Question 2 Executives at Microsoft are interested to get into the drone delivery business. Since it would take them too much time to set up their own operation, they decide to acquire “Flyit” corporation. “Flyit” has been operating a drone delivery service for 4 years now, and they are the most successful operators in the market. Microsoft executives offer “Flyit” two purchase options. The first option is one $40 million lump sum payment. The second option is paying five annual payments of $10 million over the next five years. If the annual interest rate is 7%, find the present value of both options? [Note: you are supposed to show every step of your calculation and interpret the result] ( Evaluate the net present values of both option and identify which option is more cost effective for Microsoft?

Question 2 Executives at Microsoft are interested to get into the drone delivery business. Since it would take them too much time to set up their own operation, they decide to acquire “Flyit” corporation. “Flyit” has been operating a drone delivery service for 4 years now, and they are the most successful operators in the market. Microsoft executives offer “Flyit” two purchase options. The first option is one $40 million lump sum payment. The second option is paying five annual payments of $10 million over the next five years. If the annual interest rate is 7%, find the present value of both options? [Note: you are supposed to show every step of your calculation and interpret the result] ( Evaluate the net present values of both option and identify which option is more cost effective for Microsoft?

SWFT Comprehensive Volume 2019

42nd Edition

ISBN:9780357233306

Author:Maloney

Publisher:Maloney

Chapter25: Taxation Of International Transactions

Section: Chapter Questions

Problem 1RP

See similar textbooks

Similar questions

QUESTION 3 The executive management at Xuixa Ltd has decided to introduce a new product line. To achieve this, management has to invest in one of two (2) types of equipment. Option 1 The equipment ‘R’ will cost P200, 000 and is expected to have a life span of five (5) years with no residual value. The company would need to incur a cost of P40, 000 for safe disposal of the equipment at the end of its life span. It is estimated the equipment could yield net returns of P50, 000 in the first three years and net returns of P40, 000 in the last two years. Option 2 The equipment ‘S’ will cost 350,000 and its estimated useful life is four years. There will be no residual value. Acquiring this equipment will involve additional cost of training of P30, 000 for staff that will operate the equipment. It is estimated that the equipment could yield net returns of P80, 000 in the first year, P120, 000 in years 2-3 and P100, 000 in year 4. Required: For both options, calculate: The payback…
H3. Market Top Investors, Incorporated, is considering the purchase of a $485,000 computer with an economic life of six years. The computer will be fully depreciated over six years using the straight-line method, at which time it will be worth $132,000. The computer will replace two office employees whose combined annual salaries are $98,000. The machine will also immediately lower the firm’s required net working capital by $87,000. This amount of net working capital will need to be replaced once the machine is sold. The corporate tax rate is 22 percent. The appropriate discount rate is 8 percent. Calculate the NPV of this project. Please show proper step by step calculation
Serial Problem Business Solutions LO P1, P2 Santana Rey is considering the purchase of equipment for Business Solutions that would allow the company to add a new product to its computer furniture line. The equipment is expected to cost $371,000 and to have a seven-year life and no salvage value. It will be depreciated on a straight-line basis. Business Solutions expects to sell 100 units of the equipment’s product each year. The expected annual income related to this equipment follows. Sales $ 375,000 Costs Materials, labor, and overhead (except depreciation) 195,000 Depreciation on new equipment 53,000 Selling and administrative expenses 30,000 Total costs and expenses 278,000 Pretax income 97,000 Income taxes (40%) 38,800 Net income $ 58,200 Required:(1) Compute the payback period. Payback PeriodChoose Numerator:/Choose Denominator:=Payback Period/=Payback period =0 (2) Compute the accounting rate of return…
Question 1 Partners Telecom (“PT”) is a company based in Windhoek that sells mobile broadband (also called “data” in layman language) to individual customers. The company is considering selling the broadband business to its management in an arrangement called a management buyout (MBO). The following information has been made available for the proposal: - At the beginning of 2022, the date on which the business will be sold to management, the license to sell broadband will be having two years remaining. To acquire a license after it expires, there should be a tender and the outcome is unknown. - The company will apply a differential rate system that charges different rates during peak and off peak hours. Peak are hours are the hours between 9am and 5pm and will be charged $0.05 per minute in 2022. Off peak hours will be charged $0.02 per minutes in the same period. It is expected that in 2023 the charge will reduce by 10%. - The operating year will have 360 days. On average, consumption…
choose the best answer (mcqs) just choose the no need of any explanation 1) Management of Plascencia Corporation is considering whether to purchase a new model 370 machine costing $498,000 or a new model 220 machine costing $469,000 to replace a machine that was purchased 6 years ago for $453,000. The old machine was used to make product I43L until it broke down last week. Unfortunately, the old machine cannot be repaired.Management has decided to buy the new model 220 machine. It has less capacity than the new model 370 machine, but its capacity is sufficient to continue making product I43L.Management also considered, but rejected, the alternative of simply dropping product I43L. If that were done, instead of investing $340,000 in the new machine, the money could be invested in a project that would return a total of $478,000.In making the decision to buy the model 220 machine rather than the model 370 machine, the differential cost was: A $29,000 B $45,000 C $25,000…
