cost of capital , Financial Management

Assignment Help:
ABC Ltd. Produces electronic components with a selling price per of Rs.100. Fixed cost amount to
Rs.2,00,000/-
5000 units are produced and sold each year. Annual profits amount to Rs.50,000/-. The company’s all equity financed assets are Rs.5,00,000/-. The company proposes to change its production process, adding Rs.4,00,000/- to investment and Rs. 50,000/- to fixed operational costs.
The consequences of such a proposal are:
(i) Reduction in variable cost per unit by Rs.10/-
(ii) Increase in output by 2000 units.
(iii) Reduction in selling price per unit to Rs.95/-
(a) Assume an average cost of capital 10%. Examine the above proposal and advise whether or not the company should make the change.
(b) Also work out the degree of operating leverage

Related Discussions:- cost of capital

Brixton plans to sell the applicable computer, Brixton Products is consider...

Brixton Products is considering the purchase of a new $520,000 computer-based entry order system.  The cost of the system will be depreciated on a straight-line basis over its five

Fixed costs, Fixed Costs The costs a rigid incurs doing business that d...

Fixed Costs The costs a rigid incurs doing business that do not change in relation to production. Rent, for example, is a fixed cost because it remains constant whether product

Conversion privilege, In convertible bonds, bondholders get a right t...

In convertible bonds, bondholders get a right to convert their bonds for a specific number of shares of the bond issuer. This privilege allows bondholders to take

Leverage, importance of Leverage

importance of Leverage

Monetary approach to the Exchange Rate, a The Monetary Approach to the ER. ...

a The Monetary Approach to the ER. All else equal, an increase in the interest rate in Canada is associated, in the long run, with higher prices in Canada and an appreciated exchan

What are the rationales of interest swaps, Question: i) What are the ...

Question: i) What are the rationales of interest swaps? ii) You are the corporate treasurer of LSE International Inc. Your firm, rated as AAA, is able to raise capital in

Explain present value of a series of cash flows, Q. Explain Present Value o...

Q. Explain Present Value of a Series of Cash Flows? Present Value of a Series of Cash Flows: - In a business circumstances it is very natural that returns received by a firm ar

Depreciation expense and investment in property plant, Use the excel spread...

Use the excel spreadsheet to project the net income for Winnebago from assumptions about key revenue & expense items.   Use the following assumptions to evaluate the projected net

Management accounting and financial management, Q. Distinguish between Mana...

Q. Distinguish between Management Accounting and Financial Management with clear mention of basis of differences. How does the traditional financial manager differ from the mode

What do you mean by interest rate swap, What do you mean by Interest rate s...

What do you mean by Interest rate swap? Explain the various types of interest rate swap Meaning: It is an arrangement where by one party exchange one set of interest rate paymen

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