Given the desire to cut carbon emissions, Ford is considering introducing a new production line of electric sedans. The expected annual unit sales of the electric cars is 31,000; and the selling price is $25,000 per car. Variable costs of production are $11,000 per car. The fixed overhead, including salary of top executives is $80 million per year. However, the introduction of the electric sedans will decrease Ford's sales of regular sedans by 10,000 cars per year; the regular sedans have a unit price of $20,000, a unit variable cost of $12,000, and fixed costs of $250,000 per year. Depreciation costs of the new production line are $50,000 per year. The marginal tax rate is 29 percent. What is the incremental annual cash flow from operations? Incremental annual cash flow from operations $

Given the desire to cut carbon emissions, Ford is considering introducing a new production line of electric sedans. The expected annual unit sales of the electric cars is 31,000; and the selling price is $25,000 per car. Variable costs of production are $11,000 per car. The fixed overhead, including salary of top executives is $80 million per year. However, the introduction of the electric sedans will decrease Ford's sales of regular sedans by 10,000 cars per year; the regular sedans have a unit price of $20,000, a unit variable cost of $12,000, and fixed costs of $250,000 per year. Depreciation costs of the new production line are $50,000 per year. The marginal tax rate is 29 percent. What is the incremental annual cash flow from operations? Incremental annual cash flow from operations $

