Eastman Publishing Company is considering publishing an electronic textbook about spreadsheet applications for business. The fixed cost of manuscript preparation, textbook design, and web-site construction is estimated to be $170,000. Variable processing costs are estimated to be $5 per book. The publisher plans to sell single-user access to the book for $45.
Through a series of web-based experiments, Eastman has created a predictive model that estimates demand as a function of price. The predictive model is demand = 4,000 - 6p, where p is the price of the e-book.
| (a) | Build a spreadsheet model to calculate the profit/loss for a given demand. What is the demand? |
| (b) | Use Goal Seek to calculate the price that results in breakeven. If required, round your answer to two decimal places. |
| $ | |
| (c) | Use a data table that varies price from $50 to $400 in increments of $25 to find the price that maximizes profit. |
| If Eastman sells the single-user access to the electronic book at a price of $ , it will earn a maximum profit of $ . |
In: Finance
J&R Construction Company is an international conglomerate with a real estate division that owns the right to erect an office building on a parcel of land in downtown Sacramento over the next year. This building would cost $51 million to construct. Due to low demand for office space in the downtown area, such a building is worth approximately $50 million today. If demand increases, the building would be worth $52.2 million a year from today. If demand decreases, the same office building would be worth only $49 million in a year. The company can borrow and lend at the risk-free annual effective rate of 3 percent. A local competitor in the real estate business has recently offered $565,000 for the right to build an office building on the land.
What is the value of the office building today? Use the two-state model to value the real option. (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.)
In: Finance
What two parameters are involved in risk assessment?
Group of answer choices:
a. Cost and impact
b. Probability and impact
c. Frequency and probability
d. Duration and probability
_______________________________________
What type of 3PL originated from the public or contract warehousing business?
Group of answer choices:
a. Forwarder based
b. Financial based
c. Distribution based
d. Transportation based
____________________________
What type of 3PL traces their origin to freight movement via truck, rail, or other?
Group of answer choices
a. Forwarder based
b. Financial based
c. Distribution based
d. Transportation based
______________________________
Water transportation is attractive to shippers for the movement of which commodities?
Group of answer choices
a. automobiles and construction machinery
b. large, bulky and oversized shipments
c. basic raw materials
d. inventory items
___________________________________
What do the majority of rail movements involve?
Group of answer choices
a. manufactured goods
b. bulk liquids and coal
c. low value, heavy commodities
d. consumer goods
COURSE: PURCHASING
In: Operations Management
Consider a home mortgage of $175,000 at a fixed APR of 4.5% for 20 years.
a. Calculate the monthly payment.
b. Determine the total amount paid over the term of the loan.
c. Of the total amount paid, what percentage is paid toward the principal and what percentage is paid for interest.
In: Finance
How can effective federal funds rate can affect real GDP? How can real GDP affect effective federal funds rate? if the percentage in real GPD increases will the percentage in effective federal funds rate decrease or increase? Please provide examples.
In: Economics
Wilderness Products, Inc., has designed a self-inflating sleeping pad for use by backpackers and campers.
The following information is available about the new product:
a. An investment of $1,500,000 will be necessary to carry inventories and accounts receivable and to purchase some new equipment needed in the manufacturing process.
The company’s required rate of return is 10% on all investments.
b. A standard cost card has been prepared for the sleeping pad, as shown below: Standard Quantity or Hours Standard Price or Rate Standard Cost Direct materials 6 yards $ 3.00 per yard $ 18.00 Direct labor 3.6 hours $ 6.00 per hour 21.60 Manufacturing overhead (20% variable) 3.6 hours $ 10.00 per hour 36.00 Total standard cost per pad $ 75.60
c. The only variable selling and administrative expense will be a sales commission of $6 per pad. The fixed selling and administrative expenses will be $2,749,800 per year.
d. Because the company manufactures many products, no more than 97,200 direct labor-hours per year can be devoted to production of the new sleeping pads. e. Manufacturing overhead costs are allocated to products on the basis of direct labor-hours.
Required: 1. Assume that the company uses the absorption approach to cost-plus pricing. a. Compute the markup percentage that the company needs on the pads to achieve a 10% return on investment (ROI) if it sells all of the pads it can produce. b. What selling price per sleeping pad will the company establish if it uses a markup percentage on absorption cost? (Round intermediate calculations and final answer to 2 decimal places.) c. Assume that the company is able to sell all of the pads that it can produce. Prepare an income statement for the first year of activity. Compute the company’s ROI based on the first year of activity. 2. After marketing the sleeping pads for several years, the company is experiencing a falloff in demand due to an economic recession. A large retail outlet will make a bulk purchase of pads if its label is sewn in and if an acceptable price can be worked out. What is the minimum acceptable price for this special order? (Round your answer to 2 decimal places.)
In: Accounting
Case: Cost Structures for
Global Shippers Inc.
Management from Global Shippers Inc, an international shipping business, is in the process of assessing the choice between two different cost structures for the business. Option A has relatively higher variable costs per unit shipped but lower annual fixed costs, while Option B has the opposite—relatively lower variable costs in its cost structure but higher fixed costs. Assume that delivery selling prices per unit are constant. The table below contains critical information in making the decision:
|
Cost Information |
Option A |
Option B |
|---|---|---|
|
Delivery price (revenue) per shipment |
$100 |
$100 |
|
Variable cost per shipment delivered |
$85 |
$60 |
|
Contribution Margin per unit |
$15 |
$40 |
|
Fixed costs (annual) |
$1,200,000 |
$4,500,000 |
Management wants you to write a professional report, answering the
following questions:
Questions
1) What is the break-even point, in terms of volume (i.e., number of shipments per year), for Option A? Option B?
