Question
In: Accounting
Question 1 Conan Engineering has three departments. The company has £1,650,000 available for investments and each...
Question 1 Conan Engineering has three departments. The company has £1,650,000 available for investments and each department has been asked to identify a project that is suitable for investment. Only ONE department will be given £1,650,000 to invest. Project cash flow forecasts. The forecasts are for a 5 year period. Department Alpha Department Beta Department Delta Year 1 £540,000 £210,000 £940,000 Year 2 £490,000 £230,000 £740,000 Year 3 £490,000 £470,000 £230,000 Year 4 £450,000 £920,000 £120,000 Year 5 £450,000 £940,000 £80,000 NPV -£6,723 £8,913 -£13,449 For all departments cash flows exclude depreciation. The required rate of return has been estimated at 15%. The investment base for Return on Investment (ROI) and Residual Income (RI) calculations is net book value (written-down value) of the investment at the beginning of the year. Straight line depreciation is applied at the rate of 20% Required: i. Calculate the ROI and RI for the three departments over the five-year period. Compare the ROI, RI and NPV for the three departments. Which department should be given the £1,650,000 to invest? ii. Economic Value Added (EVA) is another technique that Conan Engineering has considered. Discuss why EVA may not be regularly used by companie
Solutions
Expert Solution
| Return on Investment | |||||||||
| Amount in £ | |||||||||
| Cash Flow Fore Cast | |||||||||
| Year | Alpha | Beta | Delta | ||||||
| 1 | 540,000 | 210,000 | 940,000 | ||||||
| 2 | 490,000 | 230,000 | 740,000 | ||||||
| 3 | 490,000 | 470,000 | 230,000 | ||||||
| 4 | 450,000 | 920,000 | 120,000 | ||||||
| 5 | 450,000 | 940,000 | 80,000 | ||||||
| Total | 2,420,000 | 2,770,000 | 2,110,000 | ||||||
| Less:Depreciation for 5 year | (1,650,000) | (1,650,000) | (1,650,000) | ||||||
| Net Profit | 770,000 | 1,120,000 | 460,000 | ||||||
| Investment | 1,650,000 | 1,650,000 | 1,650,000 | ||||||
| Return on Investment | 47% | 68% | 28% | ||||||
| Investment | 1,650,000 | ||||||||
| Depreciation p.a | 330,000 | ||||||||
| Residual Income | |||||||||
| Amount in £ | |||||||||
| Cash Flow Fore Cast | |||||||||
| Year | Alpha | Beta | Delta | ||||||
| 1 | 540,000 | 210,000 | 940,000 | ||||||
| 2 | 490,000 | 230,000 | 740,000 | ||||||
| 3 | 490,000 | 470,000 | 230,000 | ||||||
| 4 | 450,000 | 920,000 | 120,000 | ||||||
| 5 | 450,000 | 940,000 | 80,000 | ||||||
| Total | 2,420,000 | 2,770,000 | 2,110,000 | ||||||
| Less:Depreciation for 5 year | (1,650,000) | (1,650,000) | (1,650,000) | ||||||
| Net Profit | 770,000 | 1,120,000 | 460,000 | ||||||
| Less Interest(1650000*15%) | (247,500) | (247,500) | (247,500) | ||||||
| Residual Income | 522,500 | 872,500 | 212,500 | ||||||
| Alpha | Beta | Delta |
 ekkarill92 answered 1 year agoRelated Solutions1.Midland Resources has two production departments (Fabrication and Assembly) and three service departments (Engineering, Administration, and...1.Midland Resources has two production departments (Fabrication
and Assembly) and three service departments (Engineering,
Administration, and Maintenance). During July, the following costs
and service department usage ratios were recorded:
Supplying Department
Using Department
Engineering
Administration
Maintenance
Fabrication
Assembly
Engineering
0
50
%
0
10
%
40
%
Administration
10
%
0
20
%
50
%
20
%
Maintenance
0
20
%
0
20
%
60
%
Direct cost
$
22,000
$
193,300
$
25,000
$
180,000
$
50,000
Required:...
Midland Resources has two production departments (Fabrication and Assembly) and three service departments (Engineering, Administration, and...Midland Resources has two production departments (Fabrication
and Assembly) and three service departments (Engineering,
Administration, and Maintenance). During July, the following costs
and service department usage ratios were recorded.
Supplying Department
Using Department
Engineering
Administration
Maintenance
Fabrication
Assembly
Engineering
0
40
%
0
15
%
45
%
Administration
20
%
0
25
%
45
%
10
%
Maintenance
0
30
%
0
15
%
55
%
Direct cost
$
42,000
$
248,550
$
45,000
$
230,000
$
80,000
Required:
Allocate...
