Marina Manufacturing is considering buying new equipment for its factory. The new equipment will reduce variable labor costs but increase depreciation expense. Contribution margin is expected to increase from $250,000 to $300,000. Net income is expected to remain the same at $100,000 Compute the degree of operating leverage before and after the purchase of the new equipment and interpret your results. (Round answers to 2 decimal places, eg. 15.25) Degree of operating leverage Before After eTextbook and Media
Q: Hana Inc. is considering an investment in new equipment that will be used to manufacture a…
A: Average Rate of ReturnAverage Rate of Return measures the profitability of the investments on the…
Q: Asgone plc is considering an investment to increase its manufacturing capacity from 10,000 units per…
A: The question is based on the concept of capital budgeting techniques for the selection of the most…
Q: Starling Co. is considering disposing of a machine with a book value of $20,200 and estimated…
A: Total saving in variable manufacturing costs = Annual savings x no. of years = ($23000 - $19000) x 5…
Q: Starling Co. is considering disposing of a machine with a book value of $20,800 and estimated…
A: Impact on net income under two alternative can be compared with the costs incurred for both…
Q: WJW Ceramic Products Inc. leases plant facilities in which firebrick are manufactured. Because of…
A: Year Cost of equipment CCCrte - 30% Annual deprecaAnnual depreciation Carrying balance 1…
Q: Starling Co. is considering disposing of a machine with a book value of $24,500 and estimated…
A:
Q: A flour mill is considering buying a new jumbo sifter, which would have an installed cost of…
A: Since we only answer up to 3 sub-parts, we’ll answer the first 3. Please resubmit the question and…
Q: Karabuk casting factory wants to buy a furnace to meet their increasing production demands. As a…
A: Capital Budgeting: It is the planning process used to determine whether an organization invests for…
Q: ormation applies questions displayed below Beacon Company is considering automating its production…
A: Solution 4: Current (no automation) Proposed (Automation) 88000 Units 124000 units…
Q: In order to increase production capacity, Global Industries is considering replacement an ex…
A: Net cash outflow is the amount of initial investment in equipment and installation and investment in…
Q: A firm is evaluating an investment in a fixed asset that costs $1,080, has a six-year life, and has…
A: Net Present Value: This is the present worth of the future cash flows calculated using the discount…
Q: Bryant Company has a factory machine with a book value of $90,000 and a remaining useful life of 5…
A: Total Variable manufacturing costs if Equipment is retained = Annual Variable manufacturing costs x…
Q: Asgone plc is considering an investment to increase its manufacturing capacity from 10,000 units per…
A: Net present value (NPV) is the value of all the cash flow of the investment (positive and negative)…
Q: The company's total general company overhead would be unaffected by this decision. Required: 1.…
A: In accounting we have to make decisions like buy or make a particular asset. This includes…
Q: Marigold Inc. is planning to invest in new manufacturing equipment to make a new garden tool. The…
A: Answer- Working Note : Cost to Manufacture = DL + DM + VFOH = 8.80+ 28.90+ 4.50 = $ 42.20
Q: Natural Foods Inc. is planning to invest in new manufacturing equipment to make a new garden tool.…
A: Net cash flows indicate the forecast of cash inflows and outflows for a particular period.
Q: An automobile company needs to decide of outsourcing shafts or producing shafts in the company. If…
A: An automobile needs to decide of outsourcing or producing shafts in the company. Outsourcing shafts…
Q: CCNY, Inc. is considering the acquistition of a new left-handed press. The base price of the press…
A: NPV computes the existing value of future benefits by discounting future cash flows with a stated…
Q: 1) Assuming the company has no alternative use for the facilities that are now being used to…
A: The segmented income statement of a business organization provides additional details by breaking…
Q: Waterway’s Shingle Corporation is considering the purchase of a new automated shingle-cutting…
A: Formula to compute degree of operating leverage.