(2) How many shipments would have to be made under Option A to produce operating income of $30,000 for an annual period?
(3) How many shipments per year would have to be made under Option A to produce an operating margin equal to 9% of sales revenue?
(4) How many shipments are required under Option B to produce net income of $180,000 per year, given a corporate tax rate of 40%?
(5) Assume that for the coming year total fixed costs are expected to increase by 15% for each of the two options. What is the new break-even point, in terms of number of shipments, for each option? By what percentage did the break-even point change for each case? How do these figures compare to the percentage increase in budgeted fixed costs?
(6) Assume an average income-tax rate of 20%. What volume (number of shipments) would be needed to generate net income of 5% of revenue for each option?
(7) Which option do you think is the more profitable one for this business? Explain.
(8) Which option do you consider to be more risky to the business? Explain (calculate degree of operating leverage to help answer this question).
In: Accounting
Assume you are the CFO of a company. Your analyst reports the following information (Use the following information for the remainder of the question):
• Current exchange rate is $1.16/€.
• Forward rate is $1.175/€.
• Expected final sales volume is 35,000. Worst case scenario is volume of 15,000. Best case scenario is volume of 50,000.
• Cost per student is €2000.
• Option premium is 2% of USD strike price.
• Option strike price is $1.165/€.
1. Using the above information
a) What is the total projected costs (for all three scenarios) in dollars at the current exchange rate?
b) What are the total costs (for all three scenarios) if you use a forward contract to hedge?
c) What is the total option premium for each scenario?
2. As the CFO, you decided not to hedge. Assuming expected final sales volume is 35,000, what are your total costs
a) if the exchange rate remains at $1.16/€? Let’s call this the baseline scenario.
b) if the exchange rate will be $1.25/€? How does this compare to the baseline case?
c) if the exchange rate will be $1.11/€? How does this compare to the baseline case?
3. As the CFO, you decided to hedge using forward contracts. Assuming expected final sales volume is 35,000 and forward rate is $1.175/€. What are your total benefit/cost and the percentage benefit/cost from hedging (compared to no hedging)
a) if the exchange rate remains at $1.16/€?
b) if the exchange rate will be $1.25/€?
c) if the exchange rate will be $1.11/€?
4. As the CFO, you decided to hedge using option contracts. What type of option is suitable for this case (call option or put option)? Why?
5. As the CFO, you decided to hedge using option contracts. What are your total benefit/cost and the percentage benefit/cost from hedging (compared to no hedging)
a) if the exchange rate remains at $1.16/€?
b) if the exchange rate will be $1.25/€?
c) if the exchange rate will be $1.11/€?
6. What is the most profitable strategy for expected final sales volume is 35,000 and for the worst-case scenario volume of 15,000 (no hedge, forward contract, or option contract)
a) if the exchange rate remains at $1.16/€?
b) if the exchange rate will be $1.25/€?
c) if the exchange rate will be $1.11/€?
d) What is the overall best strategy? Why?
In: Accounting
DataPoint Engineering is considering the purchase of a new piece of equipment for $205,000. It has an eight-year midpoint of its asset depreciation range (ADR). It will require an additional initial investment of $210,000 in nondepreciable working capital. Seventy-two thousand dollars of this investment will be recovered after the sixth year and will provide additional cash flow for that year. Income before depreciation and taxes for the next six are shown in the following table. Use Table 12–11, Table 12–12. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.
| Year | Amount | ||||
| 1 | $ | 230,000 | |||
| 2 | 190,000 | ||||
| 3 | 160,000 | ||||
| 4 | 145,000 | ||||
| 5 | 110,000 | ||||
| 6 | 100,000 | ||||
The tax rate is 25 percent. The cost of capital must be computed
based on the following:
| Cost (aftertax) |
Weights | ||||||||
| Debt | Kd | 9.20 | % | 30 | % | ||||
| Preferred stock | Kp | 13.80 | 10 | ||||||
| Common equity (retained earnings) | Ke | 18.00 | 60 | ||||||
a. Determine the annual depreciation schedule.
(Do not round intermediate calculations.
Round your depreciation base and annual depreciation answers to the
nearest whole dollar. Round your percentage depreciation answers to
3 decimal places.)
|
b. Determine the annual cash flow for each year. Be sure to include the recovered working capital in Year 6. (Do not round intermediate calculations and round your answers to 2 decimal places.)
|
c. Determine the weighted average cost of capital. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
|
d-1. Determine the net present value. (Use the WACC from part c rounded to 2 decimal places as a percent as the cost of capital (e.g., 12.34%). Do not round any other intermediate calculations. Round your answer to 2 decimal places.)
|
d-2. Should DataPoint purchase the new
equipment?
Yes
No
In: Finance
A Peruvian human sacrificial temple, near Lima, Peru, has
three
levels, levels J, M, and H, where tourists have the only access
to
the temple.
The probabilities that a tourist visiting the temple will visit
the
different levels are:
Visit level J: 0.74
Visit level M: 0.70
Visit level H: 0.62
Visit levels J and M: 0.52
Visit levels J and H: 0.46
Visit levels M and H: 0.44
Visit levels J and M and H: 0.34.
Find the probabilities that a person visiting the temple
will:
A. Visit level M given that he will go to level J.
B. Visit level H given that he will go to level J and level
M.
C. Not visit level J given that he will visit level M and/or
visit
level H.
D. Visit level H and visit level J given that he will not visit
level
M.
In: Statistics and Probability