Star Inc asked you to evaluate their internal control systems. You believed that Star Inc. has serious flaws in their internal control system. You estimated that the impact associated with this problem is $10 million and that the likelihood is currently 9%. Three procedures can be used to deal with this problem. Procedure A would cost $300,000 and reduce the likelihood to 5%; procedure B would cost $400,000 and reduce the likelihood to 3%. If both procedures were implemented, likelihood would be reduced to 1%. a. What is the estimated expected loss associated with ABC Corporation's internal control problem before any new internal control procedures are implemented? b. Determine which procedure should be implemented. Use computation to support your answer. (

Star Inc asked you to evaluate their internal control systems. You believed that Star Inc. has serious flaws in their internal control system. You estimated that the impact associated with this problem is $10 million and that the likelihood is currently 9%. Three procedures can be used to deal with this problem. Procedure A would cost $300,000 and reduce the likelihood to 5%; procedure B would cost $400,000 and reduce the likelihood to 3%. If both procedures were implemented, likelihood would be reduced to 1%. a. What is the estimated expected loss associated with ABC Corporation's internal control problem before any new internal control procedures are implemented? b. Determine which procedure should be implemented. Use computation to support your answer. (

Essentials of Business Analytics (MindTap Course List)

2nd Edition

ISBN:9781305627734

Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Publisher:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Chapter15: Decision Analysis

Section: Chapter Questions

Problem 5P: Hudson Corporation is considering three options for managing its data warehouse: continuing with its...

