Internal Rate of Return
Manzer Enterprises is considering two independent investments:
A new automated materials handling system that costs $900,000 and will produce net cash inflows of $300,000 at the end of each year for the next four years.
A computer-aided manufacturing system that costs $775,000 and will produce labor savings of $400,000 and $500,000 at the end of the first year and second year, respectively.
Manzer has a cost of capital of 8 percent.
The present value tables provided in Exhibit 19B.1 and Exhibit 19B.2 must be used to solve the following problems.
Required:
1. Calculate the IRR for the first investment.
Enter your answers as whole percentage values (for example, 16%
should be entered as "16" in the answer box).
Between % and %.
Determine if it is acceptable or not.
2. Calculate the IRR of the second investment.
Use 12 percent as the first guess. Enter your answers as whole
percentage values (for example, 16% should be entered as "16" in
the answer box).
Between % and %.
Comment on its acceptability.
3. What if the cash
flows for the first investment are $250,000 instead of $300,000?
Give your answer to the nearest whole percent.
The IRR would be about %
In: Accounting
Orange Corp. has two divisions: Fruit and Flower. The following
information for the past year is available for each division:
| Fruit Division | Flower Division | ||||
| Sales revenue | $ | 1,440,000 | $ | 2,160,000 | |
| Cost of goods sold and operating expenses | 1,080,000 | 1,620,000 | |||
| Net operating income | $ | 360,000 | $ | 540,000 | |
| Average invested assets | $ | 3,000,000 | $ | 2,160,000 | |
Orange has established a hurdle rate of 8
percent.
Required:
1-a. Compute each division’s return on investment
(ROI) and residual income for last year. (Enter your ROI
answers as a percentage rounded to two decimal places, (i.e.,
0.1234 should be entered as 12.34%.))
1-b. Determine which manager seems to be
performing better.
| Fruit Division | |
| Flower Division |
2. Suppose Orange is investing in new technology
that will increase each division’s operating income by $146,000.
The total investment required is $2,300,000, which will be split
evenly between the two divisions. Calculate the ROI and return on
investment for each division after the investment is made.
(Enter your ROI answers as a percentage rounded to two
decimal places, (i.e., 0.1234 should be entered as
12.34%.))
3. Which manager will accept the investment.
In: Accounting
Zane Perelli currently has
$104104
that he can spend today on socks costing
$ 2.60$2.60
each. Alternatively, he could invest the
$104104
in a risk-free U.S. Treasury security that is expected to earn a
1111%
nominal rate of interest. The consensus forecast of leading economists is a
44%
rate of inflation over the coming year.
a. How many socks can Zane purchase today?
b. How much money will Zane have at the end of 1 year if he forgoes purchasing the socks today and invests his money instead? (Ignore taxes.)
c. How much would you expect the socks to cost at the end of 1 year in light of the expected inflation?
d. Use your findings in parts b and c to determine how many socks (fractions are OK) Zane can purchase at the end of 1 year. In percentage terms, how many more or fewer socks can Zane buy at the end of 1 year?
e. What is Zane's real rate of return over the year? How is it related to the percentage change in Zane's buying power found in part
d? Explain
In: Finance
Orange Corp. has two divisions: Fruit and Flower. The following information for the past year is available for each division: Fruit Division Flower Division Sales revenue $ 1,260,000 $ 1,890,000 Cost of goods sold and operating expenses 945,000 1,323,000 Net operating income $ 315,000 $ 567,000 Average invested assets $ 6,300,000 $ 2,362,500 Orange has established a hurdle rate of 4 percent. Required: 1-a. Compute each division’s return on investment (ROI) and residual income for last year. (Enter your ROI answers as a percentage rounded to two decimal places, (i.e., 0.1234 should be entered as 12.34%.)) 1-b. Determine which manager seems to be performing better. Fruit Division Flower Division 2. Suppose Orange is investing in new technology that will increase each division’s operating income by $140,000. The total investment required is $2,000,000, which will be split evenly between the two divisions. Calculate the ROI and return on investment for each division after the investment is made. (Enter your ROI answers as a percentage rounded to two decimal places, (i.e., 0.1234 should be entered as 12.34%.)) 3. Which manager will accept the investment.
In: Accounting
| 2016 | 2015 | |||||||||||||
| Sales | $ | 21,000,000 | $ | 19,500,000 | ||||||||||
| Cost of goods sold | 7,413,000 | 6,630,000 | ||||||||||||
| Net income | 1,890,000 | 1,560,000 | ||||||||||||
| Interest expenses | 164,500 | 144,500 | ||||||||||||
| Income taxes | 220,286 | 196,286 | ||||||||||||
| Current assets | 2,250,000 | 2,115,000 | ||||||||||||
| Total assets | 5,050,000 | 4,760,000 | ||||||||||||
| Total liabilities | 760,000 | 750,000 | ||||||||||||
| Total stockholders' equity | 4,290,000 | 4,010,000 | ||||||||||||
Knowledge Check 01
The data provided here is of Stevenson Company. The tax rate is 30%. From this data, compute the gross margin percentage for the year 2016.
