QUESTION 1 (c) A software company has invested RM10 mil into development and marketing for its latest application program, which sells for RM50 per copy. Each costs the company RM15 to sell. Sales volume reaches one million copies. Calculate the operating leverage (DOL). Answers should be written with proper example and elaborations. Thank you.
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QUESTION 1
(c) A software company has invested RM10 mil into development and marketing for
its latest application program, which sells for RM50 per copy. Each costs the
company RM15 to sell. Sales volume reaches one million copies. Calculate the
operating leverage (DOL).
Answers should be written with proper example and elaborations.
Thank you.
Step by step
Solved in 2 steps
- F2. Penske has come up with a new gadget prototype and is ready to go ahead with pilot production and test marketing. The pilot production and test marketing phase will last for one year and cost $560,000. The management team believes that there is a 40% chance that the test marketing will be successful (which also means 60% chance of test marketing failure) and that there will be sufficient demand for the new gadget. If the test-marketing phase is successful, then Penske will invest $3.1 million in year one to build a plant that will generate expected annual after-tax cash flows of $600,000 in perpetuity beginning in year two. If the test marketing is not successful, Penske can still go ahead and build the new plant, but the expected annual after-tax cash flows would be only $220,000 in perpetuity beginning in year two. Penske's cost of capital is 20.00%. Assume that Penske has the ability to ignore the pilot production and test marketing and to go ahead and build its manufacturing…21.A firm considering the installation of an automatic data processing unit to handle some of its accounting operations. Machines for that purpose may be for P20,000, or may be leased for P8,000 for the 1st year and P1,000 less every year now and then until the end of the 4th year. If money is worth 15%, is it advisable to rent or buy the machine. *In written solution please1. Production has indicated that they can produce widgets at a cost of P4.00 each if they lease new equipment at a cost of P10,000. Marketing has estimated the number of units they can sell at a number of prices (Php4000) Which price/volume option will allow the firm to avoid losing money on this project? (Please show solution correctly so I could review it thank u)
- Please show work. Pinto.com has developed a powerful new server that would be used for corporations’ Internet activities. It would cost $25 million at Year 0 to buy the equipment necessary to manufacture the server. The project would require net working capital at the beginning of each year in an amount equal to 12% of the year’s projected sales; for example, NWC0 = 12%(Sales1 ). The servers would sell for $21,000 per unit, and Pinto believes that variable costs would amount to $15,000 per unit. After Year 1, the sales price and variable costs will increase at the inflation rate of 2.5%. The company’s nonvariable costs would be $1.5 million at Year 1 and would increase with inflation. The server project would have a life of 4 years. If the project is undertaken, it must be continued for the entire 4 years. Also, the project’s returns are expected to be highly correlated with returns on the firm’s other assets. The firm believes it could sell 2,000 units per year. The equipment would be…Innovation Company is thinking about marketing a new software product. Upfront costs to market and develop the product are $4.94 million. The product is expected to generate profits of $1.07 million per year for 10 years. The company will have to provide product support expected to cost $99,000 per year in perpetuity. Assume all profits and expenses occur at the end of the year. What is the NPV of this investment if the cost of capital is 5.8%? Should the firm undertake the project? Repeat the analysis for discount rates of 1.7% and 14.1%, respectively. What is the IRR of this investment opportunity? What does the IRR rule indicate about this investment?Pls help me solve this without Excel. I got this incorrect. A new IT server for a company will cost $448,864.00 today. The company expects the server will create an incremental cash flow to the firm of $131,277.00 per year. The company wants an 8.00% return for all capital budgeting projects. The company will run the server for the next 5 years. Based on the IRR and cost of capital, should they accept the project? (YES or NO) Answer format: Text
- Q6) IBM networks want to modernize their networking system. Proposals have been received from two major software companies. The first proposal cost $6million but will raise the firm’s annual cash flows by $3million. The second proposal cost $7million and provides cash flow of $3.5million a year. Both projects have a life span of 3 years. Assuming that the cost of capital is 8%, which proposal may be recommended on the basis of Net Present Value criteria.Finance A company is considering buying a machine that would give a net cost savings of $85,000 per year for 10 years. The cost of the machine is $350,000. The company’s weighted average cost of capital is 12%. What is the profitability index for the machine? Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Do not provide Excel Screet shot rather use tool table Answer completely.Case Study 2: Success Electronics LLC is planning to introduce a low cost smart phone with attractive features. The market research information suggests that the product should sell 2000 units at RO 30 per unit. The company seeks to make a mark-up of 20% product cost. It is estimated that the lifetime costs of the product will be as follows: Design and development costs RO 5000 Manufacturing costs RO 22 per unit End of life costs RO 7000 Based on the above case, answer the following THREE questions: 1-What is target cost per unit to achieve the desired profit? a. RO 24 per unit b. RO 25 per unit c. RO 22 per unit d. RO 20 per unit 2-What is the desired profit per unit? a. RO 6 per unit b. RO 10 per unit c. RO 5 per unit d. RO 15 per unit 3-What is the original lifecycle cost per unit and is the product worth making on that basis? a. RO 29 per unit; The product is not worth making b. RO 28 per unit; The product is not worth making c. RO 23 per…
- Note:- I need only question 3 answer. ASAP 2. A company can manufacture a product using hand tools. Tools will cost $ 1,000, and themanufacturing cost per unit will be $ 1.50. As an alternative, an automated system will cost$15,000 and the manufacturing cost per unit will be $ 0.50. With an anticipated annualvolume of 5,000 units and neglecting interest, the payback period (yr) for the automatedsystem is most nearly (A) 2.8 (B) 3.6(C) 15.0(D) never 3. For problem 2, what is the payback period (yr) taking into account the interest lost on the capital invested if the annual interest rate is 5 % per year?(A) 2.4(B) 2.6(C) 3.3(D)4.5Question 2 The sales and finance team of a car company is evaluating a new proposed luxury model of its brand that will require an investment of $1Billion in a new machine for car interior decoration. Demand for the company’s car is expected to begin at 100,000 units in year 1, with 10% annual growth thereafter. Production cost will be $40,000 per unit in the first year, and increase by a rate of either 3% or 5% per year as a result of wage increase. Selling price will start at $35,000 and increase by 5% of the production cost. The model will be phased out at the end of year 10. In addition, 0.3%, 2% and 1% of before tax profit per year will be spent on social corporate responsibility, commercial (including promotions) and recalls respectively. Assume taxes will be 30% of yearly profit and that inflation will remain at 0% per year throughout the 10 year of production. Also assume interest rate is expected to be 3% per year in the first 5 years and 5% in the last 5 years. a. Based on…Q6) IBM networks want to modernize their networking system. Proposals have been received from two major software companies. The first proposal cost $6million but will raise the firm’s annual cash flows by $3million. The second proposal cost $7million and provides cash flow of $3.5million a year. Both projects have a life span of 3 years. Assuming that the cost of capital is 8%, which proposal may be recommended on the basis of Net Present Value criteria. Select one: a. Project B, NPV 1731290 b. Project A, NPV 20198 c. Project B, NPV 2019839 d. Project A, NPV 2019839
