An Australian company is considering making a foreign capital expenditure in New Zealand. The cost of the project is NZD 1m and it is expected to generate cash flows of NZD 350,000, NZD 300,000 and NZD 650,000 over three years.
The inflation rate in New Zealand is 3.2%pa and the inflation rate in Australia is 4.1%pa. The inflation rates are forecasted to be unchanged over the investment horizon.
The firm's cost of capital in Australian dollars is 12.5%. The current exchange rate is S(NZD/AUD)=1.10. Ignore any tax effects (i.e. assume the tax rate is zero).
Convert all cash flows from NZD to AUD at the PPP forecasted exchange rates and estimate the NPV of the project at the AUD cost of capital. Are the two answers identical? If you find any major deviations between the two answers, try to explain the source of these deviations.
(Show all calculation)
In: Finance
Minimize total cost = 4X13 + 3X23 + 8X14+ 6X24 + 2X15+ 5X25 + 5X36 + 8X46 + 2X56 + 7X37 + 3X47 + 9X57
Subject to:
X13 + X14 + X15 ≤ 1500
X23 + X24 + X25 ≤ 1000
X13 + X23 = X36 + X37
X14 + X24 = X46 + X47
X15 + X25 = X56 + X57
X36 + X46 + X56 = 1200
X37 + X47 + X57 = 800
All xij ≥ 0
In: Statistics and Probability
Minimize total cost = 4X13 + 3X23 + 8X14+ 6X24 + 2X15+ 5X25 + 5X36 + 8X46 + 2X56 + 7X37 + 3X47 + 9X57
Subject to:
X13 + X14 + X15 ≤ 1500
X23 + X24 + X25 ≤ 1000
X13 + X23 = X36 + X37
X14 + X24 = X46 + X47
X15 + X25 = X56 + X57
X36 + X46 + X56 = 1200
X37 + X47 + X57 = 800
All xij ≥ 0
In: Statistics and Probability
| Fraser Co. is considering a change to its cost structure. Below is the data relating to the current structure as well as the proposed change. | ||||||||
| Current Structure | Proposed Structure | |||||||
| Unit Sales | 20,000 | Unit Sales | 20,000 | |||||
| Sales Price Per Unit | $100 | Sales Price Per Unit | $100 | |||||
| Total Variable Costs (based on 20,000 units) | $400,000 | Total Variable Costs (based on 20,000 units) | $700,000 | |||||
| Total Fixed Costs | $900,000 | Total Fixed Costs | $600,000 | |||||
| 1.) Prepare a CVP Statement for each cost structure. Incorporate cell references and formulas where indicated. You can instantly create the CVP Statement for the Proposed Structure, by copying and pasting your completed CVP Statement for the Current Structure. Make sure all highlighted areas are completed. Try to avoid the headings when copying. You want to keep the Proposed Structure heading. | ||||||||
| CVP Statement - Current Structure | CVP Statement - Proposed Structure | |||||||
| % of Sales | ||||||||
| Total | Per Unit | |||||||
| Type a Label Here | formula | cell reference | formula | |||||
| Type a Label Here | cell reference | formula | formula | |||||
| Type a Label Here | formula | formula | formula | |||||
| Type a Label Here | cell reference | |||||||
| Type a Label Here | formula | |||||||
| 2.) Use the Contribution Margin technique to calculate the Breakeven point in units and dollars for each scenario. You can save time again by copying from one section to the next. Be careful with the headings. | ||||||||
| Breakeven Units - Current Structure | Breakeven Units - Proposed Structure | |||||||
| cell reference | = | formula | cell reference | = | formula | |||
| cell reference | cell reference | |||||||
| Breakeven Sales Dollars - Current Structure | Breakeven Sales Dollars - Proposed Structure | |||||||
| cell reference | = | formula | cell reference | = | formula | |||
| cell reference | cell reference | |||||||
| 3.) Compare the Net Operating Income and Breakeven calculations for both scenarios. What happened to the breakeven point and why? | ||||||||
| Type response here | ||||||||
| 4.) Compute the Degree of Operating Leverage for both scenarios. Save time again. | ||||||||
