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Identify the special cash flow category for each of the following.
- While developing a new product line, Cook Company spent $3 million two years ago to build a plant for a new product. Ultimately that project was not pursued. You are now evaluating a new project and would locate production inside of this building. What type of cash flow is the cost of the building?
- You hope to increase membership at your yoga studio by opening a smoothie bar inside of the yoga studio. When considering the feasibility of the smoothie bar, what type of cash flow is the increased studio membership?
- Suppose Walker Publishing Company is considering bringing out a new finance text whose projected revenues include some revenues that will be taken away from another of Walker's books. What type of cash flow are the lost sales on the older book?
- You currently operate a taco truck but are considering converting the food truck into a bubble tea truck. What type of cash flow are the profits currently earned from the taco truck?
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- Two alternatives are being considered by a food processor for the warehousing and distribution of its canned products in a sales region. These canned products come in standard cartons of 24 cans per carton. The two alternatives are as follows.Alternative A: To have its own distribution system. The administrative costs are estimated at $43,000 per year, and other general operating expenses are calculated at $0.009 per carton. A warehouse will have to be purchased, at a cost of $300,000. Alternative B: To sign an agreement with an independent distribution company that is asking a payment of $0.10 per carton distributed. Assume a study period of 10 years and that the warehouse can be sold at the end of this period for $200,000. a. Which alternative should be chosen, if management expects that the number of cartons to be distributed will be 600,000 per year? b. Find the minimum number of cartons per year that will make the alternative of having a distribution system (Alt. A) more…Ruth Brennan is evaluating two options. The first option is to open her own legal practice. Based on her business plan, she computed the following annual estimates using very conservative assumptions: Total revenue = $320,000 Purchases = $100,000 Utility costs = $37,000 Part-time Administrative Assistant = $45,000 Ruth will operate the business by herself. She will operate the business from a building that she owns. The building has been paid in full. The second option is to work for a law firm as a legal associate. Her annual salary would be $95,000. She could also rent her building for $74,000 per year. Compare and contrast the accounting profit and economic profit of each of the two options.When evaluating a new project, the firm must consider all off the following factors EXCEPT: Sunk costs such as previous expenditures associated with a market test to determine the feasibility of the project. Changes in net operating working capital attributable to the project. The current after-tax salvage value of a piece of previously acquired land where the new project will be housed. The side effect that the project may have on the firm’s current business and operation.
- Super Tennis Co is in the business of designing and manufacturing running shoes for long distance runners. They are considering a $500 million upgrade to their production line for the iPhone/iPad/ iWatch connected shoe that has Bluetooth connectivity. The potential cash flow is estimated at net revenues of $460 million per year for four years. Recently, they were advised of potential patent infringement and to eliminate this problem they are considering buying a license. YezzCo will sell a license that is good for four years of exclusive use of the patent and associated intellectual property. Super Tennis Co uses a corporate MARR of 14% and their risk-free alternatives are 6%. The VP of Engineering at Super Tennis Co estimates market volatility in demand is 40%. The VP of Marketing estimates market volatility in demand at 35%. 1.Since the VPAc€?cs trust you, they asked you to figure out the most they should pay for a license from YezzCo. 2. Super Tennis Co is known to be liberal in…Examine the sensitivity of the project to changes in the manufacturing throughput, discount rate and gross marginVermonto Ltd is putting together a tender for a one-off contract using relevant costing principles. The job requires 50m2 of Material X Vermonto has established the following information regarding material X: Material X Amount held 40m2 Original cost £25 per m2 Net realisable value £28 per m2 Current purchase price £30 per m2 Material X is no longer used by Vermonto for its ongoing operations and any existing inventories will be sold if not used. What is the relevant cost for material X for the purpose of pricing the contract?
- Eaton Medical Services is evaluating 10 independent indivisible projects, all with positive NPV. The company's capital budgeting for the year is limited to a maximum of $5,000,000. (A) Use solver to find the optimum combination of projects the company should accept, under the assumption that A and B are mutually exclusive and one of them has to be selected. (B) Ignore the constraint from previous part, assume that project “I” has to be accepted. Use solver to find optimum combination of projects the company should accept now. Please show all steps to compute in excel using solver to get to the right answers. Thank you in advance, will upvote! Project Cost NPV A 1,061,191 122,737 B 561,758 58,102 C 1,647,849 280,660 D 1,026,020 89,365 E 191,870 17,568 F 1,333,625 76,960 G 3,102,642 123,240 H 275,568 79,367 I 2,044,070 60,506 J 1,017,567 56,690Sunshine Smoothies Company (SSC) manufactures and distributes smoothies. It is considering the "weight loss" smoothies project. The project would require a $4 million investment outlay today The after-tax cash flows would depend on consumers’ demand. There is a 30% chance that demand will be good, and the project will produce after-tax cash flows of $2 million at the end of each year for the next 3 years. There is a 70% chance that demand will be poor, and the project will produce after-tax cash flows of $1 million at the end of each year for the next 3 years. The project is riskier than the firm's other projects, so it has a WACC of 12%. - The firm will know whether the project is success or not after receiving first year's cash flows from normal operating.. - After receiving the first year's cash flows (no matter what receive $1M or $2M in the first year), the firm will have the option to abandon the project. - If the firm decides to abandon the project, the company will no longer…The following data related to two mutually exclusive projects are given. Which of the following statement is true about the incremental rate of return? Alternative Initial Investment ROR A $35,000 20% B $10,000 15% Group of answer choices Insufficient data The ΔRoR is less than 20% The ΔRoR is between 15% and 20% The ΔRoR is greater than 20% Flag question: Question 2
- What do you know about the mathematical value of the internal rate of return of a project under each of the following conditions? a. The annual worth of the project is greater than zero. b. The annual worth of the project is equal to zero. c. The annual worth of the project is less than zero.Consider the following two mutually exclusive service projects with projectlives of three years and two years, respectively. (The mutually exclusive service projects will have identical revenues for each year of service.) The interest rate is known to be 12%. Net Cash Flow End of Year Project A Project B 0 -$1,000 -$800 1 -400 -200 2 -400 -200+0 3 -400+200 If the required service period is six years and both projects can be repeated with the given costs and better service projects are unavailable in the future, which project is better and why? Choose from the following options:(a) Select Project B because it will save you $344 in present worth over the required service period.(b) Select Project A because it will cost $1,818…National Chemical Company manufactures a chemical compound that is sold for $58 per gallon. A new variant of the chemical has been discovered, and if the basic compound were processed into the new variant, the selling price would be $90 per gallon. National expects the market for the new compound variant to be 8,500 gallons initially and determines that processing costs to refine the basic compound into the new variant would be $170,000.