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Natel
has determined the following standards for the gasket production:
|
Direct Material |
Units |
cost /unit |
Cost |
|
Raw Material # 1 |
50 |
$
6.50 |
$
325.00 |
|
Raw Material # 2 |
24 |
$
4.75 |
$
114.00 |
|
Raw Material # 3 |
1 |
$
16.00 |
$
16.00 |
|
Direct Labor |
|||
|
Labor group #1 |
3 |
$
20.00 |
$
60.00 |
|
Labor group #2 |
1.5 |
$
30.00 |
$
45.00 |
|
Direct Overhead |
4.5 |
$
20.00 |
$
90.00 |
|
Total for 1 |
$
650.00 |
||
|
Total Cost for 400 |
400 |
$ 650.00 |
$ 260,000.00 |
Costs = Units x Cost/unit
Total cost for 1 = sum of all costs
Total cost for 400 = 400 x 650 = $
260,000
Q21: Neiman Co. has an opportunity to purchase an $86,000 piece of equipment. Nieman wants to determine if the equipment should be purchased using the following information
The
equipment will create a positive cash flow of $18,500 per year.
The
equipment will have a six-year life.
The
equipment will have a salvage value of $5,000 at the end of its life.
Neiman
has a 10% cost of capital.
Income taxes are ignored when evaluating investments.
(a.) What is the net present value of the equipment purchase? Round the answer to the nearest $1.
|
Year |
0 |
1 |
2 |
3 |
4 |
5 |
6 |
|
Initial Investment |
$
(86,000) |
||||||
|
Cash flows |
$18,500 |
$18,500 |
$18,500 |
$18,500 |
$18,500 |
$18,500 |
|
|
Salvage |
$
5,000 |
||||||
|
Net Cash Flow |
$
(86,000) |
$18,500 |
$18,500 |
$18,500 |
$18,500 |
$18,500 |
$23,500 |
NPV = 
NPV = - $2,368.46
(b.)
Determine
if the internal rate of return is higher, lower or equal to Neiman’s cost of
capital. Explain why the internal rate
of return is higher, lower or equal.
The IRR is the rate of
return where the NPV is zero. It can be seen that the rate of return is 8.99%.
It can further be seen that the IRR is less than the cost of capital, it is
further seen that this is due to the NPV being negative, in order to make it zero,
the rate for discounting should be decreased.
Q20.
The Western Region of ABC, LLC., has the following operating results:
Operating
income is $32,000
Sales
is $320,000
The
Western Region’s assets are $160,000.
In addition, ABC’s management expects a 10% return on investments.
(a.) Calculate the Western Region’s margin, turnover, and return on investment based on the DuPont Model.
Profit Margin =
Assets Turnover
=
ROI=
By DuPont = Profit
Margin x Assets Turnover = 10% x 2 = 20%
(b.)
Calculate
the Western Region’s residual income.
Residual Income = Profit – (Required Rate x Assets) = 32000
– (10% x 160000) = 16000
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