ou have founded a company to sell thin client computers to the food processing ndustry for Internet e-commerce transaction processing. Before investing in your ew company, a venture capitalist has asked for a five year pro-forma income tatement showing unit sales, revenue, total variable cost, marketing expense, ixed cost, and profit before tax. You expect to sell 1,600 units of the thin client computers in the first year for a price of $1,800 each. Swept along by Internet growth, you expect to double unit sales each year for the next five years. However, competition will force a 15% decline in price each year. Fortunately, echnical progress allows initial variable manufacturing costs of $1,000 for each unit to decline by 6% per year. Fixed costs are estimated to be $1,000,000 per ear. Marketing expense is projected to be 14% of annual revenue. When it pecomes profitable to do so, you will lease an automated assembly machine that educes variable manufacturing costs by 20% but doubles annual fixed cost; the ew variable manufacturing cost will also decline by 6% per year. Net Present

ou have founded a company to sell thin client computers to the food processing ndustry for Internet e-commerce transaction processing. Before investing in your ew company, a venture capitalist has asked for a five year pro-forma income tatement showing unit sales, revenue, total variable cost, marketing expense, ixed cost, and profit before tax. You expect to sell 1,600 units of the thin client computers in the first year for a price of $1,800 each. Swept along by Internet growth, you expect to double unit sales each year for the next five years. However, competition will force a 15% decline in price each year. Fortunately, echnical progress allows initial variable manufacturing costs of $1,000 for each unit to decline by 6% per year. Fixed costs are estimated to be $1,000,000 per ear. Marketing expense is projected to be 14% of annual revenue. When it pecomes profitable to do so, you will lease an automated assembly machine that educes variable manufacturing costs by 20% but doubles annual fixed cost; the ew variable manufacturing cost will also decline by 6% per year. Net Present

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 9E: Each of the following scenarios is independent. All cash flows are after-tax cash flows. Required:...

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