Conch Republic Electronics is a midsized electronics manufacturer located in Key West, Florida. The company president is Shelly Couts, who inherited the company. When it was founded over 70 years ago, the company originally repaired radios and other household appliances. Over the years, the company expanded into manufacturing and is now a reputable manufacturer of various electronic items. Jay McCanless, a recent MBA graduate, has been hired by the company's finance department. One of the major revenue-producing items manufactured by Conch Republic is a personal digital assistant (PDA). Conch Republic currently has one PDA model on the market, and sale has been excellent. The PDA is a unique item in that it comes in a variety of tropical colors and is preprogrammed to play Jimmy Buffett music. However, as with any electronic item, technology changes rapidly, and the current PDA has limited features in comparison with newer models. Conch Republic spent $750,000 to develop a prototype for a new PDA that has all the features of the existing PDA but adds new features such as cell phone capability. The company has spent a further $200,000 for a marketing study to determine the expected sales figures for the new PDA. Conch Republic can manufacture the new PDA for $215 each in variable costs. Fixed costs for the operation are estimated to run $4.3 million per year. The estimated sales volume is 65,000, 82,000, 108,000, 94,000, and 57,000 per each year for the next five years, respectively. The unit price of the new PDA will be $500. The necessary equipment can be purchased for $32.5 million and will be depreciated on a 7 year MACRS schedule. It is believed the value of the equipment in 5 years will be $4.1million. Net working capital for the PDAs will be 20 percent of sales and will occur with the timing of the cash flows for the year: for example there is no initial outlay for NWC, but changes in NWC will first occur in year 1 with the first year's sales. Conch Republic has a 35 percent corporate tax rate and a 12 percent required return. Shelly has asked Jay to prepare a report that answers the following questions.1. What is the payback period of the project 2. What is the profitability index of the project? 3. What is the IRR of the project? 4. What is the NPV of the project?5. How sensitive is the NPV to changes in the price of the new PDA?6. How sensitive is the NPV to changes in the quantity sold?7. Should Conch Republic produce the new PDA?8. Suppose Conch Republic losese sales on other models because of the inroduction of the new model. How would this affect your analysis?
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Monday, August 19, 2013
United Supply has a $20 million liability at December 31, 2012, of which $4 million is payable in each of the next five years
United Supply has a $20 million liability at December 31, 2012, of which $4 million is payable in each of the next five years. United Supply reports the liability on the balance sheet as:
A $20 million current liability.
A $16 million current liability and a $4 million long-term liability.
A $4 million current liability and a $16 million long-term liability.
A $20 million long-term liability.
2 )Discount-Mart issues $15 million in bonds on January 1, 2012. They have a eight-year term and pay interest semiannually. This is the partial bond amortization schedule for the bonds.
Date
Cash Paid
Interest Expense
Increase in Carrying Value
Carrying Value
1/1/12
$13,374,335
6/30/12
$600,000
$668,717
$68,717
13,443,052
12/31/12
600,000
672,153
72,153
13,515,205
6/30/13
600,000
675,760
75,760
13,590,965
12/31/13
600,000
What is the carrying value of the bonds as of December 31, 2013? (Round your answer to the nearest dollar amount.)
$13,515,205.
$13,590,965.
$14,870,513.
$13,670,513.
3.
Discount-Mart issues $19 million in bonds on January 1, 2012. They have a ten-year term and pay interest semiannually. This is the partial bond amortization schedule for the bonds.
Date
Cash Paid
Interest Expense
Increase in Carrying Value
Carrying Value
1/1/12
$16,820,715
6/30/12
$950,000
$1,009,243
$59,243
16,879,958
12/31/12
950,000
1,012,797
62,797
16,942,755
6/30/13
950,000
1,016,565
66,565
17,009,320
12/31/13
950,000
What is the interest expense on the bonds in 2012? (Round your answer to the nearest whole dollar amount.)
