PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Question
Chapter 11, Problem 18PS
Summary Introduction
To determine:
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Average rate of return-new product
Hana Inc.is considering an invetment 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.
1. A manager has determined that a potential new product can be sold at a price of $25 each. The cost to produce the product is $17.5, but the equipment necessary for production must be leased for $75,000 per year. What is the break-even point?
2. In order to produce a new product, a firm must lease equipment at a cost of $175,000 per year. The managers feel that they can sell 65,000 units per year at a price of $90.
What is the highest variable cost that will allow the firm to at least break even on this project? (Round your answer to 2 decimal places.)
Assume a company is considering adding a new product. The expected cost and revenue data for this product are as follows:
Annual sales
5,000
units
Unit selling price
$
60
Unit variable costs:
Production
$
33
Selling
$
6
Incremental fixed costs per year:
Production
$
34,500
Selling
$
45,000
If the company adds the new product, it expects the contribution margin of other product lines to drop by $15,300 per year. What is the financial advantage (disadvantage) of adding the new product?
Multiple Choice
$40,800
$10,200
$89,700
$25,500
Chapter 11 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 11 - Capital budgeting process True or false? a. The...Ch. 11 - Capital budgeting process Explain how each of the...Ch. 11 - Capital budgeting process Draw up an outline or...Ch. 11 - Prob. 4PSCh. 11 - Biased forecasts Look back to the cash flows for...Ch. 11 - Prob. 6PSCh. 11 - Prob. 7PSCh. 11 - Prob. 8PSCh. 11 - Market prices Suppose the current price of gold is...Ch. 11 - Prob. 10PS
Ch. 11 - Prob. 11PSCh. 11 - Prob. 12PSCh. 11 - Prob. 13PSCh. 11 - Economic rents True or false? a. A firm that earns...Ch. 11 - Prob. 16PSCh. 11 - Economic rents Thanks to acquisition of a key...Ch. 11 - Prob. 18PSCh. 11 - Prob. 19PSCh. 11 - Prob. 20PSCh. 11 - Prob. 21PSCh. 11 - Prob. 22PSCh. 11 - Economic rents Taxes are a cost, and, therefore,...Ch. 11 - Prob. 1MCCh. 11 - Libby Flannery, the regional manager of Ecsy-Cola,...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Flanders Manufacturing is considering purchasing a new machine that will reduce variable costs per part produced by $0.15. The machine will increase fixed costs by $18,250 per year. The information they will use to consider these changes is shown here.arrow_forwardAverage rate of returncost savings Maui Fabricators Inc. is considering an investment in equipment that will replace direct labor. The equipment has a cost of 125,000 with a 15,000 residual value and an eight-year life. The equipment will replace one employee who has an average wage of 28,000 per year. In addition, the equipment will have operating and energy costs of 5,150 per year. Determine the average rate of return on the equipment, giving effect to straight-line depreciation on the investment.arrow_forwardPayback periodLaredo Laminates is considering the purchase of new production technology equipment requiring an initial $1,200,000 investment and having an expected ten year life. At the end of its life, the equipment would have no salvage value. By installing the new equipment, the firm’s annual labor and quality costs would decline by $600,000a. Compute the payback period for this equipment. b. Assume instead that the annual cost savings would vary according to the following schedule: Years Annual Cost Savings 1–5 $350,000 6–10 500,000 Note: Round answer to two decimal places. Compute the payback period under the revised circumstances.arrow_forward
- If the company adds the new product expects the contribution margin of other product lines to drop by $18,500 per year. What is the financial advantage (disadvantage) of adding the new product? a) $25,000 b) $86,500 c)$6,500 d) $43,500arrow_forwardCalculating AAR You’re trying to determine whether or not to expand your business by building a new manufacturing plant. The plant has an installation cost of $10.8 million, which will be depreciated straight-line to zero over its four-year life. If the plant has projected net income of $1,293,000, $1,725,000, $1,548,000, and $1,310,000 over these four years, what is the project’s average accounting return (AAR)?arrow_forwardQuestion A .Modern Artifacts can produce keepsakes that will be sold for $70 each. Nondepreciation fixed costs are $2,000 per year, and variable costs are $35 per unit. The initial investment of $4,000 will be depreciated straight-line over its useful life of 5 years to a final value of zero, and the discount rate is 10%. What is the NPV break-even level of sales if the firm’s tax rate is 40%? (Do not round intermediate calculations. Round your answer to the nearest whole number.) Full explain this question and text typing work only We should answer our question within 2 hours takes more time then we will reduce Rating Dont ignore this linearrow_forward
