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diamong [38]
2 years ago
6

A piece of medical equipment costs $350,000, has a useful life of 10 years and a salvage value of 10 percent of the original pur

chase price. Investments with similar risk earn a 12 percent rate of return. Calculate the average opportunity cost per year.
Business
1 answer:
mojhsa [17]2 years ago
4 0

Answer:

The answer is $59,948.7

Explanation:

Solution

Given that:

The Cost of medical equipment = $350,000

The Salvage value = 10% of cost of medical equipment = 0.10 * $350,000 = $35,000

Now,

The Useful life = 10 years

Thus,

It has been stated that investment with risk similar earn is a 12% rate of return.

Hence, the average opportunity cost per year is equal to the equal cost annual of this medical equipment.

So

We Calculate the equivalent annual cost -

Which is

EAC = Cost of medical equipment(A/P, i, n) - salvage value(A/F, i, n)

EAC = 350,000(A/P, 12%, 10) - [35,000(A/F, 12%, 10)]

EAC = [350,000 * 0.17698] - [35,000 * 0.05698]

EAC = 61,943 - 1994.3

EAC = 59,948.7

Therefore, the opportunity cost average per year is $59,948.7

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The correct answer is B.

Explanation:

Giving the following information:

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n= 4

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Answer:

Black Sparrow Aviation, Inc.

1. Indications from ratios about Black Sparrow Aviation:

The current ratio of 4.5 is higher than the industry's norm of 4.0.  This indicates that working capital elements are not being managed properly.  This is supported by the the remaining four ratios.  Inventory level is not optimal.  More inventory is held without being sold to customers.  Obviously, from the inventory turnover of 6.0 translating to approximately 61 days that it takes the company to sell its inventory as against the industry average of 35 days, it shows that the marketing and sales forces lack stamina.  Debt collection from customers is over-delayed, showing poor credit policy and management.  Perhaps, it takes the company many days to issue invoices.  More time than necessary is allowed to customers to pay compared to the industry norm.  In addition, payments are made to suppliers 11 days earlier than the industry average.  Advantage is not being taken of trade credit offered by suppliers.   Trade credit is an important source of funding operations, which every company should utilize to the maximum.

2A.  Based on the above ratios, I would recommend:

1. Minimum inventory should be maintained.

2. Sales efforts should be intensified, so that more sales are made each year than it is currently the case.

3. Debt collection is an important activity for every company that sells on account.  This activity should be taken seriously.  Credit extension to customers should not exceed 50 days.

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4. Short-term financing is obtained from suppliers, which strengthens liquidity.

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Liquidity management is a financial management tool, which describes a company's ability to meet financial obligations through cash flow, funding activities, and capital management in order to minimize the risks associated with illiquidity.

Calculation, analysis, comparison of ratios are some of the ways to make informed decisions on liquidity management.  Ratios should be compared over many periods, with best performing competitors, and the industry norm to ascertain the position of the reporting entity.

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