Adequate information: New sales units for the first year = 1,800 New sales units for the second year = 2,150 New sales units for the third year = 2,600 New sales units for the fourth year = 2,350 New sales units for the fifth year = 2,200 Per unit selling price of the new tables= $5,900 Variable cost of the new tables as a percentage of sales = 37% Annual fixed costs of the new tables= $2.05 million Begging inventory as a percentage of sales for both type of tables = 10% Loss of oak tables per year = 250 units Selling price of oak tables = $4,300 Variable cost of oak tables as a percentage of sales = 40% Cost of equipment = $16 million Pre-tax salvage value = $4.8 million Tax rate = 21% Require rate of return = 11% To discuss: Whether the new project should be undertaken or not. Introduction: NPV is the net of cash inflows and cash outflows associated with a project. A higher cash outflow over cash inflows represents a negative NPV and a higher cash inflow over cash outflows represents a positive NPV.

Question

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Answer 1

Question

Chapter 6, Problem 42QAP

a.

Summary Introduction

Adequate information:

New sales units for the first year = 1,800

New sales units for the second year = 2,150

New sales units for the third year = 2,600

New sales units for the fourth year = 2,350

New sales units for the fifth year = 2,200

Per unit selling price of the new tables= $5,900

Variable cost of the new tables as a percentage of sales = 37%

Annual fixed costs of the new tables= $2.05 million

Begging inventory as a percentage of sales for both type of tables = 10%

Loss of oak tables per year = 250 units

Selling price of oak tables = $4,300

Variable cost of oak tables as a percentage of sales = 40%

Cost of equipment = $16 million

Pre-tax salvage value = $4.8 million

Tax rate = 21%

Require rate of return = 11%

To discuss: Whether the new project should be undertaken or not.

Introduction: NPV is the net of cash inflows and cash outflows associated with a project. A higher cash outflow over cash inflows represents a negative NPV and a higher cash inflow over cash outflows represents a positive NPV.

b.

Summary Introduction

Adequate information:

New sales units for the first year = 1,800

New sales units for the second year = 2,150

New sales units for the third year = 2,600

New sales units for the fourth year = 2,350

New sales units for the fifth year = 2,200

Per unit selling price of the new tables= $5,900

Variable cost of the new tables as a percentage of sales = 37%

Annual fixed costs of the new tables= $2.05 million

Begging inventory as a percentage of sales for both type of tables = 10%

Loss of oak tables per year = 250 units

Selling price of oak tables = $4,300

Variable cost of oak tables as a percentage of sales = 40%

Cost of equipment = $16 million

Pre-tax salvage value = $4.8 million

Tax rate = 21%

Require rate of return = 11%

To discuss: Whether IRR analysis can be performed on this project or not. Also, the number of IRRs generated if IRR analysis can be performed.

Introduction: IRR is the rate of return where the NPV of the project is zero.

c.

Summary Introduction

Adequate information:

New sales units for the first year = 1,800

New sales units for the second year = 2,150

New sales units for the third year = 2,600

New sales units for the fourth year = 2,350

New sales units for the fifth year = 2,200

Per unit selling price of the new tables= $5,900

Variable cost of the new tables as a percentage of sales = 37%

Annual fixed costs of the new tables= $2.05 million

Begging inventory as a percentage of sales for both type of tables = 10%

Loss of oak tables per year = 250 units

Selling price of oak tables = $4,300

Variable cost of oak tables as a percentage of sales = 40%

Cost of equipment = $16 million

Pre-tax salvage value = $4.8 million

Tax rate = 21%

Require rate of return = 11%

To interpret: The profitability index

Introduction: The profitability index is a capital budgeting tool that is used while analyzing a project’s value.

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Answer 2

Question

Chapter 6, Problem 42QAP

a.

Summary Introduction

Adequate information:

New sales units for the first year = 1,800

New sales units for the second year = 2,150

New sales units for the third year = 2,600

New sales units for the fourth year = 2,350

New sales units for the fifth year = 2,200

Per unit selling price of the new tables= $5,900

Variable cost of the new tables as a percentage of sales = 37%

Annual fixed costs of the new tables= $2.05 million

Begging inventory as a percentage of sales for both type of tables = 10%

Loss of oak tables per year = 250 units

Selling price of oak tables = $4,300

Variable cost of oak tables as a percentage of sales = 40%

Cost of equipment = $16 million

Pre-tax salvage value = $4.8 million

Tax rate = 21%

Require rate of return = 11%

To discuss: Whether the new project should be undertaken or not.