QUESTION 30 WKU is doing the following two research projects: X: Developing identity theft prevention software. The software will be sold in the market. Y: Cost reimbursement contract with the US Treasury Department. WKU performs a financial fraud detection research and it will be reimbursed 250% of the reported costs incurred in the project. For each project, WKU incurred both direct and indirect costs. WKU incurred a total of $1,000,000 indirect costs. Indirect costs are allocated using a base chosen by WKU. The following information is given: Project Direct costs Computer time in hours (CTH) Pages of all articles read (PAR) Lab experimental hours (LEH) Number of assistants used (NAU) X $1,000,000 5,000 65,000 1,000 300 Y $2,500,000 5,000 35,000 4,000 500 Which of the following allocation bases is the best for the benefit of WKU? A. CTH B. LEH C. PAR…
Im looking for assistance with question 4 (bold below), including parts a and b Practice 1: & F., Inc. has developed a new product, the Number Cruncher 2000 to add to its ever-expanding offerings. After doing market research, it has determined that customers would be willing to pay $140 for the NC2000. D&F seeks to earn 25% profit on the product. At present, D&F makes a similar, old style model (The NC1000) for $101.25, which sells for $130. What must the target cost be in order to earn the 25% profit that the company demands? If D&F can adjust its costs to the target cost, the company estimates that it can sell 50,000 NC2000s. What would D&F’s profit be at this point? How many of the old style NC1000s would have to be sold to reach the same profit? D&F’s head of manufacturing operations is sensitive to the attainability of the cost projections in number 1 above. He has been analyzing the production process to determine how long it takes for…
Question 2:ABC Company has two projects:A: It is considering to purchase an equipment to be attached with the main manufacturing machine. Theequipment will cost $6,000 and will have annual cash inflow by $2,200. The life of the equipment is 6 years.After 6 years, it will have no salvage value. The management wants a 20% return on all investments.B: It is planning to reduce its labor costs by automating a critical task that is currently performed manually.The cost to purchase a new machine is $15,000. The installation of machine can reduce annual labor cost by$4,200. The life of the machine is 15 years. The salvage value of the machine after fifteen years will be zero.The required rate of return of Smart Manufacturing Company is 25%.a) Will you go ahead with this project A? Explain.b) Will you go ahead with this project B? Explain.c) What about if these two projects are two mutually exclusive ones?d) Will IRR and NPV always give you the same results?
QUESTION 4 Joseph Giovine owns a successful hole-in-the-wall bagel shop called Peach Tree Bagels. Joseph wants to expand the shop by leasing the space next door for $1,000 per month and adding tables and chairs so that customers can dine in. He figures that the tables and chairs will cost $5,000 and that the bagel machine, which cost $4,500 five years ago, will have to be scrapped in favour of a larger machine costing $7,400. He thinks sales will increase by $5,500 per month. Variable costs are 55% of sales. A. What are the relevant costs and benefits of expanding into the new space? B. What are the irrelevant costs and benefits of expanding into the new space?
answer is 17.1%. please show your solution MANUALLY because I don't know the formula :((( don't use excel or financial calculator Bears, Inc. is considering investing in testing equipment to improve the quality control of its products. The new equipment will cost $983,000, with an estimated useful life of four years and no salvage value. Management has set a minimum return of 15% for similar investment opportunities. The new equipment is expected to generate $365,900 in after-tax operating expense savings, but will require a working capital commitment of $40,000 for the entire four years of the investment life (four years). What is the equipment's expected internal rate of return?*
1(3)Amended Pharmos Incorporated is a Pharmaceutical Company which is considering investing in a new production line of portable electrocardiogram (ECG) machines for its clients who suffer from cardio vascular diseases. The company has to invest in equipment which cost $2,500,000 and falls within a MARCS depreciation of 5-years, and is expected to have a scrape value of $200,000 at the end of the project. Other than the equipment, the company needs to increase its cash and cash equivalents by $100,000, increase the level of inventory by $30,000, increase accounts receivable by $250,000 and increase account payable by $50,000 at the beginning of the project. Pharmos Incorporated expect the project to have a life of five years. The company would have to pay for transportation and installation of the equipment which has an invoice price of $450,000. The company has already invested $75,000 in Research and Development and therefore expects a positive impact on the demand for the new…
Question 18 Pharmos Incorporated is a Pharmaceutical Company which is considering investing in a new production line of portable electrocardiogram (ECG) machines for its clients who suffer from cardio vascular diseases. The company has to invest in equipment which cost $2,500,000 and falls within a MARCS depreciation of 5-years, and is expected to have a scrape value of $200,000 at the end of the project. Other than the equipment, the company needs to increase its cash and cash equivalents by $100,000, increase the level of inventory by $30,000, increase accounts receivable by $250,000 and increase account payable by $50,000 at the beginning of the project. Pharmos Incorporated expect the project to have a life of five years. The company would have to pay for transportation and installation of the equipment which has an invoice price of $450,000. The company has already invested $75,000 in Research and Development and therefore expects a positive impact on the demand for the new…