Rex Berhad is considering buying a new production machine. The proposed machine would cost the company RM85,000 and require an installation and modification cost of RM1,500 to be installed properly. In addition, the new machine would require an increase of inventory and account payable of RM 3 000 and RM1 700 respectively. The new machine will be depreciated over its five year life using the simplified straight line method. By using the new machine, sales is expected to increase by RM25 000 and annual maintenance cost for the new machine would be 10 percent of the incremental sales over the life of the asset. At the end of its life the firm expect to be able to sell the machine for RM10 000. The firm’s tax rate is 28 percent and its required rate of return is 12 percent.

A. Calculate the initial outlay associated with the new machine.

B. Calculate the annual cash flow.

C. Calculate the terminal cash flow.

Should the firm buy the machine? Justify your answer.

Proposal #1 would extend trade credit to some customers that previously have been denied credit because they were considered poor risks.   Sales are projected to increase by $200,000 per year if credit is extended to these new customers.  Of the new accounts receivable generated, 6% are projected to be uncollectible.  Additional collection costs are projected to be 5% of incremental sales, and production and selling costs are projected to be 78% of sales.  Your firm expects to pay a total of 30% of its income after expenses in taxes.

1. Compute the incremental income after taxes that would result from these projections:

2. Compute the incremental Return on Sales if these new credit customers are accepted:

If the receivable turnover ratio is expected to be 5 to 1 and no other asset buildup is needed to serve the new customers…

3. Compute the  additional investment in Accounts Receivable
4. Compute the incremental Return on New  Investment

5. If your company requires a 20% Rate of Return on Investment for all proposals, do the numbers suggest that trade credit should be extended to these new customers?  Explain.

Aqua Adventures currently generates net income of $500,000 every year, all of which is paid out in dividends, and expects no future growth. Aqua has 200,000 shares outstanding, and investors require an 8% return on the company's shares. Assume that new management is hired to grow the company. One plan for the company is to invest its earnings of $500,000 per year for 1 year in a new project. If Aqua goes with the new project it will not be able to pay a dividend for the next year. However, the new project will increase net income to $570,000 in the second year and onward, all which will be paid out as dividends.

1. Calculate the share price if the company maintains its current no-growth policy. Calculate the share price if the company goes with the new project. Briefly explain why

   the share price has gone higher or lower.

2. What must the minimum increase in net income be so that investors are equally well off

   between its current no-growth policy and its proposed new project?

GMFC is planning to expand its U.S. operations by building a new plant. They will employ about 500 production workers. This new plant will manufacture motorized recreational equipment including all-terrain vehicles, personal watercraft, and snowmobiles. The equipment will assemble mechanical components produced in other GMFC operations or purchased from suppliers. The new plant will fabricate fiberglass body parts and complete the final assembly process. GMFC would like to operate the new plant union-free. It's likely that the Untied Automobile Workers (UAW), and perhaps other internationals, will attempt to organize the workforce within a year after start-up. You are a member of a planning committee for the new plant. Your primary area of responsibility involves issues related to potential unionization and labor costs.

What advice would you provide to the company on size, location, staffing, wages and benefits, and other employee relations issues that would help GMFC keep the new plant union-free and competitive?

In an effort to improve its competitive position, Dallas Co. recently introduced a new inventory control system. Its management accountant assembled the following data regarding the recent change:

The company's inventory financing cost is estimated as 10% per year.

Required:

1. Estimate the net financial benefit (expressed in terms of operating income) that the company realized from the switch to a new inventory control system.
2. List four (4) non-financial benefits the company might expect as a result to its move to new inventory control system.
3. What are the primary expected costs of implementing a new inventory control system?

Enlightened Ltd is investigating the introduction of a new advanced solar light. Forecast revenue from the new light is $1,250,000 per year and variable costs $450,000 per year. The revenue and variable costs are expected to stay constant for the four years. The new light will require a new production line that will have an initial cost of $2,000,000. For tax purposes you can depreciate the full cost down to zero over the four year life of the project. At the end of four years you expect to be able to sell the production machinery for $350,000. Selling the new fixtures will require additional working capital of $25,000 starting immediately. You expect to recover the working capital investment at the end of the four year project. You have already spent $50,000 in research and development costs to invent the new light.Assume the tax rate is 30% and the required return is 10% APR (compounded annually).

What are the Project Cash Flows for the project?

DO NOT USE EXCEL FOR CALCULATIONS