Introduction: NPV is the net of cash inflows and cash outflows associated with a project. A higher cash outflow over cash inflows represents a negative NPV and a higher cash inflow over cash outflows represents a positive NPV.

b.

Summary Introduction

Adequate information:

New sales units for the first year = 1,800

New sales units for the second year = 2,150

New sales units for the third year = 2,600

New sales units for the fourth year = 2,350

New sales units for the fifth year = 2,200

Per unit selling price of the new tables= $5,900

Variable cost of the new tables as a percentage of sales = 37%

Annual fixed costs of the new tables= $2.05 million

Begging inventory as a percentage of sales for both type of tables = 10%

Loss of oak tables per year = 250 units

Selling price of oak tables = $4,300

Variable cost of oak tables as a percentage of sales = 40%

Cost of equipment = $16 million

Pre-tax salvage value = $4.8 million

Tax rate = 21%

Require rate of return = 11%

To discuss: Whether IRR analysis can be performed on this project or not. Also, the number of IRRs generated if IRR analysis can be performed.

Introduction: IRR is the rate of return where the NPV of the project is zero.

c.

Summary Introduction

Adequate information:

New sales units for the first year = 1,800

New sales units for the second year = 2,150

New sales units for the third year = 2,600

New sales units for the fourth year = 2,350

New sales units for the fifth year = 2,200

Per unit selling price of the new tables= $5,900

Variable cost of the new tables as a percentage of sales = 37%

Annual fixed costs of the new tables= $2.05 million

Begging inventory as a percentage of sales for both type of tables = 10%

Loss of oak tables per year = 250 units

Selling price of oak tables = $4,300

Variable cost of oak tables as a percentage of sales = 40%

Cost of equipment = $16 million

Pre-tax salvage value = $4.8 million

Tax rate = 21%

Require rate of return = 11%

To interpret: The profitability index

Introduction: The profitability index is a capital budgeting tool that is used while analyzing a project’s value.

Expert Solution & Answer

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Answer 3

Question

Chapter 6, Problem 42QAP

a.

Summary Introduction

Adequate information:

New sales units for the first year = 1,800

New sales units for the second year = 2,150

New sales units for the third year = 2,600

New sales units for the fourth year = 2,350

New sales units for the fifth year = 2,200

Per unit selling price of the new tables= $5,900

Variable cost of the new tables as a percentage of sales = 37%

Annual fixed costs of the new tables= $2.05 million

Begging inventory as a percentage of sales for both type of tables = 10%

Loss of oak tables per year = 250 units

Selling price of oak tables = $4,300

Variable cost of oak tables as a percentage of sales = 40%

Cost of equipment = $16 million

Pre-tax salvage value = $4.8 million

Tax rate = 21%

Require rate of return = 11%

To discuss: Whether the new project should be undertaken or not.

Introduction: NPV is the net of cash inflows and cash outflows associated with a project. A higher cash outflow over cash inflows represents a negative NPV and a higher cash inflow over cash outflows represents a positive NPV.

b.

Summary Introduction

Adequate information:

New sales units for the first year = 1,800

New sales units for the second year = 2,150

New sales units for the third year = 2,600

New sales units for the fourth year = 2,350

New sales units for the fifth year = 2,200

Per unit selling price of the new tables= $5,900

Variable cost of the new tables as a percentage of sales = 37%

Annual fixed costs of the new tables= $2.05 million

Begging inventory as a percentage of sales for both type of tables = 10%

Loss of oak tables per year = 250 units

Selling price of oak tables = $4,300

Variable cost of oak tables as a percentage of sales = 40%

Cost of equipment = $16 million

Pre-tax salvage value = $4.8 million

Tax rate = 21%

Require rate of return = 11%

To discuss: Whether IRR analysis can be performed on this project or not. Also, the number of IRRs generated if IRR analysis can be performed.

Introduction: IRR is the rate of return where the NPV of the project is zero.

c.