$1,009,243.
$1,012,797.
$2,022,040.
$1,900,000.
4.
When a company issues 34,000 shares of $3 par value common stock for $30 per share, the journal entry for this issuance would include:
A debit to additional paid-in capital for $102,000
A credit to common stock for $1,020,000
A credit to additional paid-in capital for $918,000
A debit to cash for $102,000
5.
The ending Retained Earnings balance of Lambert Inc. increased by $2.4 million from the beginning of the year. The company's net income earned during the year is $7.2 million. What is the amount of dividends Lambert Inc. declared and paid?
$2.4 million.
$7.2 million.
$9.6 million.
$4.8 million.
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A $20 million current liability.
A $16 million current liability and a $4 million long-term liability.
A $4 million current liability and a $16 million long-term liability.
A $20 million long-term liability.
2 )Discount-Mart issues $15 million in bonds on January 1, 2012. They have a eight-year term and pay interest semiannually. This is the partial bond amortization schedule for the bonds.
Date
Cash Paid
Interest Expense
Increase in Carrying Value
Carrying Value
1/1/12
$13,374,335
6/30/12
$600,000
$668,717
$68,717
13,443,052
12/31/12
600,000
672,153
72,153
13,515,205
6/30/13
600,000
675,760
75,760
13,590,965
12/31/13
600,000
What is the carrying value of the bonds as of December 31, 2013? (Round your answer to the nearest dollar amount.)
$13,515,205.
$13,590,965.
$14,870,513.
$13,670,513.
3.
Discount-Mart issues $19 million in bonds on January 1, 2012. They have a ten-year term and pay interest semiannually. This is the partial bond amortization schedule for the bonds.
Date
Cash Paid
Interest Expense
Increase in Carrying Value
Carrying Value
1/1/12
$16,820,715
6/30/12
$950,000
$1,009,243
$59,243
16,879,958
12/31/12
950,000
1,012,797
62,797
16,942,755
6/30/13
950,000
1,016,565
66,565
17,009,320
12/31/13
950,000
What is the interest expense on the bonds in 2012? (Round your answer to the nearest whole dollar amount.)
$1,009,243.
$1,012,797.
$2,022,040.
$1,900,000.
4.
When a company issues 34,000 shares of $3 par value common stock for $30 per share, the journal entry for this issuance would include:
A debit to additional paid-in capital for $102,000
A credit to common stock for $1,020,000
A credit to additional paid-in capital for $918,000
A debit to cash for $102,000
5.
The ending Retained Earnings balance of Lambert Inc. increased by $2.4 million from the beginning of the year. The company's net income earned during the year is $7.2 million. What is the amount of dividends Lambert Inc. declared and paid?
$2.4 million.
$7.2 million.
$9.6 million.
$4.8 million.
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MacIntyre Fabrications, Ltd., of Aberdeen, Scotland, has recently begun a continuous improvement campaign in conjunction with a move toward Lean Production
MacIntyre Fabrications, Ltd., of Aberdeen, Scotland, has recently begun a continuous improvement campaign in conjunction with a move toward Lean Production. Management has developed new performance measures as part of this campaign. The following operating data have been gathered over the last four months:
Month
1 2 3 4
Throughput time ? ? ? ?
Manufacturing cycle efficiency ? ? ? ?
Delivery cycle time ? ? ? ?
Percentage of on-time deliveries 72% 73% 78% 85%
Total sales (units) 10,540 10,570 10,550 10,490
Management would like to know the company’s throughput time, manufacturing cycle efficiency, and delivery cycle time. The data to compute these measures have been gathered and appear below:
Month
1 2 3 4
Move time per unit, in days 0.5 0.5 0.4 0.5
Process time per unit, in days 0.6 0.5 0.5 0.4
Wait time per order before start
of production, in days 9.6 8.7 5.3 4.7
Queue time per unit, in days 3.6 3.6 2.6 1.7
Inspection time per unit, in days 0.7 0.7 0.4 0.3
Required:
1a. Compute the throughput time for each month.
