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ioda
3 years ago
12

Case Study: Assume that are the financial manager of a company, which is considering a

Business
1 answer:
krok68 [10]3 years ago
3 0

Answer:

Explanation:

The calculation can be done using sensitivity analysis

The sensitivity analysis is done as follows:

Scenario NPV Deviation in NPV from orignial scenario % depletion

Original 6140513

Unit sale decreases by 10% 5286234 -854279 13.91%

Price per unit decreases by 10% 2894254 -3246259 52.87%

Variable cost per unit increases 10% 5286234 -854279 13.91%

Cash fixed cost per year increases by 10% 6062851 -77662 1.26%

Calculation of original NPV

Sales (350000 * 22) 7700000

Less: Variable cost (350000 * 11) -3850000

Less: Fixed cost -350000

Less: Depreciation [(2000000 - 200000) / 4] -450000

Profit before tax 3050000

Less: Tax at 30% -915000

Profit after tax 2135000

Add: Depreciation 450000

Cash flow after tax 2585000

0 1 2 3 4

Initial investment -2000000

Working capital -600000

Cash flow after tax 2585000 2585000 2585000 2585000

Working capital released 600000

Residual value 200000

Net cash flows -2600000 2585000 2585000 2585000 3385000

PVF at 10% 1 0.9091 0.8264 0.7513 0.6830

Present value -2600000 2350000 2136364 1942149 2312001

NPV 6140513

Calculation of NPV when unit sales decrease by 10%

Sales (315000 * 22) 6930000

Less: Variable cost (315000 * 11) -3465000

Less: Fixed cost -350000

Less: Depreciation [(2000000 - 200000) / 4] -450000

Profit before tax 2665000

Less: Tax at 30% -799500

Profit after tax 1865500

Add: Depreciation 450000

Cash flow after tax 2315500

0 1 2 3 4

Initial investment -2000000

Working capital -600000

Cash flow after tax 2315500 2315500 2315500 2315500

Working capital released 600000

Residual value 200000

Net cash flows -2600000 2315500 2315500 2315500 3115500

PVF at 10% 1 0.9091 0.8264 0.7513 0.6830

Present value -2600000 2105000 1913636 1739669 2127928

NPV 5286234

Calculation of NPV when price per unit decrease by 10%

Sales (350000 * 19.8) 6237000

Less: Variable cost (350000 * 11) -3850000

Less: Fixed cost -350000

Less: Depreciation [(2000000 - 200000) / 4] -450000

Profit before tax 1587000

Less: Tax at 30% -476100

Profit after tax 1110900

Add: Depreciation 450000

Cash flow after tax 1560900

0 1 2 3 4

Initial investment -2000000

Working capital -600000

Cash flow after tax 1560900 1560900 1560900 1560900

Working capital released 600000

Residual value 200000

Net cash flows -2600000 1560900 1560900 1560900 2360900

PVF at 10% 1 0.9091 0.8264 0.7513 0.6830

Present value -2600000 1419000 1290000 1172727 1612526

NPV 2894254

Calculation of NPV when variable cost per unit increases 10%

Sales (350000 * 22) 7700000

Less: Variable cost (350000 * 12.1) -4235000

Less: Fixed cost -350000

Less: Depreciation [(2000000 - 200000) / 4] -450000

Profit before tax 2665000

Less: Tax at 30% -799500

Profit after tax 1865500

Add: Depreciation 450000

Cash flow after tax 2315500

0 1 2 3 4

Initial investment -2000000

Working capital -600000

Cash flow after tax 2315500 2315500 2315500 2315500

Working capital released 600000

Residual value 200000

Net cash flows -2600000 2315500 2315500 2315500 3115500

PVF at 10% 1 0.9091 0.8264 0.7513 0.6830

Present value -2600000 2105000 1913636 1739669 2127928

NPV 5286234

Calculation of NPV when cash fixed cost per year increases by 10%

Sales (350000 * 22) 7700000

Less: Variable cost (350000 * 11) -3850000

Less: Fixed cost -385000

Less: Depreciation [(2000000 - 200000) / 4] -450000

Profit before tax 3015000

Less: Tax 30% -904500

Profit after tax 2110500

Add: Depreciation 450000

Cash flow after tax 2560500

0 1 2 3 4

Initial investment -2000000

Working capital -600000

Cash flow after tax 2560500 2560500 2560500 2560500

Working capital released 600000

Residual value 200000

Net cash flows -2600000 2560500 2560500 2560500 3360500

PVF at 10% 1 0.9091 0.8264 0.7513 0.6830

Present value -2600000 2327727 2116116 1923742 2295267

NPV 6062851

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Using the equation of exchange, if the Federal Reserve Bank expands the money supply and but there is no real growth in the econ
fenix001 [56]

Answer:

The conclusion we can draw is that businesses invest heavily on capital expenditures for future growth.