Summary Introduction

Adequate information:

New sales units for the first year = 1,800

New sales units for the second year = 2,150

New sales units for the third year = 2,600

New sales units for the fourth year = 2,350

New sales units for the fifth year = 2,200

Per unit selling price of the new tables= $5,900

Variable cost of the new tables as a percentage of sales = 37%

Annual fixed costs of the new tables= $2.05 million

Begging inventory as a percentage of sales for both type of tables = 10%

Loss of oak tables per year = 250 units

Selling price of oak tables = $4,300

Variable cost of oak tables as a percentage of sales = 40%

Cost of equipment = $16 million

Pre-tax salvage value = $4.8 million

Tax rate = 21%

Require rate of return = 11%

To interpret: The profitability index

Introduction: The profitability index is a capital budgeting tool that is used while analyzing a project’s value.

Expert Solution & Answer

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Answer 4

Question

Chapter 6, Problem 42QAP

a.

Summary Introduction

Adequate information:

New sales units for the first year = 1,800

New sales units for the second year = 2,150

New sales units for the third year = 2,600

New sales units for the fourth year = 2,350

New sales units for the fifth year = 2,200

Per unit selling price of the new tables= $5,900

Variable cost of the new tables as a percentage of sales = 37%

Annual fixed costs of the new tables= $2.05 million

Begging inventory as a percentage of sales for both type of tables = 10%

Loss of oak tables per year = 250 units

Selling price of oak tables = $4,300

Variable cost of oak tables as a percentage of sales = 40%

Cost of equipment = $16 million

Pre-tax salvage value = $4.8 million

Tax rate = 21%

Require rate of return = 11%

To discuss: Whether the new project should be undertaken or not.

Introduction: NPV is the net of cash inflows and cash outflows associated with a project. A higher cash outflow over cash inflows represents a negative NPV and a higher cash inflow over cash outflows represents a positive NPV.

b.

Summary Introduction

Adequate information:

New sales units for the first year = 1,800

New sales units for the second year = 2,150

New sales units for the third year = 2,600

New sales units for the fourth year = 2,350

New sales units for the fifth year = 2,200

Per unit selling price of the new tables= $5,900

Variable cost of the new tables as a percentage of sales = 37%

Annual fixed costs of the new tables= $2.05 million

Begging inventory as a percentage of sales for both type of tables = 10%

Loss of oak tables per year = 250 units

Selling price of oak tables = $4,300

Variable cost of oak tables as a percentage of sales = 40%

Cost of equipment = $16 million

Pre-tax salvage value = $4.8 million

Tax rate = 21%

Require rate of return = 11%

To discuss: Whether IRR analysis can be performed on this project or not. Also, the number of IRRs generated if IRR analysis can be performed.

Introduction: IRR is the rate of return where the NPV of the project is zero.

c.

Summary Introduction

Adequate information:

New sales units for the first year = 1,800

New sales units for the second year = 2,150

New sales units for the third year = 2,600

New sales units for the fourth year = 2,350

New sales units for the fifth year = 2,200

Per unit selling price of the new tables= $5,900

Variable cost of the new tables as a percentage of sales = 37%

Annual fixed costs of the new tables= $2.05 million

Begging inventory as a percentage of sales for both type of tables = 10%

Loss of oak tables per year = 250 units

Selling price of oak tables = $4,300

Variable cost of oak tables as a percentage of sales = 40%

Cost of equipment = $16 million

Pre-tax salvage value = $4.8 million

Tax rate = 21%

Require rate of return = 11%

To interpret: The profitability index

Introduction: The profitability index is a capital budgeting tool that is used while analyzing a project’s value.

Expert Solution & Answer

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Answer 5

Chapter 6, Problem 42QAP

a.

Summary Introduction

Adequate information:

New sales units for the first year = 1,800

New sales units for the second year = 2,150

New sales units for the third year = 2,600

New sales units for the fourth year = 2,350

New sales units for the fifth year = 2,200

Per unit selling price of the new tables= $5,900

Variable cost of the new tables as a percentage of sales = 37%

Annual fixed costs of the new tables= $2.05 million

Begging inventory as a percentage of sales for both type of tables = 10%

Loss of oak tables per year = 250 units

Selling price of oak tables = $4,300

Variable cost of oak tables as a percentage of sales = 40%

Cost of equipment = $16 million

Pre-tax salvage value = $4.8 million

Tax rate = 21%

Require rate of return = 11%

To discuss: Whether the new project should be undertaken or not.