- A product currently sells for $12 per unit. The variable costs are $4 per unit, and 10,000 units are sold annually and a profit of $30,000 is realized per year. A new design will increase the variable costs by 20% and Fixed Costs by 10% but sales will increase to 12,000 units per year. (a) At what selling price do we break even with the new design?. (b) If the selling price is to be kept same ($12/unit) what will the annual profit be?arrow_forwardACCOUNTING RATE OF RETURN XYZ Company is looking to invest in some new machinery to replace its current malfunctioning one. The new machine costs ₱420,000 and generates income of ₱1,380,000 annually for 12 years. What is the ARR of the new machinery? (Round your answer to two decimal places) *arrow_forwardInternal Rate of Return Wendell’s Donut Shoppe is investigating the purchase of a new $18,600 donut-making machine. The new machine would permit the company to reduce the amount of part-time help needed at a cost savings of $3,800 per year. In addition, the new machine would allow the company to produce one new style of donut, resulting in the sale of 1,000 dozen more donuts each year. The company realizes a contribution margin of $1.20 per dozen donuts sold. The new machine would have a six year useful life. Required: 1. What would be the total annual cash inflows associated with the new machine for capital budgeting purposes? 2. What discount factor should be used to compute the new machine’s internal rate of return? 3. Using Exhibit 13B–2 in Appendix 13B as a reference, what is the new machine’s internal rate of return to the nearest whole percent? 4. In addition to the data given previously, assume that the machine will have a $9,125 salvage value at the end of six years. Under…arrow_forward
- A new electronic process monitor costs $ 990,000This cost could be depreciated at 30% per year (Class 10). The monitor would actually be worth $100,000 in five years. The new monitor would save \$460.000 per year before taxes and operating costs. Suppose the new monitor requires us to increase net working capital by $47,200 when we buy it. If we require a 15% return, what is the NPV of the purchase? Assume a tax rate of 40%. (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) NPV?arrow_forwardYou are considering a new product launch. The project will cost $1,950,000, have a 4-year life, and have no salvage value; depreciation is straight-line to 0. Sales are projected at 180 units per year; price per unit will be $24,000; variable cost per unit will be $15,000; and fixed costs will be $540,000 per year. The required return on the project is 10%, and the relevant tax rate is 34%. d-2. What is the degree of operating leverage at the accounting break-even point? (Round the final answer to 4 decimal places.) Note: To calculate the degree of operating leverage in this requirement, you need to use the OCF base. If you use depreciation, your answer will be marked incorrectly. Give typing answer with explanation and conclusionarrow_forwardBarker Production Company is considering the purchase of a flexible manufacturing system. The annual cash benefits/savings associated with the system are: Decreased waste $ 75,000 Increased quality 100,000 Decrease in operating costs 62,500 Increase in on-time deliveries 12,500 The system will cost $750,000 and will last ten years. The company's cost of capital is 10%.Required: A. What is the payback period for the flexible manufacturing system? B. What is the NPV for the flexible manufacturing system?arrow_forward
arrow_back_ios
arrow_forward_ios
Recommended textbooks for you
Principles of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College
Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College Pub
Survey of Accounting (Accounting I)AccountingISBN:9781305961883Author:Carl WarrenPublisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
Principles of Accounting Volume 2
Accounting
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax College
Managerial Accounting
Accounting
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:South-Western College Pub
Survey of Accounting (Accounting I)
Accounting
ISBN:9781305961883
Author:Carl Warren
Publisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
Capital Budgeting Introduction & Calculations Step-by-Step -PV, FV, NPV, IRR, Payback, Simple R of R; Author: Accounting Step by Step;https://www.youtube.com/watch?v=hyBw-NnAkHY;License: Standard Youtube License