Question
In: Economics
The marketing department has proposed selling your company's product line in a new export market. Production...
The marketing department has proposed selling your company's product line in a new export market. Production equipment (Class 43) with a CCA rate of 30% costing $100,000 will be needed, as will installation and training estimated at $10,000 each. These costs will all occur at time 0. Project cash flows before tax are forecast to be $40,000 per year over the 4-year project life. An initial investment in net working capital of $4,000 will be needed, and each year net working capital will increase by $2,000. The equipment will likely be obsolete at the end of the 4 years, so no salvage value is forecast. The company's tax rate is 25%, and its cost of capital is 11%.
a. Should the company sell into the new market?
b. What is the project's NPV if the equipment had a salvage value of $20,000?
c. Assuming no salvage value, what is the NPV if the CCA rate is 10%?
*Final answers given by textbook (a. -$8364, b. $2400, b. -$15.649)
Solutions
2
3
*
Rahul Sunny answered 1 year agoRelated Solutions
The marketing department has proposed selling your company's product line in a new export market. Production...
The marketing department has proposed selling your company's
product line in a new export market. Production equipment (Class
43) with a CCA rate of 30% costing $100,000 will be needed, as will
installation and training estimated at $10,000 each. These costs
will all occur at time 0. Project cash flows before tax are
forecast to be $40,000 per year over the 4-year project life. An
initial investment in net working capital of $4,000 will be needed,
and each year net...
A company is engaged in the production of feed for farm birds. The company's marketing department...
A company is engaged in the production of feed for farm birds.
The company's marketing department has released an advertisement
that ensures that the birds that are fed with this product will
have a weight gain of at least 130 grams during its first week. The
weight gain of these birds is known to follow a normal distribution
with variance of 120g2. Given the complaint of fraudulent
advertising, filed by some buyers, the Consumer Defender launched
an investigation. A sample...
David Happy has developed a new product that he is considering the production and selling of...
David Happy has developed a new product that he is considering
the production and selling of it. To proceed with this project,
David will be renting a small building to rent for $1,250 a month
that will house production facilities. Utility cost of building is
expected to be $400 per month. One major piece of equipment that
will be used to manufacture the product will be rented for $600 a
month. Material costs to make the product are estimated at...
David Happy has developed a new product that he is considering the production and selling of...
David Happy has developed a new product that he is considering
the production and selling of it. To proceed with this project,
David will be renting a small building to rent for $1,250 a month
that will house production facilities. Utility cost of building is
expected to be $400 per month. One major piece of equipment that
will be used to manufacture the product will be rented for $600 a
month. Material costs to make the product are estimated at...
Your company's research and development department has been working on a new process that, if it...
Your company's research and development department has been
working on a new process that, if it works, can produce oil from
coal at a cost of about $15 per barrel versus a current market
price of $100 per barrel. The company needs $10 million of external
funds at this time to complete the research. The results of the
research will be known in about one year, and there is about a
50-50 chance of success. If the research is successful,...
A new product line is also being proposed and it is expected that theaccountants will discuss...
A new product line is also being proposed and it is expected
that theaccountants will discuss this option. Explain the
difference between fixed and variable costs and state at least
three examples of each that the company mayincur.
Guidelines:
1.Clear explanation of the difference between fixed and variable
costs
2.Identified and explained at least three examples of fixed and
variable costs for the new product line
MiniMe Ltd has spent $250,000 on research and development of a new product. The marketing department...
MiniMe Ltd has spent $250,000 on research and development of a
new product. The marketing department estimates that the company
can annually sell 200,000 units of the product at $100 each for 4
years. The product will incur $50 per unit in manufacturing costs
and fixed costs are expected to be $7 million per year. MiniMe will
need to buy manufacturing equipment costing $5 million. The
equipment will be depreciated at a CCA rate of 20% and will have a...
Suppose that your marketing research department has found that the consumer (retail) demand for your product...
Suppose that your marketing research department has found that
the consumer (retail) demand for your product is:
Q=140−P,
where Q is the quantity demanded and P is the price. This demand
function can be solved for the inverse
demand–that is, the price as a function of the quantity
demanded:
P=140−Q.
Your marginal cost of production and average total cost of
production are constant and equal to $75 per unit. The marginal
cost of distribution and average total cost of distribution...
Your marketing department believes it has a new commercial that will increase the percent of people...
Your marketing department believes it has a new commercial that
will increase the percent of people who plan on purchasing from one
of your stores in the next month. You take a sample of people and
before you show them the new commercial, ask them if they are
planning on purchasing from one of your stores in the next month.
You then show them the new commercial and follow up by asking again
if they plan on purchasing from one...
The marketing department for a computer company must determine the selling price for a new model...
The marketing department for a computer company must determine
the selling price for a new model of personal computer. In order to
make a reasonable profit, the company would like the computer to
sell for $3200. If more than 30% of the potential customers would
be willing to pay this price, the company will adopt it. A survey
of potential customers is to be carried out; it will include a
question asking the maximum amount that the respondent would be...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- The U.S. Court of Appeals for the Seventh Circuit has upheld a district court ruling requiring...
- Management are reluctant to approve health and safety training as they fear it will cost too...
- A fuel with the composition of heptane (C7H16) is burned in an electricity-generating plant, with efficiency...
- How are contingent work arrangements related to artisan-based work?
- A market researcher is interested in determining whether the age of listeners influences their preferred musical...
- You wrote, "However, when the economists and market participants expect a recession, the yields curve invert...
- A charge 4.98 nC is placed at the origin of an xy-coordinate system, and a charge...
ADVERTISEMENT