Introduction: NPV is the net of cash inflows and cash outflows associated with a project. A higher cash outflow over cash inflows represents a negative NPV and a higher cash inflow over cash outflows represents a positive NPV.

b.

Summary Introduction

Adequate information:

New sales units for the first year = 1,800

New sales units for the second year = 2,150

New sales units for the third year = 2,600

New sales units for the fourth year = 2,350

New sales units for the fifth year = 2,200

Per unit selling price of the new tables= $5,900

Variable cost of the new tables as a percentage of sales = 37%

Annual fixed costs of the new tables= $2.05 million

Begging inventory as a percentage of sales for both type of tables = 10%

Loss of oak tables per year = 250 units

Selling price of oak tables = $4,300

Variable cost of oak tables as a percentage of sales = 40%

Cost of equipment = $16 million

Pre-tax salvage value = $4.8 million

Tax rate = 21%

Require rate of return = 11%

To discuss: Whether IRR analysis can be performed on this project or not. Also, the number of IRRs generated if IRR analysis can be performed.

Introduction: IRR is the rate of return where the NPV of the project is zero.

c.

Summary Introduction

Adequate information:

New sales units for the first year = 1,800

New sales units for the second year = 2,150

New sales units for the third year = 2,600

New sales units for the fourth year = 2,350

New sales units for the fifth year = 2,200

Per unit selling price of the new tables= $5,900

Variable cost of the new tables as a percentage of sales = 37%

Annual fixed costs of the new tables= $2.05 million

Begging inventory as a percentage of sales for both type of tables = 10%

Loss of oak tables per year = 250 units

Selling price of oak tables = $4,300

Variable cost of oak tables as a percentage of sales = 40%

Cost of equipment = $16 million

Pre-tax salvage value = $4.8 million

Tax rate = 21%

Require rate of return = 11%

To interpret: The profitability index

Introduction: The profitability index is a capital budgeting tool that is used while analyzing a project’s value.

Answer 6

Chapter 6, Problem 42QAP

a.

Summary Introduction

Adequate information:

New sales units for the first year = 1,800

New sales units for the second year = 2,150

New sales units for the third year = 2,600

New sales units for the fourth year = 2,350

New sales units for the fifth year = 2,200

Per unit selling price of the new tables= $5,900

Variable cost of the new tables as a percentage of sales = 37%

Annual fixed costs of the new tables= $2.05 million

Begging inventory as a percentage of sales for both type of tables = 10%

Loss of oak tables per year = 250 units

Selling price of oak tables = $4,300

Variable cost of oak tables as a percentage of sales = 40%

Cost of equipment = $16 million

Pre-tax salvage value = $4.8 million

Tax rate = 21%

Require rate of return = 11%

To discuss: Whether the new project should be undertaken or not.

Introduction: NPV is the net of cash inflows and cash outflows associated with a project. A higher cash outflow over cash inflows represents a negative NPV and a higher cash inflow over cash outflows represents a positive NPV.

Answer 7

Chapter 6, Problem 42QAP

a.

Summary Introduction

Adequate information:

New sales units for the first year = 1,800

New sales units for the second year = 2,150

New sales units for the third year = 2,600

New sales units for the fourth year = 2,350

New sales units for the fifth year = 2,200

Per unit selling price of the new tables= $5,900

Variable cost of the new tables as a percentage of sales = 37%

Annual fixed costs of the new tables= $2.05 million

Begging inventory as a percentage of sales for both type of tables = 10%

Loss of oak tables per year = 250 units

Selling price of oak tables = $4,300

Variable cost of oak tables as a percentage of sales = 40%

Cost of equipment = $16 million

Pre-tax salvage value = $4.8 million

Tax rate = 21%

Require rate of return = 11%

To discuss: Whether the new project should be undertaken or not.

Introduction: NPV is the net of cash inflows and cash outflows associated with a project. A higher cash outflow over cash inflows represents a negative NPV and a higher cash inflow over cash outflows represents a positive NPV.

Answer 8

b.