Midland Resources has two production departments (Fabrication and Assembly) and three service departments (Engineering, Administration, and...Midland Resources has two production departments (Fabrication
and Assembly) and three service departments (Engineering,
Administration, and Maintenance). During July, the following costs
and service department usage ratios were recorded.
Supplying Department
Using Department
Engineering
Administration
Maintenance
Fabrication
Assembly
Engineering
0
40
%
0
15
%
45
%
Administration
20
%
0
25
%
45
%
10
%
Maintenance
0
30
%
0
15
%
55
%
Direct cost
$
42,000
$
248,550
$
45,000
$
230,000
$
80,000
Required:
Allocate...
Midland Resources has two production departments (Fabrication and Assembly) and three service departments (Engineering, Administration, and...Midland Resources has two production departments (Fabrication
and Assembly) and three service departments (Engineering,
Administration, and Maintenance). During July, the following costs
and service department usage ratios were recorded.
Supplying Department
Using Department
Engineering
Administration
Maintenance
Fabrication
Assembly
Engineering
0
50
%
0
10
%
40
%
Administration
10
%
0
20
%
50
%
20
%
Maintenance
0
50
%
0
20
%
30
%
Direct cost
$
24,000
$
179,500
$
25,000
$
185,000
$
50,000
Required:...
An investor has a certain amount of money available to invest now. Three alternative investments are...An investor has a certain amount of money available to invest
now. Three alternative investments are available. The estimated
profits ($) of each investment under each economic condition are
indicated in the following payoff table:
INVESTMENT SELECTION
EVENT A B C
Economy declines 500 -2000 -7000
No change 1000 2000 -1000
Economy expands 2000 5000 20000
Based on his own past experience, the investor assigns the
following probabilities to each economic condition:
P (Economy declines) = 0.30
P (No change)...
Multiple Choice Select the best answer from the available choices for each question. 1. Three people...Multiple Choice
Select the best answer from the available choices for
each question.
1. Three people are acting in a play. Character A
has 50% of the lines, Character B has 40%, and Character C has 10%.
Each person has a different probability of making a mistake on any
line, independently: 0.03 for A, 0.07 for B, and 0.20 for C. Given
that a mistake occurred, what is the probability that it was C’s
line?
• 0.02
• ...
Arbon Company has three service departments and two operating departments. Selected data concerning the five departments...Arbon Company has three service departments and two operating
departments. Selected data concerning the five departments are
presented below:
Service Departments
Operating Departments
Administrative
Janitorial
Equipment
Maintenance
Prep
Finishing
Total
Costs
$
92,000
$
67,800
$
36,000
$
256,100
$
498,600
$
950,500
Number of employees
80
60
240
600
300
1,280
Square metres of space occupied
300
1,200
1,000
2,000
7,000
11,500
Machine-hours
26,000
54,000
80,000
The company allocates service
department costs by the step-down method in the following...
Tacoma Hospital has three support departments and four patient services departments. The direct costs to each...Tacoma Hospital has three support departments and four patient
services departments. The direct costs to each of the support
departments are as follows:
Tacoma Hospital has three support departments and four patient
services departments. The direct costs to each of the support
departments are as follows:
Direct Costs
Cost Driver
General Administration
$2,000,000
Salary Dollars
Facilities
$5,000,000
Housekeeping Labor Hours
Financial Services
$3,000,000
Patient Services Revenue
Total
$10,000,000
The patient services revenue, salary dollars, and housekeeping
labor hours for each...
PART A: Barstow Manufacturing Company has two service departments — product design and engineering support, and...PART A:
Barstow Manufacturing Company has two service departments —
product design and engineering support, and two production
departments — assembly and finishing. The distribution of each
service department's efforts to the other departments is shown
below:
FROM
TO
Design
Support
Assembly
Finishing
Design
0
%
10
%
10
%
80
%
Support
10
%
0
%
40
%
50
%
The direct operating costs of the departments (including both
variable and fixed costs) were as follows:
Design
$
80,000...
X Company has the following information available for the year 2014: Quality engineering of products  X Company has the following information available for the year
2014:
Quality engineering of
products
$20,000
Quality training of
employees
$2,000
Net cost of
scrap
$30,000
Rework
labor
$4,500
Warranty
repairs
$100,000
Product
recalls
$200,000
Liability arising from defective
products
$1,000,000
Maintenance of test
equipment
$44,000
Quality improvement
projects
$55,000
Setups for
testing
$3,000
Supplies used in
testing
$5,500
Downtime caused by
defects
$70,000
Disposal of defective
products
$80,000
Sales revenue $5,000,000
Required:
a. Prepare the quality cost report....
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
ADVERTISEMENT
|