Photochronograph Corporation (PC) manufactures time series photographic equipment. It is currently at its target debt–equity ratio of .62. It’s considering building a new $65.2 million manufacturing facility. This new plant is expected to generate aftertax cash flows of $7.77 million in perpetuity. There are three financing options:

1. A new issue of common stock: The required return on the company’s new equity is 15.2 percent.
2. A new issue of 20-year bonds: If the company issues these new bonds at an annual coupon rate of 7.2 percent, they will sell at par.
3. Increased use of accounts payable financing: Because this financing is part of the company’s ongoing daily business, the company assigns it a cost that is the same as the overall firm WACC. Management has a target ratio of accounts payable to long-term debt of .13. (Assume there is no difference between the pretax and aftertax accounts payable cost.)

If the tax rate is 30 percent, what is the NPV of the new plant? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Round your answer to 2 decimal places, e.g., 32.16.)

Net present value            $

Your company's new portable phone/music player/PDA/bottle washer, the RunMan, will compete against the established market leader, the iNod, in a saturated market. (Thus, for each device you sell, one fewer iNod is sold.) You are planning to launch the RunMan with a traveling road show, concentrating on two cities, New York and Boston. The makers of the iNod will do the same to try to maintain their sales. If, on a given day, you both go to New York, you will lose 500 units in sales to the iNod. If you both go to Boston, you will lose 250units in sales. On the other hand, if you go to New York and your competitor to Boston, you will gain 2,000 units in sales from them. If you go to Boston and they to New York, you will gain 1,000 units in sales. What percentage of time should you spend in New York and what percentage in Boston?

You should spend _________ of your time in New York and___________ in Boston.

How do you expect your sales to be affected?

The expected outcome is a net gain in RunMan sales.

The expected outcome is a net loss of RunMan sales.  

The expected outcome is no net gain or loss of RunMan sales.

Bilboa Freightlines, S.A., of Panama, has a small truck that it uses for intracity deliveries. The truck is worn out and must be either overhauled or replaced with a new truck. The company has assembled the following information:

If the company keeps and overhauls its present delivery truck, then the truck will be usable for five more years. If a new truck is purchased, it will be used for five years, after which it will be traded in on another truck. The new truck would be diesel-operated, resulting in a substantial reduction in annual operating costs, as shown above.

The company computes depreciation on a straight-line basis. All investment projects are evaluated using a 18% discount rate.

1. What is the net present value of the “keep the old truck” alternative?

2. What is the net present value of the “purchase the new truck” alternative?

3. Should Bilboa Freightlines keep the old truck or purchase the new one?

ACME manufacturing is considering replacing an existing production line with a new

line that has a greater output capacity and operates with less labour than the existing

line. The new line would cost $1 million, have a 5-year life, and would be depreciated

using the straight-line depreciation method over 5 years. At the end of 5 years, the new

line could be sold as scrap for $200 000 (in year 5 dollars). Because the new line is more

automated, it would require fewer operators, resulting in a saving of $40 000 per year

before tax and unadjusted for inflation (in today’s dollars). Additional sales with the new

machine are expected to result in additional net cash inflows, before tax, of $60 000 per

year (in today’s dollars). If ACME invests in the new line, a one-time investment of $10

000 in additional working capital will be required. The tax rate is 30 per cent, the

opportunity cost of capital is 10 per cent, and the annual rate of inflation is 3 per cent.

What is the NPV of the new production line?

Note: show workings how to calculate the revenue, op exp, and PV of net cash flows.

Photochronograph Corporation (PC) manufactures time series photographic equipment. It is currently at its target debt–equity ratio of .68. It’s considering building a new $65.8 million manufacturing facility. This new plant is expected to generate aftertax cash flows of $7.83 million in perpetuity. There are three financing options:

1. A new issue of common stock: The required return on the company’s new equity is 15 percent.
2. A new issue of 20-year bonds: If the company issues these new bonds at an annual coupon rate of 7.3 percent, they will sell at par.
3. Increased use of accounts payable financing: Because this financing is part of the company’s ongoing daily business, the company assigns it a cost that is the same as the overall firm WACC. Management has a target ratio of accounts payable to long-term debt of .13. (Assume there is no difference between the pretax and aftertax accounts payable cost.)

If the tax rate is 38 percent, what is the NPV of the new plant? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Round your answer to 2 decimal places, e.g., 32.16.)

Net present value            $

Case study 3

Mr. Hamood joined newly as a Marketing Manager in a famous Ibra Ice Cream Company in Oman. The company‟s ice cream had huge demand as the ice creams were tastier and had more flavours. The company introduced a New Ice Cream named “Taste Bites”, and wanted to market all over Oman. Mr. Hamood was made responsible for marketing the new product, He called his staff for a meeting and discussed the various strategies to market the new product. He also suggested the marketing director to set high price for the new product.