Summary Introduction

Adequate information:

New sales units for the first year = 1,800

New sales units for the second year = 2,150

New sales units for the third year = 2,600

New sales units for the fourth year = 2,350

New sales units for the fifth year = 2,200

Per unit selling price of the new tables= $5,900

Variable cost of the new tables as a percentage of sales = 37%

Annual fixed costs of the new tables= $2.05 million

Begging inventory as a percentage of sales for both type of tables = 10%

Loss of oak tables per year = 250 units

Selling price of oak tables = $4,300

Variable cost of oak tables as a percentage of sales = 40%

Cost of equipment = $16 million

Pre-tax salvage value = $4.8 million

Tax rate = 21%

Require rate of return = 11%

To discuss: Whether IRR analysis can be performed on this project or not. Also, the number of IRRs generated if IRR analysis can be performed.

Introduction: IRR is the rate of return where the NPV of the project is zero.

Answer 9

b.

Summary Introduction

Adequate information:

New sales units for the first year = 1,800

New sales units for the second year = 2,150

New sales units for the third year = 2,600

New sales units for the fourth year = 2,350

New sales units for the fifth year = 2,200

Per unit selling price of the new tables= $5,900

Variable cost of the new tables as a percentage of sales = 37%

Annual fixed costs of the new tables= $2.05 million

Begging inventory as a percentage of sales for both type of tables = 10%

Loss of oak tables per year = 250 units

Selling price of oak tables = $4,300

Variable cost of oak tables as a percentage of sales = 40%

Cost of equipment = $16 million

Pre-tax salvage value = $4.8 million

Tax rate = 21%

Require rate of return = 11%

To discuss: Whether IRR analysis can be performed on this project or not. Also, the number of IRRs generated if IRR analysis can be performed.

Introduction: IRR is the rate of return where the NPV of the project is zero.

Answer 10

c.

Summary Introduction

Adequate information:

New sales units for the first year = 1,800

New sales units for the second year = 2,150

New sales units for the third year = 2,600

New sales units for the fourth year = 2,350

New sales units for the fifth year = 2,200

Per unit selling price of the new tables= $5,900

Variable cost of the new tables as a percentage of sales = 37%

Annual fixed costs of the new tables= $2.05 million

Begging inventory as a percentage of sales for both type of tables = 10%

Loss of oak tables per year = 250 units

Selling price of oak tables = $4,300

Variable cost of oak tables as a percentage of sales = 40%

Cost of equipment = $16 million

Pre-tax salvage value = $4.8 million

Tax rate = 21%

Require rate of return = 11%

To interpret: The profitability index

Introduction: The profitability index is a capital budgeting tool that is used while analyzing a project’s value.

Answer 11

c.

Summary Introduction

Adequate information:

New sales units for the first year = 1,800

New sales units for the second year = 2,150

New sales units for the third year = 2,600

New sales units for the fourth year = 2,350

New sales units for the fifth year = 2,200

Per unit selling price of the new tables= $5,900

Variable cost of the new tables as a percentage of sales = 37%

Annual fixed costs of the new tables= $2.05 million

Begging inventory as a percentage of sales for both type of tables = 10%

Loss of oak tables per year = 250 units

Selling price of oak tables = $4,300

Variable cost of oak tables as a percentage of sales = 40%

Cost of equipment = $16 million

Pre-tax salvage value = $4.8 million

Tax rate = 21%

Require rate of return = 11%

To interpret: The profitability index

Introduction: The profitability index is a capital budgeting tool that is used while analyzing a project’s value.

Answer 12

Expert Solution & Answer

Answer 13

Expert Solution & Answer

Answer 14

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Answer 15

Ch. 6 - Opportunity Cost In the context of capital...Ch. 6 - Prob. 2CQ Ch. 6 - Incremental Cash Flows Your company currently...Ch. 6 - Depreciation Given the choice, would a firm prefer...Ch. 6 - Prob. 5CQ Ch. 6 - Prob. 6CQ Ch. 6 - Equivalent Annual Cost When is EAC analysis...Ch. 6 - Prob. 8CQ Ch. 6 - Capital Budgeting Considerations A major college...Ch. 6 - To answer the next three questions, refer to the...

Solution Summary: The author explains that NPV is the net of cash inflows and cash out flows associated with a project.

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Chapter 6 Solutions