Each year, Worrix Corporation manufactures and sells 3,300 premium-quality multimedia projectors at $12,300 per unit. At the current production level, the firm’s manufacturing costs include variable costs of $2,800 per unit and annual fixed costs of $6,300,000. Selling, administrative, and other expenses (not including 15% sales commissions) are $10,300,000 per year. The new model, introduced a year ago, has experienced a flickering problem. On average, the firm reworks 40% of the completed units and still has to repair under warranty 15% of the units shipped. The additional work required for rework and repair caused the firm to add additional capacity with annual fixed costs of $2,100,000. The variable costs per unit are $2,300 for rework and $2,800, including transportation cost, for repair. The chief engineer, Patti Mehandra, has proposed a modified manufacturing process that will almost entirely eliminate the flickering problem. The new process will require $12,300,000 for new equipment (including installation cost) and $3,300,000 for training. The firm currently inspects all units before shipment. Patti believes that current appraisal costs of $600,300 per year and $53 per unit can be eliminated within 1 year after the installation of the new process. Furthermore, if the new investment is made, warranty repair cost per unit are estimated to be only $1,300, for no more than 5% of the units shipped. Worrix believes that none of the fixed costs of rework or repair can be saved and that a new model will be introduced in 3 years. This new technology would most likely render obsolete the equipment the company purchased a year ago. The accountant estimates that warranty repairs now cause the firm to lose 20% of its potential business.

Required: 1. What is the total required initial investment cost (cash outlay) associated with the new manufacturing process?

2. What is the total expected change (i.e., increase or decrease) in cost of quality over the next 3 years from using the new manufacturing process being proposed?

3. Based solely on financial considerations, should Worrix invest in the new process? Specifically: (a) What is the cumulative (i.e., 3-year) estimated change in pretax cash flow assuming the new system is implemented? (b) What is the estimated payback period for the proposed investment? (c) What is the estimated pretax internal rate of return (IRR) for the proposed investment? (Use the built-in IRR function in Excel to answer this question.) (Round your "IRR" answer to 2 decimal places.)

if the inflation rate in the UK is higher than the inflation rate in the US by 3% according to the relative PPP theory, what is your prediction of the British pound FX rate in one year if the current spot rate is 1.20/BP (calculate future spot rate in one year)

Compute the (a) net present value, (b) internal rate of return (IRR), and (c) discounted payback period (DPB) for each of the following projects. The firm’s required rate of return is 14 percent.

Year

Project Alpha

Project Beta

0

$(270,000)

$(300,000)

1

120,000

0

2

120,000

(80,000)

3

120,000

555,000

Which project(s) should be purchased if they are independent? Which project(s) should be purchased if they are mutually exclusive?

What ratios would you use to evaluate management performance?

Two important justifications for trading are (execution and liquidity) Why are they important?

Your company just bought $55,000 in goods from your supplier on trade credit terms 1/10 net 45. Your opportunity cost of funds is 12%.

1. On which pay should you pay?
2. If your supplier is now offering a 3% discount if the payment occurs on delivery. Otherwise, you receive net 45 days. What should you do under these terms?

1. A microfinance institution is expected to have sustainable programs to enable its customer to access financial services in the long-run. Explain the measures that economies and their financial markets put in place to ensure that the credit delivery system and sustainable?
2. Interest rates are important in the provision of microfinance service. Explain how interest rate influences the provision of microfinance.
3. According to Maria Otera microfinance should be geared towards achieving various objectives. state and explain each of these objectives giving examples.

Victor is spending HKD300,000 per year and is quite satisfied with the present living lifestyle and standard. He is now 38 and plans to retire at age 60. He believes he can live up to age 85. He wants to keep 80% of the current living lifestyle and standard after retirement.

Victor would like all the money for retirement to be ready when he retires. He also would like the retirement money for spending in a year to be ready at the beginning of every year. He plans to start saving for the retirement reserve with an equity unit trust fund of 10% annual rate of return. Average expected annual rate of return during his retirement period is 6%. Assume the average long term inflation is 4% p.a.

a. What is the required annual expenditure at the time when Victor retires at age 60?

b. What is the total amount of money required for 25 years after Victor’s retirement? (at the beginning of age 60)

c. How much should Victor save at the beginning of each month from now on until the age of 60 in order to meet the required amount at (c)?

Consider two mutually exclusive projects with the following cash flows:

At a cost of capital of 8%, which project should the company choose? Explain which decision rule you should use in this case.

St. Johns River Shipyards is considering the replacement of an 8-year-old riveting machine with a new one that will increase earnings before depreciation from $27,000 to $44,000 per year. The new machine will cost $80,000, and it will have an estimated life of 8 years and no salvage value. The new riveting machine is eligible for 100% bonus depreciation at the time of purchase. The applicable corporate tax rate is 25%, and the firm's WACC is 12%. The old machine has been fully depreciated and has no salvage value.

What is the NPV of the project? Negative value, if any, should be indicated by a minus sign. Round your answer to the nearest cent.