Compute the irr, Cost Accounting

Assignment Help:

Matheson Electronics' Canadian Branch will help introduce into Canada the just developed new electronic device which, when mounted on an automobile, will tell the driver how many miles the automobile is getting per gallon of gasoline. The device can be mounted on any model of automobile in a few minutes time for negligible cost.
The company is anxious to begin production and distribution of the new device. To this end, marketing and cost studies have been made to determine probable costs and market potential. These studies have provided the following information:
a. New equipment would have to be acquired in order to produce the device. The equipment would cost $365,000 and have a 12-year useful life. After 12 years, the equipment would have a salvage value of about $25,000.
b. Sales in units over the next 12 years are projected to be as follows:
Year Sales in units
1 ......................... 10,000
2 ....................... 16,000
3 ......................... 19,000
4-12 .................... 22,000
c. Production and sales of the device would require working capital of $82,000 in order to finance accounts receivable, inventories and day-to-day cash needs. This working capital would be released at the end of the project's life.
d. The devices would sell for $35 each; variable costs of production, administration & sales would be $15 per unit.
e. Fixed costs for salaries, maintenance, property taxes, insurance and MACRS 7-year depreciation on the equipment would total $135,000 per year. (Depreciation is based on original cost times the MACRS depreciation %'s per year, using the ½ year convention: Yr1=14.29%; Yr2=24.49%; Yr3=17.49%; Yr4=12.49%; Yr5=8.93%; Yr6=8.92%; Yr7=8.93% and Yr8=4.46%.) No depreciation would be taken after year 8.
f. In order to gain rapid entry into the market, the company would have to advertise heavily. The advertising program would be:
Years 1-2 ................................ $ 125,000 per year
Year 3 ................................ 110,000 per year
Years 4-12 ............................. 80.000 per year
g. Matheson Electronics' Board of Directors has specified that all new product lines must promise a return of at least 14% (percent) in order to be acceptable (& must be acceptable in Canada as well).
h. The average income tax rate to use in this analysis is 40%
Required (label each answer prominently):
1. Compute the net cash inflow (cash receipts less yearly cash operating expenses) anticipated from the sale of the device for each of the 12 years.
2. Using the data from 1. above and other data in the problem, determine the NPV (net present value) of the proposed investment.
3. Compute the IRR (internal rate of return) use interpolation.
Based on the decision criteria available, should the project be accepted? Why or why not?


Related Discussions:- Compute the irr

Calculate the pay back period after tax cash flows, An investment alternati...

An investment alternative in a project requires a capital cost of $102 millions completed at time zero. The investment will produce a stream of revenue of $50 millions per year ove

Non-profit cash flows statement, Are non-profit and governments required to...

Are non-profit and governments required to depreciate assets? Why or why not? Would it make sense for them to use double declining balance? Is there a difference between a non-p

Direct labour budget, Direct Labour Budget It represents the forecasts...

Direct Labour Budget It represents the forecasts of indirect and direct labour requirements to meet the demands of the company throughout the budget period. Therefore the budg

Prepaid expenses, Expenses paid in previous of their use or consumption is ...

Expenses paid in previous of their use or consumption is termed as prepaid expenses. At the ending of the year, a portion of the payment keeps unconsumed and is treated like an ass

Factory overhead, what are the examples of factory overhead

what are the examples of factory overhead

Determine the allocation of dividends, Sleep Corporation was organized on J...

Sleep Corporation was organized on January 1, 2011. During its first year, the corporation issued 40,000 shares of $5 par value preferred stock and 400,000 shares of $1 par value c

Assignment, Ed Mettway was concerned about his firm''s ability to acquire t...

Ed Mettway was concerned about his firm''s ability to acquire the necessary property, plant, and equipment to take advantage of steadily increasing sales. Touring Enterprises, esta

Calculate operating income under throughput costing, The follow data relate...

The follow data relates ot year 20XX for Plano Manufacturing Company: Units produced - 2,000 Units sold - 1,800 Selling price - $200 / per unit Direct material costs - $80,000 Dire

Batch costing, Batch Costing This is a kind of job costing that is uti...

Batch Costing This is a kind of job costing that is utilized when production consists of limited repetitive work and definite number of item manufactured in one batch.  A batc

EXPECTED CASH COLLECTIONS.PRACTICE QUESTIONS, WORKED EXAMPLES OF EXPECTED C...

WORKED EXAMPLES OF EXPECTED CASH COLLECTIONS PATTERNS

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd