No, the present value of the machine is less than the cost by over
Q: When fixed costs increase and all other variables remain unchanged, the contribution margin will…
A: Fixed costs are costs that do not change with change in level of activity. Variable costs are costs…
Q: The lessor’s initial direct costs often are substantial. What are initial direct costs?
A: The costs which are associated directly with originating a lease and are essential to acquire the…
Q: 22. At the break-even point, fixed cost is aiways a. Equal to the contribution margin h. More than…
A: The Break-even point is the level of operation at which the company is in a no-profit / no loss…
Q: “There is no such thing as a fixed cost. All costs can be ‘unfixed’ given sufficient time.” Do you…
A: CVP analysis is always for short term decision making and are always directed for a specified time…
Q: Is there any reason to believe that the project with the lower payback period is the better project?
A: Payback Period: It is the period in which the cost of the project is recovered. Hence, the shortest…
Q: When is the material quantity unfavorable? A.When the actual quantity used is less than the…
A: Material quantity variance =(AQ-SQ)×SP Where as, AQ = actual quantity used SQ = standard or…
Q: In what sense can a variable cost be considered constant?
A: A variable cost is a constant amount per unit produced or used.Therefore the total amount of the…
Q: Fixed Costs imply that the divisibility assumption of linear models no longer holds? True or False?…
A: Divisibility Assumption: Decision variables in a linear programming model are allowed to have any…
Q: Historical cost numbers are usually harder than market value numbers select one : True, or ,…
A: Historical cost: It is the cost of acquisition or say it is initial cost when customer acquire the…
Q: “Variable costs are always relevant, and fixed costs are always irrelevant.” Do you agree? Why?
A: A relevant cost refers to the cost amount which is related to a particular decision. Relevant cost…
Q: true or false, An increase in total fixed costs lowers the break-even point.
A: Formula: Break even point = Fixed costs / Contribution margin per unit. Contribution margin per unit…
Q: Give an example of an irrelevant future cost. Why is it irrelevant?
A:
Q: When variable costs increase and all other variables remain unchanged, the break-even point will:…
A: Variable Cost refers to those Cost which are Variable on nature that means they are changed with the…
Q: An example of a cost that is irrelevant to a future decision is a(n) a. Differential cost b.…
A: Costs are the amount of expenditure which has been and to be incurred on the project. There are…
Q: To increase margin of safety, the following measures can be taken O a. Increase the output O b.…
A: The margin of safety is the excess of current sales over break even sales.
Q: If fixed costs related to a product increase, while variable costs and sales ?price remain constant,…
A: Breakeven point is that point of sales revenue at which business is covering its fixed costs and…
Q: How would an Increase in total fixed costs affect the break-even point and the margin of safety?
A: The break even sales are the sales where business earns no profit no loss during the period.
Q: If net present value for a project is negative, then____. a. IRR is equal to Cost of capital b. IRR…
A: Net present value is the difference between the present value of cashflows discounted at the cost of…
Q: Problems with a fixed cost that is incurred only if an activity is undertaken at a positive level…
A: If there is a conduct of any activity at any positive level then it incurs an amount of fixed cost…
Q: If the project is to be finished in a shorter amount of time, what is the best way to accomplish…
A: Project when accepted is required to be completed on a specified time. All the tasks underlying in…
Q: You are performing an ROR analysis and find that alternative Y includes the purchase of equipment…
A: ROR stands for Rate of Return analysis. Rate of return analysis is the gain or loss on an investment…
Q: True or false Amortization is the spreading out of a cost over a period of time ?
A: Cost refers to the amount incurred by the entity over a particular item of expense, asset or…
Q: The break-even point occurs when total contribution margin is less than total fixed costs. O Ture O…
A: Cost-volume-profit (CVP) analysis is used to determine how changes in costs and volume affect a…
Q: 1. The most likely strategy to reduce the break-even point would be to a. Increase both the fixed…
A: A Break-even point is a point at which a company is able to cover all its expenses with the present…
Q: Which project has no rate of return?
A: Answer: IRR is a measure in capital budgeting used to measure the value of the predicted…
Q: Which of the following statements is CORRECT with respect to fixed costs per unit? Select one:…
A: Fixed cost in total remains constant. They will not change by change in production.
Q: Explain realizable value less than cost or cost greater than net realizable value?
A: Introduction:- The following formula used to calculate net realizable value as follows under:- Net…
Q: “There is no such thing as a fixed cost. All costs can be ‘unfixed’ given sufficient time.” Do you…
A:
Q: Optimal replacement interval is negatively correlated with which of the following? a. First cost b.…
A: Optimal replacement interval is negatively correlated with which of the following? Correct Answer-…
Q: Why might it be misleading to show the fixed costs on a per unit basis?
A: Fixed Costs are those costs that do not change in aggregate in relation to the level of production…
Q: When contribution is positive but equal to fixed cost: a. There is loss less than fixed cost b.…
A: Contribution is the amount received after the variable cost or direct costs are deducted from Sales,…
Q: Which of the following cost behavior assumptions is false? * a. Variable costs are constant if…
A: Solution: Cost behavior assumptions that is false is "Total fixed costs decrease as the level of…
Q: The marginal cost of an asset is equivalent to its EUAC. True or False?
