Part B: QI ProposalQuantum International (QI) would manufacture, sell and distribute the valves. QI has a long history of success in manufacturing high performance valves.However, Piscataway does not expect them to be as successful in marketing as FPS resulting in lower payments from customers as shown below.In the QI proposal, Piscataway would only have operating cash outflows related to administrative expenses as shown below.YearCash In-Flow (Payments from Customers)Total Cash OutflowExplain your choice.1$3,255$315Piscataway would make a payment to QI ofQI would receive an annual fee ofThese payments are not included in the Total Cash Flow above.(i) What required rate of return should Pisctataway use to evaluate the QI proposal?(iii) Should Piscataway choose FPS or QI?2$6,610$58015%(ii) What would be Piscataway's net operating cash flow if they choose QI?3$11,005$935$10,000 in Year 060% of payments to customers to compensate them for manufacturing and marketing.20%4$15,950$1,27025%5$20,055$1,64567$21,670 $23,000$1,600 $1,7198$31,750$2,3329$33,100$2,39210$33,100$2,394

It has been given in the question that all the manufacturing as well as sales and distribution is to…

(i) What required rate of return should Pisctataway use to evaluate the QI proposal? 20% Explain your choice. 15% (ii) What would be Piscataway's net operating cash flow if they choose QI? (iii) Should Piscataway choose FPS or QI? 25%

(i) What required rate of return should Pisctataway use to evaluate the QI proposal? 20% Explain your choice. 15% (ii) What would be Piscataway's net operating cash flow if they choose QI? (iii) Should Piscataway choose FPS or QI? 25%

Essentials of Business Analytics (MindTap Course List)

2nd Edition

ISBN:9781305627734

Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Publisher:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Chapter15: Decision Analysis

Section: Chapter Questions

Problem 5P: Hudson Corporation is considering three options for managing its data warehouse: continuing with its...