Q: Starling Co. is considering disposing of a machine with a book value of $24,600 and estimated…
A: solution: Differential effect on income for new machine for entire five years = Savings in annual…
Q: A component manufacturer currently produces 200,000 units a year. It buys component lids from an…
A: For NPV calculation , cost saving is the cash inflows
Q: Heffron Technologies (HT) is considering the introduction of a new product. The code name of the new…
A: Cashflow means flow of cash which can be inflow (positive cashflows) and outflow (negative…
Q: Assume that the following data has been determined for the development and sale of a new digital…
A:
Q: Wexford Industrial Supply is considering a new project with estimated depreciation of $38,200, fixed…
A: Formula: accounting break-even level = (Sale -Fixed cost -Depreciation)/ Variable cost
Q: An auto parts Company produces various extra additions to motor cars. It has just discovered an…
A: Hello. Since your question has multiple sub-parts, we will solve first three sub-parts for you. If…
Q: A flour mill is considering buying a new jumbo sifter, which would have an installed cost of…
A: Hello. Since your question has multiple sub-parts, we will solve the first three sub-parts for you.…
Q: WJW Ceramic Products Inc. leases plant facilities in which firebrick are manufactured. Because of…
A:
Q: DYC Co is a medium sized manufacturing company that plans to increase capacity by purchasing new…
A: NPV is a capital budgeting techniques which help in decision making on the basis of future cash…
Q: A firm is trying to choose between two machines to manufacture a new line of office furniture. The…
A: Capital Budgeting: Capital budgeting decisions are the most important decision in corporate…
Q: Starling Co. is considering disposing of a machine with a book value of $22,200 and estimated…
A: Cost savings per year = 23,400 - 19,900 = 3,500 For 5 years = 3,500 x 5 = $17,500 Old machine sale…
Q: a) What is the accumulated depreciation of the old sifter? b) What is the current book value of the…
A: “Since you have posted a question with many sub-parts, we will solve three sub-parts for you. To get…
Q: The Frank Ernst Co. wants to add an additional production line. To do this, the company must spend…
A: In this we need to calculate the cash flow from the PROJECT.
Q: Ford Motor Company is considering purchasing a new piece of equipment for one of its plants. The…
A: Contribution margin = Sales - variable cost / sales - variable…
Q: Appalachian Crafts is analyzing a project with expected sales of 18,900 units, ±2 percent. The…
A: Revenue is the total sales amount which is computed by multiplying selling price with sales volume.…
Q: Mehmet Group wants to produce the M machines used in the casting industry in the Big Industry. The…
A: Mehmet Group's Annual production and sales units = 20000 units Sales price = cost x 1.35 Workshop…
Q: Two alternative machines will produce the same product, but one is capable of higher-quality work,…
A: Present worth analysis is an analysis in which we convert all the cash flows to present worth using…
Q: The company DstriBut.inc decides to take a technological shift by replacing its old distribution…
A: NPV NPV is a capital budgeting tool to decide on whether the capital project should be accepted or…
Q: Expando, Inc., is considering the possibility of building an additional factory that would produce a…
A: NPV is the net present value is the difference between the present value of cash flow and initial…
Q: Starling Co. is considering disposing of a machine with a book value of $12,500 and estimated…
A: Here we will not consider time value of money as the discount rate is not given
Q: compute the NPV.
A: A) WORKINGS:
Q: A flour mill is considering buying a new jumbo sifter, which would have an installed cost of…
A: Parts A-D:Excel Spreadsheet:
Q: The present value of the net initial cash flows of this project today is closest to: a) CAD…
A: Net initial cash flows mean those cash flows which a company is going to incur for the investment in…
Q: Assume that Monsanto Corporation is considering the replacement of some of its older and outdated…
A: Marginal analysis is done to understand the additional benefit the project will have compared to the…
Q: The Mechanical Components Division manager asks you to recommend a make/buy decision on a major…
A: AW evaluation of make decision is done below: The formula sheet for the computation of the above…
Q: ted to be only $1.50 a lid. The necessary machinery would cost $150,000 and would last 10 years.…
A: For NPV calculation , cost saving is the cash inflows
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
- 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?Talbot Industries is considering launching a new product. The new manufacturing equipment will cost 17 million, and production and sales will require an initial 5 million investment in net operating working capital. The companys tax rate is 40%. a. What is the initial investment outlay? b. The company spent and expensed 150,000 on research related to the new product last year. Would this change your answer? Explain. c. Rather than build a new manufacturing facility, the company plans to install the equipment in a building it owns but is not now using. The building could be sold for 1.5 million after taxes and real estate commissions. How would this affect your answer?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?
- Talbot Industries is considering launching a new product. The new manufacturing equipment will cost $17 million, and production and sales will require an initial $5 million investment in net operating working capital. The company’s tax rate is 25%. What is the initial investment outlay? The company spent and expensed $150,000 on research related to the new product last year. What is the initial investment outlay? Rather than build a new manufacturing facility, the company plans to install the equipment in a building it owns but is not now using. The building could be sold for $1.5 million after taxes and real estate commissions. What is the initial investment outlay?Average rate of returncost savings Maui Fabricators Inc. is considering an investment in equipment that will replace direct labor. The equipment has a cost of 125,000 with a 15,000 residual value and an eight-year life. The equipment will replace one employee who has an average wage of 28,000 per year. In addition, the equipment will have operating and energy costs of 5,150 per year. Determine the average rate of return on the equipment, giving effect to straight-line depreciation on the investment.Boxer Production, Inc., is in the process of considering a flexible manufacturing system that will help the company react more swiftly to customer needs. The controller, Mick Morrell, estimated that the system will have a 10-year life and a required return of 10% with a net present value of negative $500,000. Nevertheless, he acknowledges that he did not quantify the potential sales increases that might result from this improvement on the issue of on-time delivery, because it was too difficult to quantify. If there is a general agreement that qualitative factors may offer an additional net cash flow of $150,000 per year, how should Boxer proceed with this Investment?
