the following projections based on results with and without the new products. Without New Products With New Products Sales revenue $10,000,000 $16,000,000 Net income $500,000 $960,000 Average total assets $5,000,000 $12,000,000 Instructions a) Compute the company’s return on assets, profit margin, and asset turnover, both with and without the new product line. b) Discuss the implications that your findings in part (a) have for the company’s decision.
- Your answer is partially correct. Larkspur International is considering a significant expansion to its product line. The sales force is excited about the opportunities that the new products will bring. The new products are a significant step up in quality above the company's current offerings, but offer a complementary fit to its existing product line. Fred Ridtdick, senior production department manager, is very excited about the high- tech new equipment that will have to be acquired to produce the new products. Barbara Dyson, the company's CFO, has provided the following projections based on results with and without the new products. Sales revenue Net income Without New Products With New Products $12,074,625 $16,549,800 $482,985 $827,490 Average total assets $5,366,500 $13,791,500 (a) Compute the company's return on assets, profit margin, and asset turnover, both with and without the new product line. (Round return on assets and profit margin to O decimal places, e.g. 15% and asset…
The top managers at Latoya's Lanterns are evaluating two new projects: Project A involves a nationwide expansion and marketing campaign and Project B involves investing in the research and design team and licensing the best new lanterns to other large companies. The head of sales advocates for Project A; she says, "The revenue on this proposal is huge! It'll bring in way more money for the company!" The head of R&D advocates for Project B; she says "Yes, A has a high revenue, but up front costs are too high and there's a lot more uncertainty about how many sales we'll make, especially further into the future. Project B is smaller, but it has a higher expected NPV." Answer the following questions. From a finance perspective, which manager has the better argument, Sales or R&D? Why? Which project would you probably support? What financial information would you want to see before picking a project to support? What non-finance information might influence your decision in favor of…
Hardy Limited has undertaken research into launching a new product which will take it into a new market area. Hardy feels it has expanded its existing operation to its maximum potential, and it is the market leader in its existing field. The proposed new product would offer new opportunities and, although there is strong competition in its field already, the management feel it can use its existing brand name to break into this product line. The new product is in car cleaning accessories, but will offer items in a single package not currently available. The management believe that,although the proposed product may be relatively short lived, the penetration of new markets is worthwhile as long as the product does not make a loss. Details of the project are as follows: • Market research costs incurred to date amount to £250,000 • Investment in plant at the start: £2,900,000. At the end of the product's life the plant will have a disposal value of £80,000 . The project is estimated to have…
Raindeer PLC is a highly profitable electronics company that manufactures a range of innovative products for industrial use. Its success is based to a large extent on the ability of the company’s development group to generate new ideas that result in commercially viable products. The latest of these products is just about to undergo some final tests and a decision has to be taken whether or not to proceed with an investment in the facilities required for manufacturing. You have been asked to undertake an evaluation of this investment.The company has already spent £750,000 on the development of this product. The final testing of the product will cost about £40,000. The head of the development group is very confident that the tests will be successful based on the work already undertaken. Another company has already offered Raindeer £1.10 million for the product’s patent and an exclusive right to its manufacture and sale, even though the final tests are still to be completed. This sum…
Raindeer PLC is a highly profitable electronics company that manufactures a range of innovativeproducts for industrial use. Its success is based to a large extent on the ability of the company’sdevelopment group to generate new ideas that result in commercially viable products. The latestof these products is just about to undergo some final tests and a decision has to be taken whetheror not to proceed with an investment in the facilities required for manufacturing. You have beenasked to undertake an evaluation of this investment.The company has already spent £750,000 on the development of this product. The final testing ofthe product will cost about £40,000. The head of the development group is very confident that thetests will be successful based on the work already undertaken. Another company has alreadyoffered Raindeer £1.10 million for the product’s patent and an exclusive right to its manufactureand sale, even though the final tests are still to be completed. This sum being…
You recently joined ABC Limited, a small company holding a leading position in an embryonic market. You notice that your boss is very optimistic about the company and argues that ABC Limited's future is ensured. Your boss validates his argument by providing the following reasons. • ABC Limited has sixty percent share of the market due to the lowest cost structure, and • The company has the most reliable and highest-valued products. Required: You are required to write a memo to your boss outlining why the assumptions posed might be incorrect.
Yatta Net International has manufacturing, distribution, retail, and consulting divisions. Projects undertaken by the manufacturing and distribution divisions tend to be low-risk projects, because these divisions are well established and have predictable demand. The company started its retail and consulting divisions within the last year, and it is unknown if these divisions will be profitable. The company knew that opening these new divisions would be risky, but its management believes the divisions have the potential to be extremely profitable under favorable market conditions. The company is currently using its WACC to evaluate new projects for all divisions. If Yatta Net International does not risk-adjust its discount rate for specific projects properly, which of the following is likely to occur over time? Check all that apply. The firm will accept too many relatively risky projects. The firm will become less valuable. The firm will accept too many relatively safe…
ABC PLC is a highly profitable electronics company that manufactures a range of innovative products for industrial use. Its success is based to a large extent on the ability of the company’s development group to generate new ideas that result in commercially viable products. The latest of these products is just about to undergo some final tests and a decision has to be taken whether or not to proceed with an investment in the facilities required for manufacturing. You have been asked to undertake an evaluation of this investment.The company has already spent £750,000 on the development of this product. The final testing of the product will cost about £40,000. The head of the development group is very confident that the tests will be successful based on the work already undertaken. Another company has already offered Raindeer £1.10 million for the product’s patent and an exclusive right to its manufacture and sale, even though the final tests are still to be completed. This sum being…
Piscataway valves decided to pursue development of a new product line for natural gas pipelines. The development effort has been successful and Piscataway is preparing to begin manufacturing and marketing the new product line next year. Piscataway has learned that marketing to natural gas pipeline companies requires commercial skills and experience they do not have. Management has, as a consequence, decided to have a partner and are in serious discussions with two companies having the requisite marketing expertise: Fargo Pipeline Supplies (FPS) and Quantum International (QI) Note: For this question, all cash flows are incremental cash flows. Part A: FPS Proposal FPS would provide only marketing, sales, and distribution for natural gas pipeline valves. Piscataway would have to invest in faciliites to manufacture the valves, spending $7,465 in Year 0 Piscataway would have to invest in facilites to manufacture the valves, manufacture the valves themselves, and incur administrative…
Pain is Good Company manufactures a line of premium hot sauces. The company’s managers would like to increase the operating income generated from its best selling sauce Rajin’ Cajun. The product’s sales staff is doubtful that the current customer base would accept a price increase. However, they are confident that the product’s customer base can be expanded without incurring any additional costs. Management has concluded after consulting with key members of the product’s manufacturing and sales teams that all costs for the product line are currently at the lowest level possible. Given the following information for the Rajin’ Cajun line, what is management’s best option for increasing the product line’s operating income by $10,000? Sales Price . . . $5.00 Unit Fixed Cost at current sales volume . . . $0.50 Total Variable Costs at current sales volume . . . $8,750 Current Sales Volume . . . 5,000 units A. Eliminate fixed costs and decrease variable cost per…