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kumpel [21]
3 years ago
5

Ambrin Corp. expects to receive $2,000 per year for 10 years and $3,500 per year for the next 10 years. What is the present valu

e of this 20 year cash flow? Use an 11% discount rate.
A. $19,034
B. $27,870
C. $32,389
D. none of these
Business
1 answer:
sineoko [7]3 years ago
3 0

Answer:

A. $19,034

Explanation:

The computation of the present value for 20 years cash flow is shown below:

For the First 10 years

Given that

Payment for first 10 years = $2,000

Discount rate = 11%

Now the present value is

= $2000 ÷ 1.11 + $2,000 ÷ 1.11^2 +...........+ $2,000 ÷1.11^10

= 11,778.46402 ..............(1)

For the Next 10 years

Given that

Payment for next 10 years = 3,500

Discount rate = 11%

Now the present value is

= $3,500 ÷ 1.11 + $3,500 ÷ 1.11^2 +...........+ $3,500 ÷ 1.11^10

= 20,612.312

So, today present value is

= $20,612.312 ÷ 1.1110

= 7,259.339 ...........................(2)

Now

Total present value is

= $7,259.339 + $11,778.46402

= $19,034

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Northwood Company manufactures basketballs. The company has a ball that sells for $25. At present, the ball is manufactured in a
Yuki888 [10]

Answer:

1A. Compute the CM ratio and the break-even point in balls.

  • CM ratio = 2.5
  • break even point = 21,000 balls

1B. Compute the degree of operating leverage at last year.

  • 31.82%

2. Due to an increase in labor rates, the company estimates that variable expenses will increase by $3 per ball next year. If this change takes place and the selling price per ball remains constant at $25, what will be the new CM ratio and break-even point in balls?

  • CM ratio = 3.57
  • break even point = 30,000 balls

3. Refer to the data in (2) above. If the expected change in variable expenses takes place, how many balls will have to be sold next year to earn the same net operating income, $90,000, as 5. last year? The president feels that the company must raise the sell- ing price of its basketballs. If Northwood Company wants to maintain the same CM ratio as last year, what selling price per ball must it charge next year to cover the increased labor costs?

  • 42,858 balls
  • new price of $28 per ball

4. Refer to the original data. The company is discussing the construction of a new, automated manufacturing plant. The new plant would slash variable expenses per ball by 40%, but it would cause fixed expenses per year to double. If the new plant is built, what would be the company's new CM ratio and new break-even point in balls?

  • CM = 1.32
  • 26,250 balls

A. If the new plant is built, how many balls will have to be sold next year to earn the same net operating income, $90,000, as last year?

31,875 balls

B. Assume the new plant is built and that next year the company manufactures and sells 30,000 balls (the same number as sold last year). Prepare a contribution format income statement and compute the degree of operating leverage.

Income Statement

Total revenue $750,000

Variable expenses $270,000

Contribution margin $480,000

Fixed expenses $420,000

Net operating income $60,000

Degree of operating leverage = 60.87%

C. If you were a member of top management, would you have been in favor of constructing the new plant?

If you cannot avoid paying the salary raise, then the company needs to carry on the new plant project.

Explanation:

sales price per ball = $25

variable expenses: $15 per unit

  • direct labor $9
  • other variable costs $6

CM ratio = net sales / CM = $750,000 / $300,000 = 2.5

break even point = total fixed costs / CM per unit = $210,000 / $10 = 21,000 balls

degree of operating leverage = fixed costs / total costs = $210,000 / $660,000 = 31.82%

new CM ratio = net sales / CM = $750,000 / $210,000 = 3.57

break even point = total fixed costs / CM per unit = $210,000 / $7 = 30,000 balls

sales level for $90,000 profit = ($210,000 + $90,000) / $7 = 42,857.14 ≈ 42,858 balls

CM ratio (new plant) = net sales / CM = $750,000 / $570,000 = 1.32

break even point = total fixed costs / CM per unit = $420,000 / $16 = 26,250 balls

sales level for $90,000 profit = ($420,000 + $90,000) / $16 = 31,875 balls

5 0
3 years ago
A firm using a _____ strategy tries to balance the desire for efficiency with the need to adjust to local preferences within var
Svetradugi [14.3K]

Answer: (D) Transnational    

Explanation:

 The transnational strategy is one of the type of global business strategy in which the various types of products and the services are get promoted globally and this type of strategy basically using the personalized approach for promoting the brands and the products in the market by targeting the consumers or audience.

 The main advantage of the transnational strategy is to providing the various types of simultaneous function in the multiple countries.  

According to the given question, the company using a transnational strategy for the purpose of balancing the efficiency to adjust the local preferences in the various types of other countries.          

 Therefore, Option (D) is correct answer.

4 0
2 years ago
. Assume that the company produces and sells 45,000 units during the year at a selling price of $16 per unit. Prepare a contribu
zzz [600]

Answer and Explanation:

The preparation of the contribution margin income statement for the year is presented below:

Sales (45,000 units × $16 per unit) $720,000

Less: variable cost (45,000 units × $180,000 ÷ 30,000 units) -$270,000

Contribution margin $450,000

Less: fixed cost -$300,000

Net operating income $150,000

3 0
3 years ago
Land costing $77,900 was sold for $99,800 cash. The gain on the sale was reported on the income statement as other revenue. On t
Harlamova29_29 [7]

Answer:

$99,800

Explanation:

The statements of cash flows show cash inflows and out flows from the business activities which are recognized as operating, investing and financing activities.

When an asset is sold, the amount received from the sale of the asset is recognized as an inflow in the investing section of the cash flow statement.

The gain/loss from the sale would have been treated in the operating section based on the effect it had in the income statement while computing the net income of the company.

4 0
3 years ago
Consider where you currently work, where you have previously worked, or a well-known company where you would like to work. How w
enot [183]

Answer / Explanation:

First, we need to understand what variance analysis is. Variance analysis is the qualitative and quantitative measure of the difference between actual financial value and the budgeted financial value.

This helps us to properly monitor our rate of spending against our profit or loss margin. it also assist in proper fund management.

Now talking about how the company will utilize variance analysis, the company will utilize variance analysis in the aspect of fixed over head spending. In the sense that it will be used to measure manpower productivity against overhead spending. This will help us to proper affirm if the rate of manpower productivity equal fixed overhead spending. In the case where fixed overhead spending is more than man hour productivity ratio, then the company will be running at a loss. This is basically a way of measuring productivity performance of man power and also assets.

6 0
3 years ago
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