- Fire Company is a service firm with current service revenue of $900,000 and a 40% contribution margin. Its fixed costs are $200,000. Ice Company has current sales of $420,000 and a 30% contribution margin. Its fixed costs are $90,000. What is the margin of safety for Fire and Ice? Compare the margin of safety in dollars between the two companies. Which is stronger? Compare the margin of safety in percentage between the two companies. Now which one is stronger? Compute the degree of operating leverage for both companies. Which company will benefit most from a 10% increase in sales? Explain why. Illustrate your findings in an Income Statement that is increased by 10%.Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided manufacturing system. The annual net cash benefits and savings associated with the system are described as follows: The system will cost 9,000,000 and last 10 years. The companys cost of capital is 12 percent. Required: 1. Calculate the payback period for the system. Assume that the company has a policy of only accepting projects with a payback of five years or less. Would the system be acquired? 2. Calculate the NPV and IRR for the project. Should the system be purchasedeven if it does not meet the payback criterion? 3. The project manager reviewed the projected cash flows and pointed out that two items had been missed. First, the system would have a salvage value, net of any tax effects, of 1,000,000 at the end of 10 years. Second, the increased quality and delivery performance would allow the company to increase its market share by 20 percent. This would produce an additional annual net benefit of 300,000. Recalculate the payback period, NPV, and IRR given this new information. (For the IRR computation, initially ignore salvage value.) Does the decision change? Suppose that the salvage value is only half what is projected. Does this make a difference in the outcome? Does salvage value have any real bearing on the companys decision?I know that its the thing to do, insisted Pamela Kincaid, vice president of finance for Colgate Manufacturing. If we are going to be competitive, we need to build this completely automated plant. Im not so sure, replied Bill Thomas, CEO of Colgate. The savings from labor reductions and increased productivity are only 4 million per year. The price tag for this factoryand its a small oneis 45 million. That gives a payback period of more than 11 years. Thats a long time to put the companys money at risk. Yeah, but youre overlooking the savings that well get from the increase in quality, interjected John Simpson, production manager. With this system, we can decrease our waste and our rework time significantly. Those savings are worth another million dollars per year. Another million will only cut the payback to about 9 years, retorted Bill. Ron, youre the marketing managerdo you have any insights? Well, there are other factors to consider, such as service quality and market share. I think that increasing our product quality and improving our delivery service will make us a lot more competitive. I know for a fact that two of our competitors have decided against automation. Thatll give us a shot at their customers, provided our product is of higher quality and we can deliver it faster. I estimate that itll increase our net cash benefits by another 2.4 million. Wow! Now thats impressive, Bill exclaimed, nearly convinced. The payback is now getting down to a reasonable level. I agree, said Pamela, but we do need to be sure that its a sound investment. I know that estimates for construction of the facility have gone as high as 48 million. I also know that the expected residual value, after the 20 years of service we expect to get, is 5 million. I think I had better see if this project can cover our 14% cost of capital. Now wait a minute, Pamela, Bill demanded. You know that I usually insist on a 20% rate of return, especially for a project of this magnitude. Required: 1. Compute the NPV of the project by using the original savings and investment figures. Calculate by using discount rates of 14% and 20%. Include salvage value in the computation. 2. Compute the NPV of the project using the additional benefits noted by the production and marketing managers. Also, use the original cost estimate of 45 million. Again, calculate for both possible discount rates. 3. Compute the NPV of the project using all estimates of cash flows, including the possible initial outlay of 48 million. Calculate by using discount rates of 14% and 20%. 4. CONCEPTUAL CONNECTION If you were making the decision, what would you do? Explain.
- 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.Caduceus Company is considering the purchase of a new piece of factory equipment that will cost $565,000 and will generate $135,000 per year for 5 years. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return In Excel, see Appendix C.Den-Tex Company is evaluating a proposal to replace its HID (high intensity discharge) lighting with LED (light emitting diode) lighting throughout its warehouse. LED lighting consumes less power and lasts longer than HID lighting for similar performance. The following information was developed: a. Determine the investment cost for replacing the 700 fixtures. b. Determine the annual utility cost savings from employing the new energy solution. c. Should the proposal be accepted? Evaluate the proposal using net present value, assuming a 15-year life and 8% minimum rate of return. (Present value factors are available in Appendix A.)