A friend told you that she was scrolling through her Twitter feed and found out that three days ago, Hertz Corporation (rental car company) ordered 100,000 Tesla cars to build out its rental fleet of electric vehicles. The cars will be delivered to Hertz throughout 2022 and Hertz will rent them to travelers. Aside from the revenue from the Hertz sale, Tesla likes the deal since more people will be exposed to the Tesla brand. They think this could boost future sales. Your friend said that this was her lucky day since she can buy Tesla stock and make some easy money when the stock price rises due to the increased sales of the cars. What do you think of this situation and to the extent you are being asked for free advice what do you tell her?

A friend told you that she was scrolling through her Twitter feed and found out that three days ago, Hertz Corporation (rental car company) ordered 100,000 Tesla cars to build out its rental fleet of electric vehicles. The cars will be delivered to Hertz throughout 2022 and Hertz will rent them to travelers. Aside from the revenue from the Hertz sale, Tesla likes the deal since more people will be exposed to the Tesla brand. They think this could boost future sales. Your friend said that this was her lucky day since she can buy Tesla stock and make some easy money when the stock price rises due to the increased sales of the cars. What do you think of this situation and to the extent you are being asked for free advice what do you tell her?

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter18: Pricing And Profitability Analysis

Section: Chapter Questions

Problem 11E

See similar textbooks

Similar questions

Heels, a shoe manufacturer, is evaluating the costs and benefits of new equipment that would custom fit each pair of athletic shoes. The customer would have his or her foot scanned by digital computer equipment; this information would be used to cut the raw materials to provide the customer a perfect fit. The new equipment costs $90,000 and is expected to generate an additional $35,000 in cash flows for five years. A bank will make a $90,000 loan to the company at a 10% interest rate for this equipment’s purchase. Use the following table to determine the break-even time for this equipment. (Round the present value of cash flows to the nearest dollar.)
c) Mail and his friend, Akmal, are both talented painters. Last year, they started painting postcards which they gave to their friends as a gift. After that, they began selling those postcards at a craft fair and sold them for fun. At the last fair, a buyer who really liked the postcards and offered them the contract to paint 500 postcards of a specific design for a price of RM2,000. With the increase in demand, Adam and Akmal decided to open a business and named it as 4A Craft. Each postcard priced at RM4.00. Variable operating costs amounted to RM1.50 per postcard. To produce the postcards for the contract, they have to buy a specific machine for cutting the postcard, which cost the amount of RM700. (i) Solve for 4A Craft’s operating breakeven point value ii)Solve for of 4A Craft’s EBIT value of that contract. If mail decides to renegotiate the contract at the price of RM5.00 per postcard, solve for the new value of EBIT. iv)If the buyer refuses to pay more than RM4.00 per…
Juan Fox’ has started her own company, Foxy Jeans, which manufactures imprinted jeans. Since he just begun this operation, he rents the equipment from a local printing shop when necessary. The cost of using the equipment is P3,000. The materials used in one jean cost P200, and he can sell it at 350. Requirements: Provide for a mathematical model that will show how to maximize the profit. IF Juan sells 100 jeans, what will his total revenues, total costs, and profit? How many jeans must Juan sell to have zero profit and zero loss (break-even)?
WHICH WILL IT BE? Georgia Isaacson and her son Rubin have been thinking about buying a business. After talking to seven entrepreneurs, all of whom have expressed an interest in selling their operations, the Isaacsons have decided to make an offer for a retail clothing store. The store is very well located, and its earnings over the past five years have been excellent. The current owner has told the Isaacsons he will sell for $500,000. The owner arrived at this value by projecting the earnings of the operation for the next seven years and then using a discount factor of 15 percent. The Isaacsons are not sure the retail store is worth $500,000, but they do understand the method the owner used for arriving at this figure. Georgia feels that since the owner has been in business for only seven years, it is unrealistic to discount seven years of future earnings. A five-year estimate would be more realistic, in her opinion. Rubin feels that the discount factor is too low. He believes that 20…
Adam and his friend, Akmal, are both talented painters. Last year, they started painting postcards which they gave to their friends as a gift. After that, they began selling those postcards at a craft fair and sold them for fun. At the last fair, a buyer who really liked the postcards and offered them the contract to paint 500 postcards of a specific design for a price of RM2,000. With the increase in demand, Adam and Akmal decided to open a business and named it as 4A Craft. Each postcard priced at RM4.00. Variable operating costs amounted to RM1.50 per postcard. To produce the postcards for the contract, they have to buy a specific machine for cutting the postcard, which cost the amount of RM700. (i) Solve for 4A Craft’s operating breakeven point value. (ii) Solve for of 4A Craft’s EBIT value of that contract. (iii) If Adam decides to renegotiate the contract at the price of RM5.00 per postcard, solve for the new value of EBIT. If the buyer refuses to pay more than RM4.00…
