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fiasKO [112]
2 years ago
13

We are evaluating a project that costs $1.68 million, has a six-year life, and has no salvage value. Assume that depreciation is

straight-line to zero over the life of the project. Sales are projected at 90,000 units per year. Price per unit is $37.95, variable cost per unit is $23.20, and fixed costs are $815,000 per year. The tax rate is 21 percent, and we require a return of 11 percent on this project. Suppose the projections given for price, quantity, variable costs, and fixed costs are all accurate to within ±10 percent.
Required:
Calculate the best-case and worst-case NPV figures.
Business
1 answer:
zvonat [6]2 years ago
3 0

Answer:

                              Best-Case        Worst-Case

                                  NPV                     NPV

PV of cash inflows $2,897,706      $3,187,477

PV of project cost  $1,680,000     $1,848,000 ($1,680,000 * 1.1)

NPV                         $1,217,706    $1,339,477

Explanation:

a) Data and Calculations:

Initial project cost = $1.68 million

Project's estimated life = 6 years

Salvage value = $0

Depreciation expense = $280,000 ($1.68 million/6)

Income Statement:

Sales revenue (90,000 * $37.95) = $3,415,500

Cost of goods sold:

Variable cost (90,000 * $23.20) =    2,088,000

Gross profit =                                    $1,327,500

Fixed costs =                                         815,000

Income before tax =                           $512,500

Income tax (21% of $512,500) =          107,625

Net income =                                     $404,875

Add depreciation expense                280,000

Annual cash inflows =                      $684,875

PV annuity factor for 6 years at 11% = 4.231

PV of annual cash inflows of $684,875= $2,897,706 ($684,875 * 4.231)

Annual cash inflows = $753,363 ($684,875 * 1.1)

PV of annual cash inflows of $753,363 = $3,187,477 ($753,363 * 4.231)

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Answer:

3. Licensing revenue model.

Explanation:

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6 0
2 years ago
Read 2 more answers
The following transactions apply to Jova Company for Year 1, the first year of operation:
erica [24]

Answer:

Income statement balance  for year 1 = $27210

Income statement balance  for year 2 = $22880

Explanation:

                   Jova Company Year 1 Balance Sheet

                         ASSETS                           Stockholder's Equity

S/no ( Cash, Account receivable, Allowance) (Stock,      Earning)

1.       $15,500                                                   $15,500      

2                              $64,500                                           $64,500  

3.     $57,600         -$57,600                                                            

4.      -$36,000                                                                -$36,000  

5.                                                     $1,290                     -$1,290                                                                        

Bal.   $37,100  $6,900      $1,290      $15,500  $27,210

                                                                                                                                                                                 

Bad debt expense = 64500*2% =$1,290            

              Jova Company Year 2 Balance Sheet

                         ASSETS                                            Stockholder's Equity

S/no ( Cash,  Account receivable, Allowance)    (Stock  earning)

Bal.    $37,100       $6,900              $1,290       $15,500    $27,210

  1                             $72,000                                          $72,000

2.        $65,600     -$65,600

3.                             -$890               -$890

4.                              $300                $300

5      $300              -$300                                                            

6.   -$48,400                                                                   -$48,400   7.                                                     $720                       -$720

Bal. $54,600        $12,410          $1,420     $15,500   $50,090  

Bad debt expense = 72000*1%  $720  

                             <u>    </u><u> INCOME STATEMENT FOR YEAR 1 </u>        

Revenues -      Expenses    =            Net income

$64,500                      -                             $64,500  

                                $36,000                     -$36,000

                                   $1,290                      -$1,290    

             BALANCE:                                      $27210

<u>  </u><u> INCOME STATEMENT FOR YEAR 2</u>    

Revenues -       Expenses    =            Net income

$72,000                      -                             $72,000  

                                $48,400                   -$48,400

                                   $720                     -$720  

             BALANCE:                                    $ 22880

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2 years ago
Scenario 13-20 suppose that a given firm experiences decreasing marginal product of labor with the addition of each worker regar
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Answer:

U-shaped

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Which of the following characteristics would lead the auditor to assess control risk at a higher level?a. It is difficult for th
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Answer:

E. All of the above.

3 0
2 years ago
Mayer Company leased equipment from Lennon Company on July 1, 2010, for an eight-year period expiring June 30, 2018. Equal annua
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Answer:

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Explanation:

Options are <em>"a)$0 and $0, b)$0 and $62,475, c) $211,875 and $62,475, d) $211,875 and $74,475"</em>

<em />

Cash Selling Price                  $1,861,875

Less: Cost of the equipment <u>$1,650,000</u>

Profit on sale                           <u>$211,875</u>

Opening Lease Receivable Balance $1,861,875

Less: First installment received         <u>$300,000</u>

Lease Receivable Balance for           <u>$1,561,875</u>

interest computation

Interest expense up to Dec 31, 2010 = (1561875*8%*6/12) = $62,475

3 0
2 years ago
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