Please don't copy from chegg and show formulas Question 5An automobile parts manufacturer is considering whether they should invest in an automatic ormanually operated machinery. Both alternatives will have initial cost of $5,000. The automaticmachine allows for higher production levels and thus more revenues immediately, however moremaintenance costs over time than the manual machine. The manual machine does not produce asmany door panels initially but has limited energy and maintenance costs, so its net revenues arereasonably steady over time. The expected revenues of the automatic machine are $2,900 peryear for the next 4 years. The operating and maintenance cost will cost $200 now and willincrease by $700 per year. For example, the operating cost in the second year is 200+700=S900.The expected net revenues (taking into account salaries and energy cost) for the manual machineare $1,500 for the first year and S1,600, $1,750, and $1,850 for years 2-4, respectively.1. Calculate the Internal Rate of Return of each alternative.2. Knowing the MARR is 8%, use NPW analysis to compare these alternatives and find outwhich one is better.3. Calculate the benefit cost ratio for both alternatives.4. You re now required to compare those two alternatives using incremental IRR analysis.Conduct this analysis noting that for proper conclusions the incremental cash flowdiagram needs to reflect an investment (pay now and achieve revenues later). Thinkcarefully as to whether the increment, from mathematical perspective, needs to be fromManual →Auto or Auto Manual.

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Answered: Question 5 An automobile parts…

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 13E

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Average rate of returnnew product Hana Inc. is considering an investment in new equipment that will be used to manufacture a smart-phone. The phone is expected to generate additional annual sales of 10,000 units at 300 per unit. The equipment has a cost of 4,500,000, residual value of 500,000, and a 10-year life. The equipment can only be used to manufacture the phone. The cost to manufacture the phone follows: Determine the average rate of return on the equipment.
Financial and Nonfinancial Aspects of Changing to JIT IntelliTalk manufactures smart phones. It is considering the implementation of a JIT system. Costs to reconfigure the production line will amount to 200,000 annually. Estimated benefits from the change to JIT are as follows: The quality advantages of JIT should reduce current rework cost of 300,000 by 25%. Materials storage, handling, and insurance costs of 250,000 would be reduced by an estimated 40%. Average inventory is expected to decline by 300,000 units, and the carrying cost per unit is .35. Required: 1. What is the estimated financial advantage or disadvantage of changing to a JIT system? 2. Are there any nonfinancial advantages or disadvantages of changing to a JIT system?
Question 2 : ABC CO. is considering replacing a production line with a new, more productive one. You are given the information that follows. The existing production line currently generates $100,000 profit per year and could be sold today for $40,000. The new proposed production line would generate profits of $150,000 per year The new proposed production line requires an initial investment $80,000. The company is seeking your advice regarding whether to replace the production line or keep the existing one. Required: Based on the Marginal analysis concept, what would you recommend? State the reasons why focusing on profit only should not be the optimal goal for companies.
Problem 1: You are considering the purchase of one of two machines used in your manufacturing plant. Machine A has a life of two years, costs $80 initially, and then $125 per year in maintenance costs. Machine B costs $150 initially, has a life of three years, and requires $100 in annual maintenance costs. Either machine must be replaced at the end of its life with an equivalent machine. Which is the better machine for the firm? The discount rate is 12 percent, and the tax rate is zero.
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)4.5
question 20 Billingham Packaging is considering expanding its production capacity by purchasing a new machine, the XC-750. The cost of the XC-750 is $2.75 million. Unfortunately, installing this machine will take several months and will partially disrupt production. The firm has just completed a $50,000 feasibility study to analyze the decision to buy the XC-750, resulting in the following estimates: • Marketing: Once the XC-750 is operational next year, the extra capacity is expected to generate $10.00 million per year in additional sales, which will continue for the 10-year life of the machine. • Operations: The disruption caused by the installation will decrease sales by $5.00 million this year. As with Billingham's existing products, the cost of goods for the products produced by the XC-750 is expected to be 70% of their sale price. The increased production will also require increased inventory on hand of $1.00 million during the life of the project, including…
Payback Period and Simple Rate of Return Computations A piece of labor-saving equipment has just come onto the market that Mitsui Electronics, Ltd., could use to reduce costs in one of its plants in Japan. Relevant data relating to the equipment follow: Required: 1. What is the payback period for the equipment? If the company requires a payback period of four years or less, would the equipment be purchased? 2. What is the simple rate of return on the equipment? Use straight-line depredation based on the equipment’s useful life. Would the equipment be purchased if the company’s required rate of return is 14%?
1. What is the company's current breakeven in units and in dollars? 2. If the company expects to sell 260 premium garage doors in the upcoming year, and it does not develop the software control system, what is its expected operating income from premium garage doors? 3. If the software control system were to be developed and implemented, what would be the company's new breakeven point in units and in dollars? 4. If the company expects to sell 260 premium garage doors in the upcoming year, and it develops the software control system, what is its expected operating income from premium garage doors? 5. If the company expects to sell 260 premium garage doors in the upcoming year, do you think the company should implement the software control system? Why or why not? What factors should the company consider? pop-up content ends PrintDone
Problem 4 Pet Hotel, Inc. operates three luxury pet boarding facilities and expects the following results for the coming year. (picture ) Answer each of the following questions independently. 1. Fixed costs are all allocated and unavoidable. What will happen to profit if Pet Hotel discontinues operations at Pet Spa? 2. Suppose now that $25,000 of the fixed costs shown for Pet Spa is avoidable. What will happen to total profits if Pet Hotel discontinues operations at Pet Spa?
Question 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 $35,000 and increase by 5% of the production cost. The model will be phased out at the end of year 10. In addition, 0.3%, 2% and 1% of before tax profit per year will be spent on social corporate responsibility, commercial (including promotions) and recalls respectively. Assume taxes will be 30% of yearly profit and that inflation will remain at 0% per year throughout the 10 year of production. Also assume interest rate is expected to be 3% per year in the first 5 years and 5% in the last 5 years. a. Based on…
QUESTION 2 Peacemaker Ltd, a newly formed manufacturing company is considering introducing a new product with the following possible outcomes: Worst Expected Best Selling price per unit ($) 21 26 35 Sales volume (units) 3 500 5 500 7 500 Variable cost per unit ($) 15 13 11 Fixed operating cost per year ($) 35 000 32 000 30 000 Economic life (in years) 3 4 5 Residual Value 0 0 0 The cost of plant and equipment required is expected to be N$100 000. Assume that taxation is not applicable and the company’s cost of capital is 11%. The fixed operating costs do not include depreciation and relate only to cash fixed overhead costs. Required: a) Calculate the net present value (NPV) for each of the three scenarios? b)…
Exercise 3 The Bremer Co. manufactures cordless telephones Bremer is planning to implement a JIT production system, which requires annual tooling costs of $150,000. Bremer estimates that the following annual benefits would arise from JIT production. a. Average inventory will decline by $700,000 from $900,000 to $200,00 b. Insurance, space, materials handling, and setup costs, which currently total $200,00 would decline by 30% c. The emphasis on quality inherent in JIT system would reduce rework costs by 20% Bremer currently incurs $350,000 on rework. d. Better quality would eneble Bremer to raise the prices of its products by $3 per unit. Bremer sells $30,000 unit each year. Bremer required rate of return on inventory investment is 12% per year Required: Claculate the net benefit or cost to the Bremer Corporation From implementing a JIT production system. What other nonfinancial and qualitative factors should Brmeer Consider before deciding on whether it should implement a JIT…

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