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yarga [219]
3 years ago
14

Hawke Skateboards is considering building a new plant. Bob Skerritt, the company's marketing manager, is an enthusiastic support

er of the new plant. Lucy Liu, the company's chief financial officer, is not so sure that the new plant is a good idea. Currently, the company purchases its skateboards from foreign manufacturers. The following figures were estimated regarding the construction of a new plant.
Cost of plant - $4,160,000
Estimated useful life -15 years
Annual cash inflows - 4,160,000
Salvage value - $2,080,000
Annual cash outflows - 3,682,000
Discount rate - 11%

Bob Skerritt believes that these figures understate the true potential value of the plant. He suggests that by manufacturing its own skateboards the company will benefit from a "buy American" patriotism that he believes is common among skateboarders. He also notes that the firm has had numerous quality problems with the skateboards manufactured by its suppliers. He suggests that the inconsistent quality has resulted in lost sales, increased warranty claims, and some costly lawsuits.

Overall, he believes sales will be $208,000 higher than projected above, and that the savings from lower warranty costs and legal costs will be $62,000 per year. He also believes that the project is not as risky as assumed above and that a 9% discount rate is more reasonable.

Answer each of the following.

a. Compute the net present value of the project based on the original projections.

b. Compute the net present value incorporating Bob's estimates of the value of the intangible benefits, but still using the 11% discount rate.

c. Compute the net present value using the original estimates, but employing the 9% discount rate that Bob suggests is more appropriate.

Business
1 answer:
HACTEHA [7]3 years ago
4 0

Answer: net values are calculated as

a) $4530100

b) $4770400

c) $4631900

Explanation:

detailed calculation and explanation is shown in the image below

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Objective <span>evaluation methods use some measurable quantity as the basis for assessing performance.
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Josie is the CRM manager for a toy company. Under what pathway in the Marketing, Sales, and Services career cluster would Josie'
kumpel [21]

Answer:

B. Marketing Management

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6 0
3 years ago
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A company investing borrowed funds expects to earn a return greater than the interest it will pay for the use of funds is using
Naddika [18.5K]

Answer:

Financial leverage

Explanation:

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When using debt or lease cost of use is incurred. The business will need to engage in an activity that will give it revenue above cost of debt.

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3 0
3 years ago
Epsilon Co. can produce a unit of product for the following costs: Direct material $ 8 Direct labor 24 Overhead 40 Total costs p
mylen [45]

Answer:

It is cheaper to make the units in-house.

Explanation:

Giving the following information:

Make in-house:

Direct material $ 8

Direct labor 24

Overhead 40

Total costs per unit $72

Buying price= $60

<u>We need to determine which option provides the lower cost. Because 40% of overhead will remain constant, we have to take it out of the equation.</u>

<u>Production cost:</u>

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3 years ago
Assume that Kish Inc. hired you as a consultant to help estimate its cost of common equity. You have obtained the following data
Kobotan [32]

Answer:

Cost of equity= 10,50%

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Cost of equity= (D1/P0)+g

D1= next year dividend (D0*

P0=actual price

g= growth rate of dividends

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P0=$27,50

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Cost of equity= 0,963/27,5+0,07=0,1051=10,50%

8 0
3 years ago
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