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KengaRu [80]
3 years ago
9

Kelly Slater owns a parcel of land in Palm Springs and is considering two possible development options which both use his signat

ure Kelly Slater Wave Pool technology.
Option A: Create a private surf club, in which case he would have to invest $10 million today (EOY 0). The club would then generate an annual free cash flow of $2 million in perpetuity starting EOY 1.
Option B: Create a surf resort and hotel open to the public, in which case he would have to invest $50 million today (EOY 0). The resort would then generate an annual free cash flow of $6.5 million in perpetuity starting EOY 1.

Assume Kelly's discount rate is 10% and that he can only invest in one of the two options. Kelly should: ________

a. Accept both options because they both have positive NPV
b. Choose Option A because it has a higher IRR
c. Reject both options because both have an IRR less than 10%
d. Choose Option B because it has a higher NPV
Business
1 answer:
expeople1 [14]3 years ago
7 0

Answer:

d. Choose Option B because it has a higher NPV

Explanation:

The computation is shown below:

For Option A:

Investment = $10 million

Present Value of cash flows = Cash flow ÷ Discounting rate

= $2 ÷  10%

= $20 million

Now

NPV = $20 - $10

= $10 million

We know that

IRR is the rate at which the NPV will be zero

So,  2 ÷  r - 10 = 0

r = 20%

For Option B:

Investment = $50 million

Present Value of cash flows = $6.5 ÷  10% = $65 million

NPV = $65 - $50 = $15 million

we know that

IRR is the rate at which the NPV will be zero

So, 6.5÷ r -50 = 0

r = 13%

Based on NPV, Option B should be selected as it contains higher NPV as compared to option A.

However, Based on IRR, Option A should be chosen as it contains higher IRR and a higher IRR represent a higher profit percentage

 

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Answer:

a.

Explanation:

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Hence to ensure the retention of their customers and not lose them to competitors, the company should use the customers' data record to provide special retention offers for them to continue as customers.  

Every dollar counts, and no customer can be said to remain forever or leave soon, therefore each of these customers should be treated equally to maximize profit for the company both now and in the long run.

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4 years ago
Candle Stix estimates that 2% of the $100,000 balance in accounts receivable is uncollectible. Prior to year-end adjusting entri
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Answer:

$97,600

Explanation:

First, we need to get the value for uncollectible in accounts receivable

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= 2% × 100,000

= $2,000

We will then subtract the balance above which is the uncollectible from the accounts receivable

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= $98,000

The net realizable value would the be ;

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8 0
3 years ago
When ethan suspended brittany for two months without pay for violating the company's code of conduct, he was exercising ______ p
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He is exercising coercive power. Coercive power<span> is the ability to influence someone's decision making by taking something away as punishment or threatening punishment if the person does not follow instructions. It can be a severe way to get staff members to follow along with a company plan, but it can be necessary in some cases.</span>
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What is meant by assessment? Activities that occur between two or more businesses. Provides services for connecting network reso
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Explanation:

Assessment means to analyzing  someone or something  in respect of its quality, quantity and other such characteristics. Generally, assessment is done by comparing the actual results with some predetermined criteria .

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EMD Corporation manufactures two products, Product S and Product W. Product W is of fairly recent origin, having been developed
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Answer:

Explanation:

1.

Direct labour hours work during the period:

Product S=72,400 units×1 hour=72,400 hours

Product W=18,100 units × 3 hours=54,300 hours

Total labour hours=126,700 hour

Predetermined overhead rate=$958,396/126,700  =7.56 per hour

2.

Unit product cost of S = Direct Material cost + Direct labour cost + Overhead = 12+16+7.56*1 = $35.56

Unit product cost of W = Direct Material cost + Direct labour cost + Overhead = 34+13+7.56*3 = $69.68

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