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Given the soaring price of gasoline, Ford is considering introducing a new production line of gas-electric hybrid sedans. The expected annual unit sales of the hybrid cars is 26,000; the price is $21,000 per car. Variable costs of production are $11,000 per car. The fixed overhead including salary of top executives is $80 million per year. However, the introduction of the hybrid sedan will decrease Ford's sales of regular sedans b 9,000 cars per year; the regular sedans have a unit price of $20,000, a unit variable cost of $12,000, and fixed costs of $250,000 per year. Depreciation costs of the production plant are $49,000 per year. The marginal tax rate is 40 percent. What is the incremental annual cash flow from operations? Incremental annual cash flow from operations eTextbook and Media $
Given the desire to cut carbon emissions, Ford is considering introducing a new production line of electric sedans. The expected annual unit sales of the electric cars is 28,000; and the selling price is $24,000 per car. Variable costs of production are $15,000 per car. The fixed overhead, including salary of top executives is $80 million per year. However, the introduction of the electric sedans will decrease Ford's sales of regular sedans by 11,000 cars per year; the regular sedans have a unit price of $20,000, a unit variable cost of $12,000, and fixed costs of $250,000 per year. Depreciation costs of the new production line are $52,000 per year. The marginal tax rate is 29 percent. What is the incremental annual cash flow from operations? Incremental annual cash flow from operations $
Given the soaring price of gasoline, Ford is considering introducing a new production line of gas-electric hybrid sedans. The expected annual unit sales of the hybrid cars is 31,000; the price is $25,000 per car. Variable costs of production are $11,000 per car. The fixed overhead including salary of top executives is $80 million per year. However, the introduction of the hybrid sedan will decrease Ford s sales of regular sedans by 10,000 cars per year; the regular sedans have a unit price of $20,000, a unit variable cost of $12,000, and fixed costs of $250,000 per year. Depreciation costs of the production plant are $50,000 per year. The marginal tax rate is 40 percent. What is the incremental annual cash flow from operations? (Round answer to the nearest whole dollar, e.g. 5,275.)
Hit or Miss Sports is introducing a new product this year. If its see-at-night soccer balls are a hit, the firm expects to be able to sell 42,800 units a year at a price of $70 each. If the new product is a bust, only 20,700 units can be sold at a price of $45. The variable cost of each ball is $26 and fixed costs are zero. The cost of the manufacturing equipment is $5.86 million, and the project life is estimated at 10 years. The firm will use straight-line depreciation over the 10-year life of the project. The firm's tax rate is 35% and the discount rate is 14%. a. If each outcome is equally likely, what is the expected NPV? ( Use the minus sign for negative value. Round your answer to the nearest dollar.) NPV $ Will the firm accept the project? The firm will (Click to select) v the project. b. Suppose now that the firm can abandon the project and sell off the manufacturing equipment for $5.2 million if demand for the balls turns out to be weak. The firm will make the decision to…
Wilson Partners manufactures thermocouples for electronics applications. The current system has a fixed cost of $300,000 per year, has a variable cost of $10 per unit, and sells for $14 per unit. A newly proposed process will add on-board features that allow the revenue to increase to $16 per unit, but the fixed cost will now be $500,000 per year. The variable cost will be based on a $48 per hour rate with 0.2 hour dedicated to produce each unit. Determine the annual breakeven quantity for the (a) Current system and (b) the new system. (b) Plot the two profit relations and estimate graphically the breakeven quantity between the two alternatives. (c) Mathematically determine the breakeven quantity between the two alternatives and compare it with the graphical estimate
Hit or Miss Sports is introducing a new product this year. If its see-at-night soccer balls are a hit, the firm expects to be able to sell 42,700 units a year at a price of $64 each. If the new product is a bust, only 22,200 units can be sold at a price of $41. The variable cost of each ball is $27 and fixed costs are zero. The cost of the manufacturing equipment is $5.92 million, and the project life is estimated at 9 years. The firm will use straight-line depreciation over the 9-year life of the project. The firm's tax rate is 35% and the discount rate is 13%. Now suppose that Hit or Miss Sports can expand production if the project is successful. By paying its workers overtime, it can increase production by 20,100 units; the variable cost of each ball will be higher, equal to $32 per unit. By how much does this option to expand production increase the NPV of the project? Assume that the firm decides whether to expand production after it learns the first-year sales results. (Round…
A bicycle manufacturer currently produces 360,000 units a year and expects output levels to remain steady in the future. It buys chains from an outside supplier at a price of $2.10 a chain. The plant manager believes that it would be cheaper to make these chains rather than buy them. Direct in-house production costs are estimated to be only $1.50 per chain. The necessary machinery would cost $268,000 and would be obsolete after ten years. This investment could be depreciated to zero for tax purposes using a ten-year straight-line depreciation schedule. The plant manager estimates that the operation would require $56,000 of inventory and other working capital upfront (year 0), but argues that this sum can be ignored since it is recoverable at the end of the ten years. Expected proceeds from scrapping the machinery after ten years are $20,100.If the company pays tax at a rate of 20% and the opportunity cost of capital is 15%, what is the net present value of the decision to produce the…
A bicycle manufacturer currently produces 388,000 units a year and expects output levels to remain steady in the future. It buys chains from an outside supplier at a price of $2.10 a chain. The plant manager believes that it would be cheaper to make these chains rather than buy them.Direct in-house production costs are estimated to be only $1.60 per chain. The necessary machinery would cost $203,000 and would be obsolete after ten years. This investment could be depreciated to zero for tax purposes using a ten-year straight-line depreciation schedule. The plant manager estimates that the operation would require $38,000 of inventory and other working capital upfront (year 0), but argues that this sum can be ignored since it is recoverable at the end of the ten years. Expected proceeds from scrapping the machinery after ten years are $15,225. If the company pays tax at a rate of 20% and the opportunity cost of capital is 15%, what is the net present value of the decision to produce…
A bicycle manufacturer currently produces 395,000 units a year and expects output levels to remain steady in the future. It buys chains from an outside supplier at a price of $1.90 a chain. The plant manager believes that it would be cheaper to make these chains rather than buy them. Direct in-house production costs are estimated to be only $1.40 per chain. The necessary machinery would cost $231,000 and would be obsolete after 10 years. This investment could be depreciated to zero for tax purposes using a 10-year straight-line depreciation schedule. The plant manager estimates that the operation would require $42,000 of inventory and other working capital upfront (year 0), but argues that this sum can be ignored since it is recoverable at the end of the 10 years. Expected proceeds from scrapping the machinery after 10 years are $17,325. If the company pays tax at a rate of 35% and the opportunity cost of capital is 15%, what is the net present value of the decision to produce the…
Newman Company currently produces and sells 7,000 units of a product that has a contribution margin of $9 per unit. The company sells the product for a sales price of $23 per unit. Fixed costs are $20,000. The company is considering investing in new technology that would decrease the variable cost per unit to $11 per unit and double total fixed costs. The company expects the new technology to increase production and sales to 12,000 units of product. What sales price would have to be charged to earn a $80,000 target profit assuming the investment in technology is made? Multiple Choice $16 $23 $21 $11
A bicycle manufacturer currently produces 237,000 units a year and expects output levels to remain steady in the future. It buys chains from an outside supplier at a price of $2.20 a chain. The plant manager believes that it would be cheaper to make these chains rather than buy them. Direct in-house production costs are estimated to be only $1.60 per chain. The necessary machinery would cost $293,000 and would be obsolete after 10 years. This investment could be depreciated to zero for tax purposes using a 10-year straight-line depreciation schedule. The plant manager estimates that the operation would require $44,000 of inventory and other working capital upfront (year 0), but argues that this sum can be ignored since it is recoverable at the end of the 10 years. Expected proceeds from scrapping the machinery after 10 years are $21,975. If the company pays tax at a rate of 35% and the opportunity cost of capital is 15%, what is the net present value of the decision to produce the…
A bicycle manufacturer currently produces 282,000 units a year and expects output levels to remain steady in the future. It buys chains from an outside supplier at a price of $1.80 a chain. The plant manager believes that it would be cheaper to make these chains rather than buy them. Direct in-house production costs are estimated to be only $1.60 per chain. The necessary machinery would cost $225,000 and would be obsolete after ten years. This investment could be depreciated to zero for tax purposes using a ten-year straight-line depreciation schedule. The plant manager estimates that the operation would require $32,000 of inventory and other working capital upfront (year 0), but argues that this sum can be ignored since it is recoverable at the end of the ten years. Expected proceeds from scrapping the machinery after ten years are $16,875. If the company pays tax at a rate of 20% and the opportunity cost of capital is 15%, what is the net present value of the decision to produce the…

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