You were asked to estimate the cost of capital for XYZ Inc. The firm is expected to have a target capital structure of 30% debt,
1 answer:
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<h3>Explanation:</h3><h3>Part (a):</h3>
Solved part is attached as an image.
<h3>Part (b):</h3>Let us first determine the amount required of each item to produce 1 bracket.
From the attached diagram, we can see that to manufacture 1 bracket, quantity of each item needed is,
Base = 1
Spring = 2
Clamp = 1 + 4 = 5
Housing = 2
Handle = (1 * 1) + (4 * 1) = 5
Casting = (1 * 1) + (4 * 1) = 5
Bearing = 2 * 2 = 4
Shaft = 2 * 1 = 2
Hence, for 50 Brackets, quantity of each item required will be,
Base = 1 * 50 = 50
Spring = 2 * 50 = 100
Clamp = 5 * 50 = 250
Housing = 2 * 50 = 100
Handle = 5 * 50 = 250
Casting = 5 * 50 = 250
Bearing = 4 * 50 = 200
Shaft = 2 * 50 = 100
<em>NOTE: The above quantities give exclusive quantities required for each item. In actual practice, we won't have to purchase base, clamp & housing separately as the will be assembled from their components which are already procured.</em>
<h3>Part (c):</h3>As 25 bases are already in stock, parts for them will not be needed. I will refer the quantities subtracted due to this by indicating (B). Similarly, quantities subtracted due to clamps will be indicated as (C).
Base = 50 - 25 = 25
Spring = 50
Clamp = 250 - 100 - 25(B) = 125
Housing = 100 - (2*25)(B) = 50
Handle = 1 * 125 = 125
Casting = 1 * 125 = 125
Bearing = 2 * 50 = 100
Shaft = 1 * 50 = 50