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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?
Nico Parts, Inc., produces electronic products with short life cycles (of less than two years). Development has to be rapid, and the profitability of the products is tied strongly to the ability to find designs that will keep production and logistics costs low. Recently, management has also decided that post-purchase costs are important in design decisions. Last month, a proposal for a new product was presented to management. The total market was projected at 200,000 units (for the two-year period). The proposed selling price was 130 per unit. At this price, market share was expected to be 25 percent. The manufacturing and logistics costs were estimated to be 120 per unit. Upon reviewing the projected figures, Brian Metcalf, president of Nico, called in his chief design engineer, Mark Williams, and his marketing manager, Cathy McCourt. The following conversation was recorded: BRIAN: Mark, as you know, we agreed that a profit of 15 per unit is needed for this new product. Also, as I look at the projected market share, 25 percent isnt acceptable. Total profits need to be increased. Cathy, what suggestions do you have? CATHY: Simple. Decrease the selling price to 125 and we expand our market share to 35 percent. To increase total profits, however, we need some cost reductions as well. BRIAN: Youre right. However, keep in mind that I do not want to earn a profit that is less than 15 per unit. MARK: Does that 15 per unit factor in preproduction costs? You know we have already spent 100,000 on developing this product. To lower costs will require more expenditure on development. BRIAN: Good point. No, the projected cost of 120 does not include the 100,000 we have already spent. I do want a design that will provide a 15-per-unit profit, including consideration of preproduction costs. CATHY: I might mention that post-purchase costs are important as well. The current design will impose about 10 per unit for using, maintaining, and disposing our product. Thats about the same as our competitors. If we can reduce that cost to about 5 per unit by designing a better product, we could probably capture about 50 percent of the market. I have just completed a marketing survey at Marks request and have found out that the current design has two features not valued by potential customers. These two features have a projected cost of 6 per unit. However, the price consumers are willing to pay for the product is the same with or without the features. Required: 1. Calculate the target cost associated with the initial 25 percent market share. Does the initial design meet this target? Now calculate the total life-cycle profit that the current (initial) design offers (including preproduction costs). 2. Assume that the two features that are apparently not valued by consumers will be eliminated. Also assume that the selling price is lowered to 125. a. Calculate the target cost for the 125 price and 35 percent market share. b. How much more cost reduction is needed? c. What are the total life-cycle profits now projected for the new product? d. Describe the three general approaches that Nico can take to reduce the projected cost to this new target. Of the three approaches, which is likely to produce the most reduction? 3. Suppose that the Engineering Department has two new designs: Design A and Design B. Both designs eliminate the two nonvalued features. Both designs also reduce production and logistics costs by an additional 8 per unit. Design A, however, leaves post-purchase costs at 10 per unit, while Design B reduces post-purchase costs to 4 per unit. Developing and testing Design A costs an additional 150,000, while Design B costs an additional 300,000. Assuming a price of 125, calculate the total life-cycle profits under each design. Which would you choose? Explain. What if the design you chose cost an additional 500,000 instead of 150,000 or 300,000? Would this have changed your decision? 4. Refer to Requirement 3. For every extra dollar spent on preproduction activities, how much benefit was generated? What does this say about the importance of knowing the linkages between preproduction activities and later activities?
Can someone help me with part B of this problem?: Verasource Microprocessor Corporation sells 200 computer chips a month for $1,500 each. variable costs are $1,500,000. Fixed costs are $500,000. there's a defect rate of 8%. What is the hidden cost to the company of making this rate of defectives instead of 2,000 good chips each month? Suppose a six sigma effort can reduce the defects to a six sigma level. what is the impact on profitability?
You are a manager at Percolated Fiber, which is considering expanding its operations in synthetic fiber manufacturing. Your boss comes into your office, drops a consultant’s report on your desk, and complains, "We owe these consultants $1 million for this report, and I am not sure their analysis makes sense. Before we spend the $25 million on the new equipment needed for this project, look it over and give me your opinion." You open the report and find the following estimates (in thousands of dollars) for the project: Project year 1 2 … 9 10 Sales revenue 30,000 30,000 30,000 30,000 - Cost of goods sold 18,000 18,000 18,000 18,000 =Gross profit 12,000 12,000 12,000 12,000 - Gen, sales and admin expenses 2,000 2,000 2,000 2,000 - Depreciation 2,500 2,500 2,500 2,500 =Net operating income 7,500 7,500 7,500 7,500 - Income tax 2,625 2,625 2,625 2,625 =Net Income…
You are a manager at Percolated Fiber, which is considering expanding its operations in synthetic fiber manufacturing. Your boss comes into your office, drops a consultant's report on your desk, and complains, "We owe these consultants $1.3 million for this report, and I am not sure their analysis makes sense. Before we spend the $22 million on new equipment needed for this project, look it over and give me your opinion." You open the report and find the following estimates (in millions of dollars): All of the estimates in the report seem correct. You note that the consultants used straight-line depreciation for the new equipment that will be purchased today (year 0), which is what the accounting department recommended. The report concludes that because the project will increase earnings by $5.472 million per year for ten years, the project is worth $54.72 million. You think back to your halcyon days in finance class and realize there is more work to be done! First,…
You are a manager at Percolated Fiber, which is considering expanding its operations in synthetic fiber manufacturing. Your boss comes into your office, drops a consultant's report on your desk, and complains, "We owe these consultants $1.3 million for this report, and I am not sure their analysis makes sense. Before we spend the $22 million on new equipment needed for this project, look it over and give me your opinion." You open the report and find the following estimates (in millions of dollars): All of the estimates in the report seem correct. You note that the consultants used straight-line depreciation for the new equipment that will be purchased today (year 0), which is what the accounting department recommended. The report concludes that because the project will increase earnings by $5.472 million per year for ten years, the project is worth $54.72 million. You think back to your halcyon days in finance class and realize there is more work to be done! First,…
Blossom Corp. management is investigating two computer systems. The Alpha 8300 costs $2,821,325 and will generate cost savings of $1,280,625 in each of the next five years. The Beta 2100 system costs $4,610,500 and will produce cost savings of $954,750 in the first three years and then $2 million for the next two years. The company’s discount rate for similar projects is 14 percent.What is the NPV of each system? (Enter negative amounts using negative sign, e.g. -45.25. Do not round discount factors. Round other intermediate calculations and final answer to 0 decimal places, e.g. 1,525.) Should Blossom Choose the Alpha or Beta system?
In order to try to improve the efficiency of the distribution activities at Zecon, Mr. McDowall was considering implementing a new order processing system. A software company that specialised in order processing and distribution software had recently approached him. The new system looked very appealing, but seemed quite expensive: a start-up investment of $1.5 million dollars for new computer equipment. Mr. McDowall had therefore been considering the ramifications of this new system, and estimated the following: Inventories will be reduced $3million Transportation consolidations would reduce transportation costs by $850,000 per year Warehousing costs of $200,000 per year will be eliminated The new order processing system will incur annual operating costs of $300,000 The new system will provide management with 4 additional days for planning production operations, thereby reducing costs of goods sold by 3% of current costs. Calculate the change in Return on Assets for…
A large brokerage company is assessing the introduction of a new computer system to improve routing and execution of customer orders. The managing director wants to install a new Smart Routing system, whereas another director prefers the Direct Routing system. Each machine provides the same order-execution ability and can satisfy the broker’s obligation to give investors the best possible order execution. The initial cost of each system is $170,000, but because of differing software, maintenance, and processing requirements, estimates of the after-tax costs of operation differ. These are as follows: Period Smart Routing Direct Routing 1 39,000 56,000 2 48,000 61,000 3 48,000 61,000 4…
As an staff at company, you are considering two projects which project A has an initial investment of $100,000 and yearly revenue of $17, 600 for 10 years, and Project B has an initial investment of $51,000 and yearly revenue of $10, 100 for 10 years. What is the point of indifference? Which project would you accept at a WACC of 16.0%? a) Point of indifference does not exist, accept project B b)Point of indifference at 8.60%, accept both Project A and Project B c) Point of indifference at 8.60%, don't accept Project A and don't accept ProjectB d) Point of indifference at 14.84%, accept Project B. e) Point of indifference at 11.86%, accept Project B f)Point of indifference at 11.86%, accept Project A
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You are a manager at Northern Fiber, which is considering expanding its operations in synthetic fiber manufacturing. Your boss comes into your office, drops a consultant's report on your desk, and complains, "We owe these consultants $1.5 million for this report, and I am not sure their analysis makes sense. Before we spend the $29 million on new equipment needed for this project, look it over and give me your opinion." You open the report and find the following estimates (in millions of dollars): (Click on the Icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Project Year Earnings Forecast ($000,000s) 1 2 . . . 9 10 Sales revenue 25.000 25.000 25.000 25.000 −Cost of goods sold 15.000 15.000 15.000 15.000 =Gross profit 10.000 10.000 10.000 10.000 −Selling, general, and…