Principles of Corporate Finance
13th Edition
ISBN: 9781260465099
Author: BREALEY, Richard
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Chapter 30, Problem 7PS
Summary Introduction
To evaluate: Operational manager’s proposal.
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Bulla Dairy Foods is evaluating acquiring a new production line to manufacture a flavoured thick cream. The cost of purchasing and installing the equipment is estimated to be $1,500,000 today, with an additional $10,000 required for maintenance in the third year of operation. The projected revenue for the first year of operation is $500,000, although it is expected to decline at 5% per annum due to market competition. The annual operating costs are estimated at 20% of the annual revenue. The machine has a lifespan of 5 years, after which it is expected to be sold for 10% of its original cost. The purchase of the production line will be financed 60% through debt, which carries an interest rate of 6% per annum, while shareholders expect a return that is 3% higher than creditors.
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A company is planning to purchase 90,800 units of a particular item in the year ahead. The item is purchased in boxes each containing 10units of the item, at a price of $200 per box. A safety inventory of 250 boxes is kept.
Besides, the company estimates to be charged the transporation cost of $15 per order. It should be assumed that ordering costs change in proportion to the number of orders place. The cost of holding an item in inventory for a year (including insurance, interest and space costs) is 15% of the purchase price.
The cost of placing and receiving orders is to be estimated from cost data collected relating to similar orders, where costs of $5,910 were incurred on 30 orders. It should be assumed that ordering costs change in proportion to the number of orders placed. 2% should be added to the above ordering costs to allow for inflation. Assume that usage of the item will be even over the year.
Required
a. Calculate…
Mona PLC is a Zambian well-known company that sells goods locally within Zambia. The recently appointed Management Accountant of Mona PLC has been studying the working capital management of the company and has congregated the following information: Inventory management the current policy is to order 100,000 units when the inventory level reduces to 35,000 units. Prediction demand to meet production requirements during the next year is 625,000 units. The cost of placing and processing an order is $250, while the cost of holding a unit in stores is $0.50 per unit per year. Both costs are expected to be constant during the next year. Orders are received two weeks after being placed with the supplier. You should assume a 50- week year and that demand is constant throughout the year. Accounts receivable management Local customers are allowed 30 days’ credit, but the financial statements of Mona PLC shows that the average accounts receivables period in the last financial year was 75 days.…
Chapter 30 Solutions
Principles of Corporate Finance
Ch. 30 - Prob. 1PSCh. 30 - Components of working capital True or false? a....Ch. 30 - Inventory True or false? a. Just-in-time inventory...Ch. 30 - Inventory What are the trade-offs involved in the...Ch. 30 - Prob. 5PSCh. 30 - Prob. 6PSCh. 30 - Prob. 7PSCh. 30 - Prob. 8PSCh. 30 - Prob. 9PSCh. 30 - Credit terms Phoenix Lambert currently sells its...
Ch. 30 - Prob. 11PSCh. 30 - Prob. 12PSCh. 30 - Prob. 13PSCh. 30 - Prob. 14PSCh. 30 - Prob. 15PSCh. 30 - Credit policy How should your willingness to grant...Ch. 30 - Prob. 17PSCh. 30 - Prob. 18PSCh. 30 - Prob. 19PSCh. 30 - Prob. 20PSCh. 30 - Cash management Complete the passage that follows...Ch. 30 - Prob. 22PSCh. 30 - Prob. 23PSCh. 30 - Prob. 24PSCh. 30 - Prob. 25PSCh. 30 - Prob. 26PSCh. 30 - Prob. 27PSCh. 30 - Prob. 28PSCh. 30 - Prob. 29PSCh. 30 - Prob. 30PSCh. 30 - Prob. 31PSCh. 30 - Prob. 32PSCh. 30 - Prob. 34PSCh. 30 - Prob. 35PSCh. 30 - Prob. 36PSCh. 30 - After-tax yields Suppose you are a wealthy...Ch. 30 - Prob. 38PSCh. 30 - Prob. 39PS
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