1b. Compute the manufacturing cycle efficiency (MCE) for each month.
1c. Compute the delivery cycle time for each month.
2. Refer to the move time, process time, and so forth, given for month 4.
a. Assume that in month 5 the move time, process time, and so forth, are the same as for month 4, except that through the implementation of Lean Production, the company is able to completely eliminate the queue time during production. Compute the new throughput time and MCE.
b. Assume that in month 6 the move time, process time, and so forth, are the same as for month 4, except that the company is able to completely eliminate both the queue time during production and the inspection time. Compute the new throughput time and MCE.
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Month
1 2 3 4
Throughput time ? ? ? ?
Manufacturing cycle efficiency ? ? ? ?
Delivery cycle time ? ? ? ?
Percentage of on-time deliveries 72% 73% 78% 85%
Total sales (units) 10,540 10,570 10,550 10,490
Management would like to know the company’s throughput time, manufacturing cycle efficiency, and delivery cycle time. The data to compute these measures have been gathered and appear below:
Month
1 2 3 4
Move time per unit, in days 0.5 0.5 0.4 0.5
Process time per unit, in days 0.6 0.5 0.5 0.4
Wait time per order before start
of production, in days 9.6 8.7 5.3 4.7
Queue time per unit, in days 3.6 3.6 2.6 1.7
Inspection time per unit, in days 0.7 0.7 0.4 0.3
Required:
1a. Compute the throughput time for each month.
1b. Compute the manufacturing cycle efficiency (MCE) for each month.
1c. Compute the delivery cycle time for each month.
2. Refer to the move time, process time, and so forth, given for month 4.
a. Assume that in month 5 the move time, process time, and so forth, are the same as for month 4, except that through the implementation of Lean Production, the company is able to completely eliminate the queue time during production. Compute the new throughput time and MCE.
b. Assume that in month 6 the move time, process time, and so forth, are the same as for month 4, except that the company is able to completely eliminate both the queue time during production and the inspection time. Compute the new throughput time and MCE.
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Barney Productions manufactures small electric motors used by appliance companies
Barney Productions manufactures small electric motors used by appliance companies. In the past year, the company has experienced severe excess capacity due to competition from a foreign company that has entered Barney’s market. The company is currently bidding on potential order from Kenmore Elite for 4,000 Model 44 motors. The estimated cost of each motor follows:
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Wriston Company has $300,000 to invest
Wriston Company has $300,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are as follows:
A
B
Cost of equipment required
$300,000
$0
Working capital investment required
$0
$300,000
Annual cash inflows
$80,000
$60,000
Salvage value of equipment in seven years
$20,000
$0
Life of the project
7 years
7 years
The working capital needed for project B will be released for investment elsewhere at the end of seven years. Wriston Company uses a 20% discount rate. (Ignore income taxes.)
Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables.
Required:
a.
Calculate net present value for each project. (Negative amount should be indicated by a minus sign. Leave no cells blank - be certain to enter \"0\" wherever required. Round discount factor(s) to 3 decimal places, intermediate and final answers to the nearest dollar amount. Omit the \"$\" sign in your response.)
Net Present Value
Project A
$
Project B
b.
Which investment alternative (if either) would you recommend that the company accept?
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A
B
Cost of equipment required
$300,000
$0
Working capital investment required
$0
$300,000
Annual cash inflows
$80,000
$60,000
Salvage value of equipment in seven years
$20,000
$0
Life of the project
7 years
7 years
The working capital needed for project B will be released for investment elsewhere at the end of seven years. Wriston Company uses a 20% discount rate. (Ignore income taxes.)
Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables.
Required:
a.
Calculate net present value for each project. (Negative amount should be indicated by a minus sign. Leave no cells blank - be certain to enter \"0\" wherever required. Round discount factor(s) to 3 decimal places, intermediate and final answers to the nearest dollar amount. Omit the \"$\" sign in your response.)
