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Vanyuwa [196]
3 years ago
7

5) Scanlin, Inc. is considering a project that will result in initial aftertax cash savings of $2.1 million at the end of the fi

rst year, and these savings will grow at a rate of 2 percent per year indefinitely. The firm has a target debt-equity ratio of .80, a cost of equity of 11 percent and an aftertax cost of debt of 4.6 percent. The cost-saving proposal is somewhat riskier than the usual project the firm undertakes; management uses the subjective approach and applies an adjustment factor of 3 percent to the cost of capital for such risky projects. Under what circumstances should the company take on the project
Business
1 answer:
rewona [7]3 years ago
4 0

Answer:

The PV of future cash flow is $22,925,764, therefore the company should take on the project

Explanation:

In order to know if the company should take on the project we have to calculate the PV of future cash flow as follows:

PV of future cash flow=<u>    D1    </u>

                                        RE-g

To calculate this formula we requre to calculate the WACC and the discount rate as follows:

WACC=(1.00/1.80×0.11)+0+(0.80/1.80×0.046)

WACC=0.0611+0+0.02044

WACC=0.081556

WACC=8.16%

After having calculated the WACC we can calculate the project discount rate as follows:

project discount rate=WACC + Additional risk factor

=8.16%+3%

=11.16%

Therefore, PV of future cash flow= <u>$2,100,000</u>

                                                            0.1116-0.02

PV of future cash flow= <u>$2,100,000</u>

                                            0.0916

PV of future cash flow=$22,925,764

The PV of future cash flow is $22,925,764, therefore the company should take on the project

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Answer:

a) I used an excel spreadsheet since there is not enough room here.

b) Net income = $8,950

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Adjustments to net income:

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The assessed value of their new home is $46,750.

<h3>Assessed value</h3>

Using this formula

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Let plug in the formula

Assessed value=$187,000 × 0.25

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8. Hayward Industries manufactures dining chairs and tables. The following information is available: Dining ChairsTablesTotal Co
Contact [7]

Answer:

Instructions are listed below.

Explanation:

Giving the following information:

Dining Chairs - Tables - Total cost

Machine setups: 200 - 600 - $48,000

Inspections: 250 - 470 - $72,000

Labor hours: 2,600 - 2,400

A) A single overhead rate:

To calculate the estimated manufacturing overhead rate we need to use the following formula:

Estimated manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Estimated manufacturing overhead rate= (48,000 + 72,000) / (2,600 + 2,400)= $24 per direct labor hour

Now, we can allocate overhead based on direct labor hours:

Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base

Dining Chairs:

Allocated MOH= 24*2,600= $62,400

Tables:

Allocated MOH= 24*2,400= $57,600

B) We have to calculate an overhead rate for each activity cost pool.

<u>Overhead rate:</u>

Machine setups:

Estimated manufacturing overhead rate= 48,000/800= $60 per machine hour set up

Inspections:

Estimated manufacturing overhead rate= 72,000/ 720= $100 per inspection

Based on the overhead rate, we can allocate overhead to each product.

Dining chairs:

Allocated MOH= 60* 200 + 100*250= $37,000

Tables:

Allocated MOH= 60*600 + 100*470= $83,000

C) We can conclude that activity cost allocation is more accurate than using a single rate plant-wide. We can allocate costs more efficiently.

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