See similar textbooks

Similar questions

Which of the following business strategies is most likely toincrease the net cash flows of a software developer in theshort run but reduce them over a longer term?a. Develop software that is more costly to create but easierto update and improve. b. Lower the price of existing versions of products as cus-tomer demand begins to fall. c. Reduce expenditures for the purpose of developing newproducts.d. Purchase the building in which the business operates(assume the company currently rents this location).
For each of the following problems, (a) draw the cash flow diagram; (b) present clean and clear manual solutions to the problem; (c) highlight the final answer (only the final answer as required by the problem) by enclosing it within a box. The cost for an imported equipment is $80,000 and the in-country cost for one with twice the capacity is $120,000. What is the value of the exponent in the cost-capacity equation?
(Accounting for Research and Development Costs) Czeslaw Corporation’s research and development department has an idea for a project it believes will culminate in a new product that would be very profitable for the company.Because the project will be very expensive, the department requests approval from the company’s controller, Jeff Reid.Reid recognizes that corporate profits have been down lately and is hesitant to approve a project that will incur significant expenses that cannot be capitalized due to the requirements of the authoritative literature. He knows that if they hire an outside firm that does the work and obtains a patent for the process, Czeslaw Corporation can purchase the patent from the outside firm and record the expenditure as an asset. Reid knows that the company’s own R&D department is first-rate, and he is confident they can do the work well.InstructionsAnswer the following questions.(a) Who are the stakeholders in this situation?(b) What are the ethical issues…
An engineer in charge of the design of a plant must choose either a batch or a continuous system. The batch system offers a lower initial outlay but, owing to higher labor requirements, exhibits a higher operating cost. The cash flows relevant to this problem have been estimated as follows: Check the values given for the discounted-cash-flow rate of return and net present worth. If the company requires a minimum rate of return of 10 percent, which system should be chosen?
All parts are under 1 questions, therefore per your policy all parts can be answered. 6. The payback period The payback method helps firms establish and identify a maximum acceptable payback period that helps in their capital budgeting decisions. Consider the case of Blue Hamster Manufacturing Inc.: Blue Hamster Manufacturing Inc. is a small firm, and several of its managers are worried about how soon the firm will be able to recover its initial investment from Project Delta’s expected future cash flows. To answer this question, Blue Hamster’s CFO has asked that you compute the project’s payback period using the following expected net cash flows and assuming that the cash flows are received evenly throughout each year. A. Complete the following table and compute the project’s conventional payback period. For full credit, complete the entire table. (Note: Round the conventional payback period to two decimal places. If your answer is negative, be sure to use a minus sign in…
Southland Corporation’s decision to produce a new line of recreational products resulted in the need to construct either a small plant or a large plant. The best selection of plant size depends on how the marketplace reacts to the new product line. To conduct an analysis, marketing management has decided to view the possible long-run demand as low, medium, or high. The following payoff table shows the projected profit in millions of dollars: What is the decision to be made, and what is the chance event for Southland’s problem? Construct a decision tree. Recommend a decision based on the use of the optimistic, conservative, and minimax regret approaches.
The management of Kawneer North America is considering investing in a new facility and the following cash flows are expected to result from the investment: A. What is the payback period of this uneven cash flow? B. Does your answer change if year 10s cash inflow changes to $500,000?
Hudson Corporation is considering three options for managing its data warehouse: continuing with its own staff, hiring an outside vendor to do the managing, or using a combination of its own staff and an outside vendor. The cost of the operation depends on future demand. The annual cost of each option (in thousands of dollars) depends on demand as follows: If the demand probabilities are 0.2, 0.5, and 0.3, which decision alternative will minimize the expected cost of the data warehouse? What is the expected annual cost associated with that recommendation? Construct a risk profile for the optimal decision in part (a). What is the probability of the cost exceeding $700,000?
The J.R. Ryland Computer Company is considering a plant expansion to enable the company to begin production of a new computer product. The companys president must determine whether to make the expansion a medium- or large-scale project. Demand for the new product is uncertain, which for planning purposes may be low demand, medium demand, or high demand. The probability estimates for demand are 0.20, 0.50, and 0.30, respectively. Letting x and y indicate the annual profit in thousands of dollars, the firms planners developed the following profit forecasts for the medium-and large-scale expansion projects. a. Compute the expected value for the profit associated with the two expansion alternatives. Which decision is preferred for the objective of maximizing the expected profit? b. Compute the variance for the profit associated with the two expansion alternatives. Which decision is preferred for the objective of minimizing the risk or uncertainty?
ABC steel plant industry plans to manufacture a product. The product needs a special component. The industry has reviewed that the special component can be produced in the plant or bought in. An investment is required to start the production of the component for which two mutually exclusive projects A and B representing different production processes are available. The alternative option is to buy in from another company representing project C. The details of projects A and B are given in Table 3: (i) Using the information from table 3 and Discount Cash Flow criteria, calculate Pay Back Period (PBP), Account Rate of Return (ARR), Net Present Value (NPV) and Internal Rate Return (IRR) for project A & Project B if the industry plans to sale the unit cost of RO 350. (ii) Using the annual cost data from table 3, determine which project incurs less cost if the industry considers producing 7,500 units per year. (iii) Using the table 3, determine the Break-Even quantity and margin of…
Ian Corp. is considering two expansion projects. The first project streamlines the company’s warehousing facilities. The second project automates inventory utilizing bar code scanners. Both projects generate positive NPV, yet Ian Corp. only chooses the bar coding project. Why? a. The payback is greater than the warehouse project’s life. b. The internal rate of return of the warehousing project is less than the company’s required rate of return for capital projects. c. The company is practicing capital rationing. d. All of the above are true.
_ Since prices are extremely low, the Pipeline SupplyCompany wants to purchase a special line of pipesfrom a company going out of business. Pipeline,however, will need to borrow money to make thisdeal. Which assets will Pipeline most commonlypledge as collateral for this short-term loan?a. delivery equipmentb. notes payablec. manufacturing equipmentd. owners’ equitye. inventory