Reference no: EM133163990

Question 1 - Electronic Component Company (ECC) is a producer of high-end video and music equipment. ECC currently sells its top of the line "ECC" video player for a price of $410. It costs ECC $290 to make the player. ECC's main competitor is coming to market with a new video player that will sell for a price of $380. ECC feels that it must reduce its price to $380 in order to compete. The sales and marketing department of ECC believes the reduced price will cause sales to increase by 14%. ECC currently sells 216,000 video players per year. Irrespective of the competitor's price, what is EEC's required selling price if the target profit is 25% of sales and current costs cannot be reduced?

A) $415.17.

B) $399.17.

C) $405.67.

D) $386.67.

E) $330.60.

Question 2 - Quip Corporation wants to purchase a new machine for $286,000. Management predicts that the machine will produce sales of $186,000 each year for the next 5 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $80,000 per year. The firm uses straight-line depreciation with an assumed residual (salvage) value of $50,000. Quip's combined income tax rate, t, is 30%.

Management requires a minimum after-tax rate of return of 10% on all investments. What is the estimated net present value (NPV) of the proposed investment (rounded to the nearest hundred dollars)? (The PV annuity factor for 10%, 5 years, is 3.791 and for 4 years it is 3.17. The present value $1 factor for 10%, 5 years, is 0.621.) Assume that after-tax cash inflows occur at year-end.

A) $49,000.

B) $80,000.

C) $99,200.

D) $112,200.

E) $70,200.