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

Cost accounting, using relevant examples discuss the meaning and scope of c...

using relevant examples discuss the meaning and scope of cost accounting

Prepare a statement of financial balance sheet, The Accountant has also ask...

The Accountant has also asked for you to assist in preparing the statement of financial position (balance sheet) for the Construction in Building partnership for the year ended 30

Calculate the payback and discounted payback period, Lapsol limited manufac...

Lapsol limited manufacture electrical appliances for the export market. The management of the company are considering investing in one of two possible capital expenditure projects.

Calculate the average cost, Seventeen new bathing suit stores enter the San...

Seventeen new bathing suit stores enter the Santa Barbara market, joining the seven that already existed. As a consequence, the demand schedule facing Swim N Style (and all other s

Find out the cost per unit, Find Out the Cost per Unit Material A is ...

Find Out the Cost per Unit Material A is added at the start of a production process. Overheads and Labor are added continuously throughout the production process. At the endi

EOQ , formula for economic order quantity

formula for economic order quantity

Advantages of standard costing, Advantages of Standard Costing 1. Man...

Advantages of Standard Costing 1. Management via Exception: the standard costing is an example for management via exception. By studying the variances, management's attentio

explain your calculation of relevant net cash flows, Polycorp Limited Stee...

Polycorp Limited Steel Division is considering a proposal to purchase a new machine to manufacture a new product for a potential three year contract.  The new machine will cost $1

Determine the ratio of the sales, 1) Jodie received a $2000 college entranc...

1) Jodie received a $2000 college entrance scholarship. Nine month later Brian was awarded a $2100 academic proficiency scholarship for his outstanding grades in the first year of

Combined cash - bank account- cash book, The following is a summary of a ca...

The following is a summary of a cash book for the year ended 31 April 2012 Payments                                              $              Receipts

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