A: Marginal Cost of Asset means the cost required to run the asset for the next period. EUAC =…
Q: Which one of the following statements is correct? O a. Avariable cost is a cost whose cost per unit…
A: The cost can be classified into two categories i.e fixed cost and variable cost. The FIxed cost…
Q: Explain Amortised cost and how to calculate it.
A: Amortized cost refers to the cost that helps to allocate the cost of financial/intangible assets…
Q: ow do you find the break even point? without knowing the contribution margin per unit
A: Break-even point means the sale condition where no profit no loss incurred. Break-even point is…
Q: Holding all other factors constant, the break-even point will be decreased by increasing the fixed…
A: The correct answer is Option C.
Q: Dis benefits are the future costs of a project that are paid out of its benefits Select one: True…
A: Dis benefits are the estimated costs that can occur in the future while performing the project.…
Q: What are the shortcomings of the payback period?
A: Payback period: The payback period assesses the time period required to recover the initial…
Q: A project is not economically feasible if MARR is at least bigger than or equal to IRR. Select one:…
A: The Above Statement is 'True'
Q: Machine A Machine B Which machine should be selected using the Net present value, (cost of capital…
A: Given information : Period Machine A Machine B 0 -750000 -750000 1 100000 250000 2 200000…
Q: . Which machine should be selected using the Payback period method? 2. Which machine should be…
A: Given: Machine A Particulars Amount 0 Initial investment -750,000.00 1 Cash flows…
Q: When variable costs increase and all other variables remain unchanged, the break-even point will: a.…
A: Break even point is that point at which business is recovering its fixed costs and variable costs.…
Q: Which of the following would not affect the breakeven point? O a. A change in variable cost per unit…
A: Break even point can be referred to as a sales level at which the firm is just able to recover all…
Step by step
Solved in 3 steps
- 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?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.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?
- Gardner Denver Company is considering the purchase of a new piece of factory equipment that will cost $420,000 and will generate $95,000 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.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?Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6 years, and an estimated salvage value of 800. The replacement machine is eligible for 100% bonus depreciation at the time of purchase- The replacement machine would permit an output expansion, so sales would rise by 1,000 per year; even so, the new machines much greater efficiency would cause operating expenses to decline by 1,500 per year The new machine would require that inventories be increased by 2,000, but accounts payable would simultaneously increase by 500. Dautens marginal federal-plus-state tax rate is 25%, and its WACC is 11%. Should it replace the old machine?
- The Rodriguez Company is considering an average-risk investment in a mineral water spring project that has an initial after-tax cost of 170,000. The project will produce 1,000 cases of mineral water per year indefinitely, starting at Year 1. The Year-1 sales price will be 138 per case, and the Year-1 cost per case will be 105. The firm is taxed at a rate of 25%. Both prices and costs are expected to rise after Year 1 at a rate of 6% per year due to inflation. The firm uses only equity, and it has a cost of capital of 15%. Assume that cash flows consist only of after-tax profits because the spring has an indefinite life and will not be depreciated. a. What is the present value of future cash flows? (Hint: The project is a growing perpetuity, so you must use the constant growth formula to find its NPV.) What is the NPV? b. Suppose that the company had forgotten to include future inflation. What would they have incorrectly calculated as the projects NPV?Falkland, Inc., is considering the purchase of a patent that has a cost of $50,000 and an estimated revenue producing life of 4 years. Falkland has a cost of capital of 8%. The patent is expected to generate the following amounts of annual income and cash flows: A. What is the NPV of the investment? B. What happens if the required rate of return increases?Mason, Inc., is considering the purchase of a patent that has a cost of $85000 and an estimated revenue producing lite of 4 years. Mason has a required rate of return that is 12% and a cost of capital of 11%. The patent is expected to generate the following amounts of annual income and cash flows: A. What is the NPV of the investment? B. What happens if the required rate of return increases?
- Although the Chen Company’s milling machine is old, it is still in relatively good working order and would last for another 10 years. It is inefficient compared to modern standards, though, and so the company is considering replacing it. The new milling machine, at a cost of $110,000 delivered and installed, would also last for 10 years and would produce after-tax cash flows (labor savings and depreciation tax savings) of $19,000 per year. It would have zero salvage value at the end of its life. The project cost of capital is 10%, and its marginal tax rate is 25%. Should Chen buy the new machine?Friedman Company is considering installing a new IT system. The cost of the new system is estimated to be 2,250,000, but it would produce after-tax savings of 450,000 per year in labor costs. The estimated life of the new system is 10 years, with no salvage value expected. Intrigued by the possibility of saving 450,000 per year and having a more reliable information system, the president of Friedman has asked for an analysis of the projects economic viability. All capital projects are required to earn at least the firms cost of capital, which is 12 percent. Required: 1. Calculate the projects internal rate of return. Should the company acquire the new IT system? 2. Suppose that savings are less than claimed. Calculate the minimum annual cash savings that must be realized for the project to earn a rate equal to the firms cost of capital. Comment on the safety margin that exists, if any. 3. Suppose that the life of the IT system is overestimated by two years. Repeat Requirements 1 and 2 under this assumption. Comment on the usefulness of this information.