When a researcher is attempting to predict sales volume by using building permits, amount of advertising, and the income levels
1 answer:
You might be interested in
Answer:
Company should not eliminate the North division.
Explanation:
Division B is individually making loss. Overall the company is making profit of $50,000.
After eliminating the North division the overall profit will be converted into the loss of $140,000, because the common corporate expenses were shared by the both divisions, eliminating one cause the whole expense to be allocated to a single division.
Company should not eliminate the division as it will increase the total loss.
Working for on which decision is based is attached with this answer please find it.
Answer:
A) Project A = 0.83 year
B) NPV of Project B = $14,609.66
C) Answer B
Explanation:
Requirement A
We know,
Payback period = Last year with negative cumulative cash flows + (Absolute value of last year's cumulative cash flow ÷ Cash flow of the following year's negative cumulative cash flow)
Or, Payback period = A + ( B ÷ C)
Project A Project B
Year Cash Flow Cumulative Cash Flow Cash Flow Cumulative Cash Flow
0 (A) -$10,000 -$10,000 (B) -$10,000 -$10,000 (B)
1 $12,000 (C) 2,000 $10,000(C) 0
2 8,000 10,000 6,000 6,000
3 6,000 16,000 16,000 22,000
Payback period for project A = 0 + ($10,000 ÷ 12,000) = 0 + 0.833 = 0.83 year
Payback period for project B = 0 + ($10,000 ÷ 10,000) = 0 + 1 = 1 year
X-treme Vitamin Company should choose project A because it can return the investment earlier than project B.
Requirement B
We can use excel to find the Net Present Value for both the projects with a cost of capital of 10%.
The following image shows the NPV for project A and B.
From the calculation of NPV, X-treme Vitamin Company should choose project B as that project yields more present cash flows.
Requirement C
A firm should generally have more confidence in answer b because money can produce more logical sense than a year. Yes, it is easy to understand how many years a company will need to get back its cash flow. Still, the present value of cash flows provides a more specific evaluation of how to utilize the initial investment.
