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

Calculated the net working capital, Balance Sheet                      ...

Balance Sheet                                                                      2010                2011             Assets Cash

Specific order costing, Specific Order Costing This is a broad costing...

Specific Order Costing This is a broad costing system that is applicable where work jobs consist of separate jobs, batches or contracts.  Every job or contract or batch is a c

What kinds of benefits have communities realized due to fca, Q. What kinds ...

Q. What kinds of benefits have communities realized due to FCA? Communities have understood the following benefits by using FCA: • Rates or tipping fees are set right and fa

Prepare a properly classified cash flow statement, Prepare a properly class...

Prepare a properly classified Cash Flow Statement for Sports Enterprises Ltd for the year ended 31st December 2011. Note that the Closing Cash at Bank Balance at 31st December 2011

What is the profit maximizing level of advertising, Smith Corp. has determi...

Smith Corp. has determined that its contribution margin, (P - MC)/P, is 40%. A recent market research study found the following relationship between adverting outlays and sales rev

Incremental costs as relevant costs, Incremental Costs as Relevant Costs ...

Incremental Costs as Relevant Costs An incremental cost is specifically incurred with the following a course of action and ignorable if such action is not implemented. It cont

Compute the second years tax amortization, Smith Corporation purchased an i...

Smith Corporation purchased an intangible asset for $110,000. Compute the second year's tax amortization. The second year would be a full year's amortization. The company estimates

Uniform Capitalization rules, Are public service corporations subject to un...

Are public service corporations subject to uniform capitalization rules?

What would be the balance in the paid-in capital, Horton Co. was organized ...

Horton Co. was organized on January 2, 2010, with 500,000 authorized shares of $10 par value common stock. During 2010, Horton had the following capital transactions: January 5-iss

Calculate the annual profit from the farm , Xander Harris is considering wh...

Xander Harris is considering whether to buy a corn and soybean farm in Iowa. The farm will cost $800,000, and Xander will be able to pay this from profits his recently deceased mot

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