Net Present Value
Project A
$
Project B
b.
Which investment alternative (if either) would you recommend that the company accept?
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The Heritage Amusement Park would like to construct a new ride called the Sonic Boom, which the park management feels would be very popular
The Heritage Amusement Park would like to construct a new ride called the Sonic Boom, which the park management feels would be very popular. The ride would cost $450,000 to construct, and it would have a 10% salvage value at the end of its 15-year useful life. The company estimates that the following annual costs and revenues would be associated with the ride: (Ignore income taxes):
Ticket revenues
$
250,000
Less operating expenses:
Maintenance
$
40,000
Salaries
90,000
Depreciation
27,000
Insurance
30,000
Total operating expenses
187,000
Net operating income
$
63,000
Required:
1a.
Compute the pay back period associated with the new ride.
Payback period
years
1b.
Assume that the Heritage Amusement Park will not construct a new ride unless the ride provides a payback period of six years or less. Does the Sonic Boom ride satisfy this requirement?
2a.
Compute the simple rate of return promised by the new ride. (Omit the \"%\" sign in your response.)
Simple rate of return
%
2b.
If Heritage Amusement Park requires a simple rate of return of at least 12%, does the Sonic Boom ride meet this criterion?
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Ticket revenues
$
250,000
Less operating expenses:
Maintenance
$
40,000
Salaries
90,000
Depreciation
27,000
Insurance
30,000
Total operating expenses
187,000
Net operating income
$
63,000
Required:
1a.
Compute the pay back period associated with the new ride.
Payback period
years
1b.
Assume that the Heritage Amusement Park will not construct a new ride unless the ride provides a payback period of six years or less. Does the Sonic Boom ride satisfy this requirement?
2a.
Compute the simple rate of return promised by the new ride. (Omit the \"%\" sign in your response.)
Simple rate of return
%
2b.
If Heritage Amusement Park requires a simple rate of return of at least 12%, does the Sonic Boom ride meet this criterion?
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Pisa Pizza Parlor is investigating the purchase of a new $45,000 delivery truck that would contain specially designed warming racks
Pisa Pizza Parlor is investigating the purchase of a new $45,000 delivery truck that would contain specially designed warming racks. The new truck would have a six-year useful life. It would save $5,400 per year over the present method of delivering pizzas. In addition, it would result in the sale of 1,800 more pizzas each year. The company realizes a contribution margin of $2 per pizza. (Ignore income taxes.)
Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables.
Required:
1.
What would be the total annual cash inflows associated with the new truck for capital budgeting purposes? (Omit the \"$\" sign in your response.)
Total annual cash inflows
2.
Find the internal rate of return promised by the new truck. (Round discount factor(s) to 3 decimal places and final answer to the closest interest rate. Omit the \"%\" sign in your response.)
Internal rate of return
3.
In addition to the data already provided, assume that due to the unique warming racks, the truck will have a $13,000 salvage value at the end of six years. Under these conditions, compute the internal rate of return. (Round discount factor(s) to 3 decimal places and final answer to the closest interest rate. Omit the \"%\" sign in your response.)
Internal rate of return
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Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables.
Required:
1.
What would be the total annual cash inflows associated with the new truck for capital budgeting purposes? (Omit the \"$\" sign in your response.)
Total annual cash inflows
2.
Find the internal rate of return promised by the new truck. (Round discount factor(s) to 3 decimal places and final answer to the closest interest rate. Omit the \"%\" sign in your response.)
Internal rate of return
3.
In addition to the data already provided, assume that due to the unique warming racks, the truck will have a $13,000 salvage value at the end of six years. Under these conditions, compute the internal rate of return. (Round discount factor(s) to 3 decimal places and final answer to the closest interest rate. Omit the \"%\" sign in your response.)
Internal rate of return
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