Mr. Yaqoob, the Marketing Director of the company was worried about the pricing of the new ice cream introduced by the company. Mr. Bilal, the Sales Manager, who use to take care the pricing of products, had recently resigned from the job and left the company. Now pricing responsibility was also given to Mr.Hamood. As Mr. Hamood is new and already assigned with marketing responsibility was seriously looking for someone to help and advise him with this new task. The company was having issues related to pricing, wholesaling, retailing, and dealing with broker & agents. They have to choose the best course of action to capture the market share.

Question 3

i.    Comment on Mr. Hamood‟s with various steps to be followed in planning and developing the

new product „Taste Bites‟ in the company.                                                (5Marks–125/ 150 words)

ii.   Evaluate the pricing strategy adopted by Mr. Hamood for the new product.

(2 Marks– 50 /75 words)

iii. Can Ibra Ice Cream Company be started as a specialty shops? Comment.

(3 Marks–75 / 100 words)

Your division manufactures the spare part needed to produce the main product. On January 1 of this year, you as the manager of the division invested $2 million in a new equipment. At that time, your expected income statement for this year was as follows:
Sales revenues $ 3,200,000
Operating costs:
     Variable (cash expenditures)    $ 400,000
      Fixed (cash expenditures)     1,500,000
Equipment depreciation        300,000
Other depreciation        250,000
     Total operating costs $2,450,000
Operating profits (before taxes) $   750,000
On October 25 of this year, a sales representative for Machine Specialized Company approached you and offered to rent to your division a new sophisticated machine that would be installed on December 31 of this year for an annual rental charge of $460,000. The new equipment would enable you to increase your division’s annual revenue by 10%. The more efficient machine would decrease fixed cash expenditures by 5%. You will have to write off the cost of the new equipment this year because it has no salvage value. Equipment depreciation shown in the income statement is for the new equipment.

Your bonus is determined as a percentage of your division’s operating profits before taxes. Equipment losses are included in the bonus and operating profit computation.
Ignore taxes and any effects on operations on the day of installation of the new machine. Assume that the data given in your expected income statement are the actual amounts for this year and next year if the current equipment is kept.
Required:
a. What is the difference in this year’s divisional operating profit if the new machine is rented and installed on December 31 of this year?
b. What would be the effect on next year’s divisional operating profit if the new machine is rented and installed on December 31 of this year?
c. Would you rent the new machine? Why or Why not?

Waterways puts much emphasis on cash flow when it plans for capital investments. The company chose its discount rate of 8% based on the rate of return it must pay its owners and creditors. Using that rate, Waterways then uses different methods to determine the best decisions for making capital outlays. In 2017 Waterways is considering buying five new backhoes to replace the backhoes it now has. The new backhoes are faster, cost less to run, provide for more accurate trench digging, have comfort features for the operators, and have 1-year maintenance agreements to go with them. The old backhoes are working just fine, but they do require considerable maintenance. The backhoe operators are very familiar with the old backhoes and would need to learn some new skills to use the new backhoes. The following information is available to use in deciding whether to purchase the new backhoes.

Old Backhoes New Backhoes

Purchase cost when new $90,000 $200,000

Salvage value now $42,000

Investment in major overhaul needed in next year . $55,000

Salvage value in 8 years $15,000 $90,000

Remaining life 8 years 8 years

Net cash flow generated each year $30,425 $43,900

(a) Evaluate in the following ways whether to purchase the new equipment or overhaul the old equipment. (Hint: For the old machine, the initial investment is the cost of the overhaul. For the new machine, subtract the salvage value of the old machine to determine the initial cost of the investment.)

(2) Using the payback method for each choice. (Hint: For the old machine, evaluate the payback of an overhaul.)

PLEASE help and explain how you got your answer I'll be so grateful

Shannon O’Bryan operates a service business called Edgecliff Photography. Edgecliff Photography uses the accounts shown in the following accounting equation. Transaction 1 is given as an example. For each transaction, complete the following: (a) Analyze the transaction to determine which accounts in the accounting equation are affected. (b) In the appropriate columns, enter a plus sign (+) if the account increases or a minus sign (–) if the account decreases, and then enter the amount. (c) For transactions that change owner’s equity, enter a description (revenue, expense, investment, or withdrawal) of the transaction to the right of the amount. (d) Calculate and enter a new balance for each account in the accounting equation. (e) Before going on to the next transaction, determine that the accounting equation is still in balance.