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The Ace Bicycle Company expects to produce 5,900 bicycles this year. Currently Ace also makes the chains for its bicycles. Ace's accountant reports the following costs for making 5,900 chains. Direct materials are $5.11 per chain. Direct manufacturing cost is $2.55 per chain. Variable manufacturing overhead (power and utilities) is $1.55 per chain. Inspection, setup, and material costs are $4,000. Leasing the machine for the chains is $4,300. Administration for the facility, including taxes and insurance is $44,000. Ace has received an offer from an outside vendor to supply chains for $12.10 per chain. The costs for the machine lease are the payments Ace makes for renting the equipment used in making the chains. If Ace buys all of its chains from the outside vendor, it does not need this machine. Ace will not need to pay the variable costs or the inspection and setup costs if it purchases chains from the outside vendor. Assume that if the chains are purchased from the outside supplier, the facility where the chains are currently made will be used to upgrade the bicycles by adding mud flaps and reflector bars. As a consequence, the selling price for the bicycles will increase by $19. The variable cost per unit of the upgrade would be $16.57, and an additional fixed cost of $13,700 would be incurred. Should Ace make or buy the chains, assuming that 5,900 units are produced (and sold)? Enter the cost ($) of the preferred option. When calculating the cost of the upgrade option, please subtract the additional revenue gained from selling the upgrade.
Rick Rocker, a citizen and resident of country F, decides to perform a concert in Los Angeles. When the promoter pays Rocker his fee, the promoter:
Your company plans to borrow $7 million for 12 months, and your banker gives you a stated rate of 20 percent interest. Calculate the effective rate of interest for the given types of loans.
Rise Against Corporation is comparing two different capital structures: an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, the company would have 170,000 shares of stock outstanding. Under Plan II, there would be 120,000 shares o..
NoGrowth Corporation currently pays a dividend of $2 per year, and it will continue to pay this dividend forever. What is the price per share if its equity cost of capital is 15% per year?
Using the free cash flow method of valuation, an analyst determines the value of Company A's stock to be $12 and the value of Company B's stock to be $15. Other things be held constant, what could account for the higher valuation for Company B?
After receiving an inheritance of $50,000 on her 21st birthday, Kelly deposited the inheritance in a savings account with an effective annual interest rate of 4%. She decided to make regular deposits, beginning with $1,000 on her 22nd birthday, and i..
What is the effective annual rate on these loans?
If your capital gains tax rate equals your dividend tax rate, what ex-dividend price per share makes you indifferent between the two trading strategies?
Use the data provided to assess the operating leverage of each firm (using 2008 as the point of reference). Which firm has more operating leverage?
Speedy Delivery Systems can buy a piece of equipment that is anticipated to provide an 9 percent return and can be financed at 6 percent with debt. Later in the year, the firm turns down an opportunity to buy a new machine that would yield a 16 perce..
Calculate the initial outlay of the project. Calculate the annual after-tax operating cash flow for Years 1 -3.
Assume firm will not have enough retained earnings to fund equity portion of its capital budget and cost of capital is adjusted to account for flotation costs.
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