Question
In: Finance
Nancy's Notions pays a delivery firm to distribute its products in the metro area. Delivery costs...
Nancy's Notions pays a delivery firm to distribute its products
in the metro area. Delivery costs are $28,000 per year. Nancy can
buy a used truck for $7,000 that will be adequate for the next 3
years. Operating and maintenance costs are estimated to be $21,000
per year. At the end of 3 years, the used truck will have an
estimated salvage value of $4,000. Nancy's MARR is
19%/year.
a. What is this investment's internal rate of return?
IRR =
b. What is the decision rule for judging the attractiveness of
investments based on internal rate of return?
c. Should Nancy buy the truck?
Solutions
Expert Solution
a: The net cash flows are as below
| Year | Initial cost | Delivery cost - O&M | Salvage | Net cash flows |
| 0 | -7000 | -7000 | ||
| 1 | 7000 | 7000 | ||
| 2 | 7000 | 7000 | ||
| 3 | 7000 | 4000 | 11000 |
IRR is 93.59% based on excel IRR formula
b: As IRR is greater than the MARR, the proposal must be accepted else rejected.
c: Nancy should buy the truck
WORKINGS
jeff jeffy answered 1 year agoRelated Solutions
Nancy's Notions pays a delivery firm to distribute its products in the metro area. Delivery costs...
Nancy's Notions pays a delivery firm to distribute its products
in the metro area. Delivery costs are $26,000 per year. Nancy can
buy a used truck for $9,000 that will be adequate for the next 3
years. Operating and maintenance costs are estimated to be $21,000
per year. At the end of 3 years, the used truck will have an
estimated salvage value of $4,000. Nancy's MARR is
34%/year.
a. What is this investment's internal rate of return?
Nancy’s Notions pays a delivery firm to distribute its products in the metro area. Delivery costs...
Nancy’s Notions pays a delivery firm to distribute its products
in the metro area. Delivery costs are $31,500 per year. Nancy can
buy a used truck for $9,500 that will be adequate for the next 4
years. Operating and maintenance costs are estimated to be $24,000
per year. At the end of 4 years, the used truck will have an
estimated salvage value of $4,200. Nancy’s MARR is 22%/year
What is the present worth of this investment? Round
Entry to...
5. A seller that pays delivery costs for merchandise sold: a. includes the delivery costs in...
5. A seller that pays delivery costs for merchandise sold: a.
includes the delivery costs in cost of goods sold. b. allocates the
delivery costs between cost of goods sold and ending inventory. c.
adds the delivery costs to ending inventory. d. records the
delivery costs as a selling expense.
6. If your company uses the periodic method, you record a sale
by: a. crediting Sales, but do not make an entry in Inventory. b.
crediting Sales and debiting COGS....
Sagar owns a delivery business serving the Boston metro area. In March 20PY Sagar purchased a...
Sagar owns a delivery business serving the Boston metro area. In
March 20PY Sagar purchased a used diesel truck for use in his
business. Because he was dissatisfied with the performance of the
truck in winter conditions, Sagar sold the truck in September 20CY
for $57,000 to an unrelated person. The truck’s appraised fair
market value was $77,000 at the time of the sale. Assume Sagar
purchased the truck for $81,000, did not elect to expense any of
the cost...
In a particular metro area, there are three commercial television stations, each with its own news...
In a particular metro area, there are three commercial
television stations, each with its own news program from 6:00 to
6:30 pm. According to a report in this morning’s local newspaper, a
random sample of 240 viewers last night revealed that 92 watched
the news on WNAE (channel 5), 81 watched on WRRN (channel 11), and
67 watched on WSPD (channel 13). At the .02 significance
level, is there a difference in the proportion of viewers watching
the three channels?...
1.Explain why it is necessary to distribute indirect costs to products or services. 2. Mention which...
1.Explain why it is necessary to distribute indirect costs to products or
services.
2. Mention which are the most used methods to assign indirect costs of
manufacturing to a product or service.
1. Describe, in your own words, how the cost of a product is determined or
service in a company.
2. Explain, in your own words, how the selling price of a
product or servic
There is a firm which reinvests its profits back in itself. Consequently, it does not distribute...
There is a firm which reinvests its profits back in itself.
Consequently, it does not distribute any of its profit to the
owners for the first 5 years. Afterward, it begins paying $6 per
share for the 6th year.
That rises by 200% for the
7th year and by 100%
for the 8th. Beyond the
8th year, it grows perpetually at a constant
rate. Its dividend payout ratio is .6
Its D/E (debt-to-equity) is 50/50
its tax rate is .2...
New Products pays no dividend at the present time. Starting in Year 3, the firm will...
New Products pays no dividend at the present time. Starting in
Year 3, the firm will pay a $.25 dividend per share for two years.
After that, the company plans on paying a constant $.75 a share
annual dividend indefinitely. How much should you pay per share to
purchase this stock today at a required return of 13.8 percent?
(a): The dividends that a firm pays to its stockholders are expected to grow at 3%...
(a): The dividends that a firm pays to its stockholders are
expected to grow at 3% per quarter for the next four quarters. From
t=4 onwards, i.e. from the beginning of the fifth quarter the
growth rate in dividends will drop to 1.5% per quarter, and the
firm expects to be able to sustain it at this level. Assuming that
the market capitalization rate is 2.5% per quarter, work out the
price of the firm’s stock assuming that the dividend...
To be profitable, a firm must recover its costs. These costs include both its fixed and...
To be profitable, a firm must recover its costs. These costs
include both its fixed and its variable costs. One way that a firm
evaluates at what stage it would recover the invested costs is to
calculate how many units or how much in dollar sales is necessary
for the firm to earn a profit.
Consider the case of Blue Mouse Manufacturers:
Blue Mouse Manufacturers is considering a project that will have
fixed costs of $15,000,000. The product will be...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Read at least 2 academically reviewed articles and Write an annotated bibliography paper on Master Budgeting
- Why normalization and referential integrity are important principles when designing relational databases?
- Respond to the following in a minimum of 175 words: Discuss what elements should be present...
- 1) The 3rd bright fringe of a double slit interference pattern is 30.0 cm above the...
- A solar cell generates a potential difference of 0.320 V when a 445.0 ? resistor is...
- A ceiling fan consists of a small cylindrical disk with 5 thin rods coming from the...
- You measure the following quantities as A = 1.0 m ± 0.2 m, B = 2.0...
ADVERTISEMENT