| Degree of Operating Leverage - Current Structure | Degree of Operating Leverage - Proposed Structure | |||||||
| cell reference | = | formula | cell reference | = | formula | |||
| cell reference | cell reference | |||||||
| 5.) Use the Degree of Operating Leverage to determine how a 10% increase in sales will impact Net Income. | ||||||||
| Current | Proposal | |||||||
| Degree of Operating Leverage | cell reference | cell reference | ||||||
| LABEL | Number | cell reference | ||||||
| Net Income Impact | formula | formula | ||||||
| Old Net Income | cell reference | cell reference | ||||||
| LABEL | formula | formula | ||||||
| New Net Income | formula | formula | ||||||
| 6.) Save and print (face -to-face class ) | ||||||||
| 7.) Copy ROWS 1-17 of this spreadsheet tab ("ORIGINAL") to the "Revisions" tab . | ||||||||
| 8.) Use the "Revision" spreadsheet to prove your calculation from instruction #5 of the "Original" spreadsheet by increasing the sales volume in the data section (gray shaded area) by 10%. Remember to change anything else in the data section which would be affected by a change in sales volume. You should not make any changes below row 6. | ||||||||
In: Finance
Describe how the concepts of scarcity, choice, and opportunity
cost apply to each of the following situations. Think about what
exactly the scarce resource is, what the choice there is to be
made, and what the opportunity cost (there is going to be more than
one) of the choice might be.
a) You debate using a Saturday afternoon to (1) nap or (2) work on
this assignment.
b) The Oswego County legislature, facing a large budget deficit, debates over whether to (1) increase property taxes 35% or (2) increase property taxes only 15% and lay off 100 county workers.
In: Economics
Cherry Creek Inc. is considering expanding to another city; the project will cost $50,000 and is expected to generate after-tax cash flows of $10,000 per year in perpetuity.
The firm has a target debt/equity ratio of 0.5 and the new equity has a flotation cost of 10% and a required return of 15%, while new debt has a flotation cost of 5% and a required return of 10%. The tax rate is 34%.
In: Finance
Local Co. has sales of
$ 10.5
million and cost of sales of
$ 6.4
million. Its selling, general and administrative expenses are
$ 550 comma 000
and its research and development is
$ 1.2
million. It has annual depreciation charges of
$ 1.2
million and a tax rate of
35 %
.
a. What is Local's gross margin?
b. What is Local's operating margin?
c. What is Local's net profit margin?
d. If Local Co. had an increase in selling expenses of
$ 330 comma 000
,
how would that affect each of its margins?
e. If Local Co.had interest expense of
$ 760 comma 000
,
how would that affect each of its margins?
In: Finance
Cost Flow Relationships
The following information is available for the first month of operations of Bahadir Company, a manufacturer of mechanical pencils:
| Sales | $433,840 |
| Gross profit | 252,930 |
| Cost of goods manufactured | 216,920 |
| Indirect labor | 94,140 |
| Factory depreciation | 14,320 |
| Materials purchased | 133,620 |
| Total manufacturing costs for the period | 249,460 |
| Materials inventory, ending | 17,790 |
Using the above information, determine the following missing amounts:
| a. Cost of goods sold | $ |
| b. Finished goods inventory at the end of the month | $ |
| c. Direct materials cost | $ |
| d. Direct labor cost | $ |
| e. Work in process inventory at the end of the month | $ |
In: Accounting
As the activity level increases, which of the following will decrease?
| A. |
Variable cost per unit |
|
| B. |
Fixed cost in total |
|
| C. |
Fixed cost per unit |
|
| D. |
Variable cost in total |
In: Accounting
In: Finance