1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
guajiro [1.7K]
3 years ago
11

Consider a project to supply Detroit with 20,000 tons of machine screws annually for automobile production. You will need an ini

tial $3,000,000 investment in threading equipment to get the project started; the project will last for four years. The accounting department estimates that annual fixed costs will be $850,000 and that variable costs should be $450 per ton; accounting will depreciate the initial fixed asset investment straight-line to zero over the four-year project life. It also estimates a salvage value of $280,000 after dismantling costs. The marketing department estimates that the automakers will let the contract at a selling price of $600 per ton. The engineering department estimates you will need an initial net working capital investment of $300,000. You require a return of 18 percent and face a marginal tax rate of 38 percent on this project.
Required:
a. What is the estimated OCF for this project?
b. Suppose you believe that the accounting department’s initial cost and salvage value projections are accurate only to within ±15 percent; the marketing department’s price estimate is accurate only to within ±10 percent; and the engineering department’s net working capital estimate is accurate only to within ±5 percent. What is your worst-case and best-case scenario for this project?
Business
1 answer:
GrogVix [38]3 years ago
3 0

Answer:

a) expected revenue = 20,000 tons x $600 = $12,000,000 per year

initial investment = $3,000,000 + $300,000 = $3,300,000

contribution margin per unit = $600 - $450 = $150

total contribution margin = $150 x 20,000 = $3,000,000

annual fixed costs = $850,000

depreciation expense per year = $750,000

tax rate = 38%

required return rate = 18%

after tax salvage value = $280,000 x (1 - 38%) = $173,600

NCF₀ = -$3,300,000

NCF₁ = [($3,000,000 - $850,000 - $750,000) x 0.62] + $750,000 = $1,618,000

NCF₂ = $1,618,000

NCF₃ = $1,618,000

NCF₄ = $1,618,000 + $300,000 + $173,600 = $2,091,600

NPV = $1,296,797.61

IRR = 36.36%

b) our best case scenario:

expected revenue = 20,000 tons x $660 = $13,200,000 per year

initial investment = $2,550,000 + $285,000 = $2,835,000

contribution margin per unit = $660 - $450 = $210

total contribution margin = $210 x 20,000 = $4,200,000

annual fixed costs = $850,000

depreciation expense per year = $637,500

tax rate = 38%

required return rate = 18%

after tax salvage value = $322,000 x (1 - 38%) = $199,640

NCF₀ = -$2,835,000

NCF₁ = [($4,200,000 - $850,000 - $637,500) x 0.62] + $637,500 = $2,319,250

NCF₂ = $2,319,250

NCF₃ = $2,319,250

NCF₄ = $2,319,250 + $285,000 + $199,640 = $2,803,890

NPV = $3,655,445.13

IRR = 74.34%

our worst case scenario:

expected revenue = 20,000 tons x $540 = $10,800,000 per year

initial investment = $3,450,000 + $315,000 = $3,765,000

contribution margin per unit = $540 - $450 = $90

total contribution margin = $90 x 20,000 = $1,800,000

annual fixed costs = $850,000

depreciation expense per year = $862,500

tax rate = 38%

required return rate = 18%

after tax salvage value = $238,000 x (1 - 38%) = $147,560

NCF₀ = -$3,765,000

NCF₁ = [($1,800,000 - $850,000 - $862,500) x 0.62] + $862,500 = $916,750

NCF₂ = $916,750

NCF₃ = $916,750

NCF₄ = $916,750 + $315,000 + $147,560 = $1,379,310

NPV = -$1,060,302.54

IRR = 3.56%

You might be interested in
The faculty of a Midwestern business school is comprised of 33 males and 4 females. The past five candidates hired have all been
Kruka [31]

Answer:

The correct answer is letter "D": gender.

Explanation:

Diversity at the workplace refers to the different ages, gender, races, languages, ethnicity, or country of origin of the employees of an organization. Firms can take advantage of the diverse backgrounds of their workers which eventually represents part of the corporation's culture.

Thus, <em>Midwestern business school is facing a gender issue since there are 33 males but 4 females only at work and in the five past screenings the candidates hired were male-only. More females must be hired to balance the gender disequilibrium.</em>

6 0
3 years ago
Scenario 13-6 Ziva is an organic lettuce farmer, but she also spends part of her day as a professional organizing consultant. As
marysya [2.9K]

Answer:

total cost of farming = $380

so correct option is d. $380

Explanation:

given data

cost of seeds = $130

Farmer Ziva charges = $25

time = 10 hours

solution

so total cost of farming is calculated as

total cost of farming = cost of seeds + opportunity cost

so put value

total cost of farming = $130 + ( $25 × 10 )

total cost of farming = 130 + ( 250 )

total cost of farming = $380

so correct option is d. $380

4 0
3 years ago
The total sales of a product, by all competitors in the industry, is:____.a. highest in the introduction stage.b. lowest in the
irina1246 [14]

Answer:

The total sales of a product, by all competitors in the industry, is:____

e. lowest in the market introduction stage.

Explanation:

The product life cycle refers to the time period when a product is first introduced to a market until it exits the market.  There are four main stages in a product life cycle.  They include introduction, growth, maturity, and decline.  It is during the introduction phase that the total sales are lowest.  The low sales are witnessed again during the latter stage of decline.   The highest sales are achieved during the maturity stage.

3 0
3 years ago
A suggested approach to deleting products, in which each product is evaluated periodically to determine its impact on the overal
Step2247 [10]
Answer:  "systematic review" .
___________________________________________________
7 0
3 years ago
Ben owns an ice cream shop. Last quarter's income was $9,000; his cost of goods was $575, and his total expenses were $5,000. Wh
rewona [7]

Answer:

$3,425

Explanation:

took the test

7 0
2 years ago
Other questions:
  • The Mayo Clinic in Minnesota is known for top-quality medical care. For decades, even presidents and dictators from around the w
    15·1 answer
  • Why might you complete 1040 instead of a 1040EZ
    8·2 answers
  • Estimating Components of both WACC and DDM Analysts estimate the cost of debt capital for Abbott Laboratories (NYSE: ABT) is 2.1
    12·1 answer
  • Two traditional economies are trying to industrialize. The leaders of the first favor a command economic system. The leaders of
    6·2 answers
  • During her speech on malpractice insurance, the head of the local branch of the American Medical Association consistently avoide
    12·1 answer
  • Please help I will mark you as brainliest!!
    7·1 answer
  • when your colleague says, "i’ll go along with whatever is best for you" she is showing what interpersonal conflict management st
    7·1 answer
  • Which category of inventory holding costs has a much higher percentage than average for rapid-change industries such as PCs and
    7·1 answer
  • Manufacturing costs include all of the following categories except ________. multiple choice
    5·1 answer
  • as a country develops economically from being very low income to higher income, what are the most important changes that occur i
    6·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!