66.0%
64.7%
35.3%
34.0%
Knowledge Check 02
The data provided here is of Stevenson Company. The tax rate is 30%. From this data, compute the net profit margin percentage for the year 2016.
8.0%
10.8%
9.7%
9.0%
Knowledge Check 03
The data provided here is of Stevenson Company. The tax rate is 30%. From this data, compute the return on total assets for the year 2016.
38.5%
39.7%
41.9%
40.9%
Knowledge Check 04
The data provided here is of Stevenson Company. The tax rate is 30%. From this data, compute the return on equity for the year 2016.
37.6%
44.1%
38.9%
45.5%
In: Accounting
A stock has a return on equity of 5.7% and a plowback ratio of 55%. What is the sustainable growth rate? Enter you answer as a percentage. Do not include the percentage sign in your answer. Enter your response below rounded to 2 DECIMAL PLACES.
In: Finance
Based on prior studies, about 10% of Californians are left-handed. Find the minimum sample size needed to estimate the percentage of California residents who are left-handed. Use a margin of error of two percentage points, and use a confidence level of 95%.
In: Statistics and Probability
In a certain population, 25% of the person smoke and 7% have a certain type of heart disease. Moreover, 10% of the persons who smoke have the disease.
What percentage of the population smoke and have the disease?
What percentage of the population with the disease also smoke?
In: Math
Suppose that Xtel currently is selling at $66 per share. You buy 500 shares using $20,000 of your own money, borrowing the remainder of the purchase price from your broker. The rate on the margin loan is 6%.
a. What is the percentage increase in the net worth of your brokerage account if the price of Xtel immediately changes to: (i) $69.63; (ii) $66; (iii) $62.37? What is the relationship between your percentage return and the percentage change in the price of Xtel? (Leave no cells blank - be certain to enter "0" wherever required. Negative values should be indicated by a minus sign. Round your answers to 2 decimal places.)
| i. | Percentage gain | % | |
| ii. | Percentage gain | % | |
| iii. | Percentage gain | % |
b. If the maintenance margin is 25%, how low can Xtel’s price fall before you get a margin call? (Round your answer to 2 decimal places.)
| Margin call will be made at price | or lower |
c. How would your answer to (b) change if you had financed the initial purchase with only $16,500 of your own money? (Round your answer to 2 decimal places.)
| Margin call will be made at price | or lower |
d. What is the rate of return on your margined position (assuming again that you invest $20,000 of your own money) if Xtel is selling after 1 year at: (i) $69.63; (ii) $66; (iii) $62.37? What is the relationship between your percentage return and the percentage change in the price of Xtel? Assume that Xtel pays no dividends. (Negative values should be indicated by a minus sign. Round your answers to 2 decimal places.)
| i. | Rate of return | % | |
| ii. | Rate of return | % | |
| iii. | Rate of return | % |
e. Continue to assume that a year has passed. How low can Xtel’s price fall before you get a margin call? (Round your answer to 2 decimal places.)
| Margin call will be made at price | or lower |
In: Finance
4
Lavage Rapide is a Canadian company that owns and operates a large automatic car wash facility near Montreal. The following table provides data concerning the company’s costs:
| Fixed Cost per Month |
Cost per Car Washed |
||||
| Cleaning supplies | $ | 0.60 | |||
| Electricity | $ | 1,000 | $ | 0.10 | |
| Maintenance | $ | 0.25 | |||
| Wages and salaries | $ | 4,600 | $ | 0.20 | |
| Depreciation | $ | 8,100 | |||
| Rent | $ | 2,200 | |||
| Administrative expenses | $ | 1,800 | $ | 0.02 | |
For example, electricity costs are $1,000 per month plus $0.10 per car washed. The company expects to wash 8,300 cars in August and to collect an average of $6.50 per car washed.
Required:
Prepare the company’s planning budget for August.
5
Via Gelato is a popular neighborhood gelato shop. The company has provided the following cost formulas and actual results for the month of June:
| Fixed Element per Month |
Variable Element per Liter |
Actual Total for June |
|||||||
| Revenue | $ | 21.00 | $ | 133,540 | |||||
| Raw materials | $ | 5.55 | $ | 37,130 | |||||
| Wages | $ | 6,500 | $ | 2.30 | $ | 21,300 | |||
| Utilities | $ | 2,530 | $ | 1.10 | $ | 10,000 | |||
| Rent | $ | 3,500 | $ | 3,500 | |||||
| Insurance | $ | 2,250 | $ | 2,250 | |||||
| Miscellaneous | $ | 740 | $ | 1.25 | $ | 8,790 | |||
While gelato is sold by the cone or cup, the shop measures its activity in terms of the total number of liters of gelato sold. For example, wages should be $6,500 plus $2.30 per liter of gelato sold and the actual wages for June were $21,300. Via Gelato expected to sell 6,400 liters in June, but actually sold 6,600 liters.
Required:
Calculate Via Gelato revenue and spending variances for June. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)
In: Accounting