Your friend calls you and asks to borrow $20,000 so that he can open a Sushi restaurant in his hometown. In justifying this request, he argues that there must be significant demand for Sushi and other Asian food in his hometown because there are lots of such restaurants already there and three or four new ones are opening each month. He also argues that demand for Asian food will continue to increase and he points to the large number of firms that now sell frozen Asian dishes in grocery stores. Will you lend him money? What are the risks involved in choosing to lend him money?
You are selling "streamer kits" consisting of a ring light and a phone cradle to aspiring streamers, you sell the kits for $20 each on Amazon. The kits cost $8 each to produce, and you produce just enough to keep up with sales. You decide to promote your business by giving away 100 kits to prominent Youtubers in the hope they will mention your business. If those mentions lead to 50 extra sales per year, for the next three years, what is the IRR on the project? You can ignore any tax implications. a) 33% b) -5% c) 11% d) 7% e) 13%
Jamie is considering leaving her current job, which pays $75,000 per year, to start a newcompany that develops applications for smartphones. Based on market research, she can sellabout 50,000 units during the first year at a price of $4 per unit. With annual overhead costsand operating expenses amounting to $145,000. Jamie expects a profit margin of 20 percent.This margin is 5 percent larger than that of her largest competitor, Apps, Inc.● If Jamie decides to embark on her new venture, what will her accounting costs be duringthe first year of operation?○ Her company’s implicit costs?○ Her company’s opportunity costs?● Suppose that Jamie’s estimated selling price is lower than originally projected during thefirst year. How much revenue would she need in order to earn:o Positive accounting profits?o Positive economic profits
You are the CFO of Carla Vista, Inc., a retailer of the exercise machine Slimbody6 and related accessories. Your firm is considering opening up a new store in Los Angeles. The store will have a life of 20 years. It will generate annual sales of 4,000exercise machines, and the price of each machine is $2,500. The annual sales of accessories will be $600,000, and the operating expenses of running the store, including labor and rent, will amount to 50percent of the revenues from the exercise machines. The initial investment in the store will equal $26,800,000 and will be fully depreciated on a straight-line basis over the 20-year life of the store. Your firm will need to invest $3,000,000 in additional working capital immediately, and recover it at the end of the investment. Your firm’s marginal tax rate is 30 percent. The opportunity cost of opening up the store is 13.70 percent. What are the incremental free cash flows from this project at the beginning of the project as well as in…
Unilever is a company that produces consumer packaged goods. The company wants to launch a new social media campaign and is contemplating between two options. The first option is to launch the campaign on Instagram, which will cost them $100,000 and bring in an incremental revenue of $300,000. This campaign is estimated to have a margin of 40%. The second option is to launch the campaign on TikTok, which will cost them $30,000 and bring in an incremental revenue of $120,000. The TikTok campaign is estimated to have a margin of 50%. According to this information, if the company only cares about the ROM(%), which option would they end up choosing?
Adam and his friend, Akmal, are both talented painters. Last year, they started painting postcards which they gave to their friends as a gift. After that, they began selling those postcards at a craft fair and sold them for fun. At the last fair, a buyer who really liked the postcards and offered them the contract to paint 500 postcards of a specific design for a price of RM2,000. With the inerease in demand, Adam and Akmal decided to open a business and named it as 4A Craft. Each postcard priced at RM4.00. Variable operating costs amounted to RM1.50 per postcard. To produce the posteards for the contract, they have to buy a specilic machine for cutting the postcard, which cost the amount of RM700. (i) If Adam decides to renegotiate the contract at the price of RM5.00 per postcard, solve for the new value of EBit (ii) If the buyer refuses to pay more than RM4.00 per postcard, but willing to negotiate on the quantity, identify the quantity of postcards through proper calculation that…
Adam and his friend, Akmal, are both talented painters. Last year, they started painting postcards which they gave to their friends as a gift. After that, they began selling those postcards at a craft fair and sold them for fun. At the last fair, a buyer who really liked the postcards and offered them the contract to paint 500 postcards of a specific design for a price of RM2,000. With the inerease in demand, Adam and Akmal decided to open a business and named it as 4A Craft. Each postcard priced at RM4.00. Variable operating costs amounted to RM1.50 per postcard. To produce the posteards for the contract, they have to buy a specilic machine for cutting the postcard, which cost the amount of RM700. (i) Solve for 4A Craft's operating breakeven point value. (ii) Solve for of 4A Craft's EBIT value of that contract.