Explanation:

The equation of exchange is:  M × V = P × Q, where:

M: the money supply

V: the velocity of money

P: the general price level

Q: the expenditures

Because V increase while P (no real growth in the economy mean the velocity of money is stable) and P are unchanged, Q must increase too. The increase is usually on capital expenditures.

8 0
3 years ago
On January 1, 2017, Ayayai Company purchased 8% bonds having a maturity value of $200,000, for $216,849.76. The bonds provide th
Eddi Din [679]

Answer:

1. 1/01/2017

Dr Bonds receivable 200,000

Dr Premium on bonds receivable 16,849.76

(216,849.76-200,000)

Cr Cash 216,849.76

2. Carrying amount of bonds

1/01/2017 216,849.76

1/01/2018 213,859.76

1/01/2019 210,691.35

1/01/2020 207,332.83

1/01/2021 203,772.8

1/01/2022 200,000

3. 31/12/2017

Dr Interest receivable 16,000

Cr Interest revenue 13,010

Cr Premium on bonds receivable 2,990

Explanation:

1. Preparation of the journal entry at the date of the bond purchase.

1/01/2017

Dr Bonds receivable 200,000

Dr Premium on bonds receivable 16,849.76

(216,849.76-200,000)

Cr Cash 216,849.76

2. Preparation of a bond amortization schedule.

Date Cash received Interest revenue Premium amortized Carrying amount of bonds

1/01/2017 216,849.76

1/01/2018 16,000 13,010 2,990 213,859.76

1/01/2019 16,000 12,831.59 3,168.41 210,691.35

1/01/2020 16,000 12,641.48 3,358.52 207,332.83

1/01/2021 16,000 12,439.97 3,560.03 203,772.8

1/01/2022 16,000 12,227.20 3,772.80 200,000

Workings;

1/01/2018

($200,000*8%)=16,000

($216,849.76*6%)=13,010

(16,000-13,010)=2,990

(216,849.76-2,990)=213,859.76

1/01/2019

($200,000*8%)=16,000

(213,859.76*6%)=12,831.59

(16,000-12,831.59)=3,168.41

(213,859.76-3,168.41)=210,691.35

1/01/2020

($200,000*8%)=16,000

(210,691.35*6%)=12,641.48

(16,000-12,641.48)=3,358.52

(210,691.35-3,358.52)=207,332.83

3.Preparation of the journal entry to record the interest revenue and the amortization on December 31, 2017.

31/12/2017

Dr Interest receivable 16,000

($200,000*8%)

Cr Interest revenue 13,010

($216,849.76*6%)

Cr Premium on bonds receivable 2,990

(16,000-13,010)

3 0
3 years ago
Tasty Tangerine is currently selling 50,000 boxes for $25 per box. Variable cost per box is $17 and fixed costs total $260,000.
Charra [1.4K]

Answer:

decrease by $16,000

Explanation:

We know that,

The net income = Sales - variable cost - fixed expense

The sales = Sales units × selling price per unit

                = 50,000 boxes × $25

                =  $1,250,000

The variable cost = Sales units × variable cost per unit

                             = 50,000 boxes × $17

                             =  $850,000

And, the fixed cost is  $260,000

So, the net income would equal to

= $1,250,000 - $850,000 -  $260,000

= $140,000

Since, the sales units are increased by $24,000 units, so new sales units is 74,000 units

And, the sales per unit is decreased by 2 So, new sales per unit is $23

So, the new sales

= Sales units × selling price per unit

= $74,000 × $23 = $1,702,000

The variable cost = Sales units × variable cost per unit

So, the new variable cost equals to

= 74,000 units × $17

= $1,258,000

And the fixed expense would increased by the $60,000 so new fixed cost is $320,000

So, the new net income would be equal to

= $1,702,000 - $1,258,000  - 320,000

= $124,000

If we compare these two net income, then the difference would be

=  $140,000 -  $124,000

= $16,000 decrease

5 0
3 years ago
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FrozenT [24]
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