Question

Question 63: Cannondale is considering a modification to one of their products. The change will have...

Question 63: Cannondale is considering a modification to one of their products. The change will have an immediate cost to Cannondale of $50,000, but is expected to raise revenues by $40,000 next year and $45,000 the year after that. The increase in manufacturing costs due to this change are expected be $5,000 per year. These numbers are approximate (after-tax), and no forecasting is done beyond the second year. Cannondale typically requires a rate of return of 10%. What is the NET present value (PV) of this change, considering only the next two years?

  1. $0.00
  2. $14,876.03
  3. $33,057.85
  4. $114,876.03
Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Solution :

The NET present value (PV) of this change, considering only the next two years is = $ 14,876.03

Thus the solution is Option B. $ 14,876.03

Please find the attached screenshot of the excel sheet containing the detailed calculation for the above solution.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
7. (CMA) Garfield Inc. is considering a 10-year capital investment project with forecasted cash revenues of...
7. (CMA) Garfield Inc. is considering a 10-year capital investment project with forecasted cash revenues of $40,000 per year and forecasted cash operating costs of $29,000 per year. The initial cost of the equipment for the project is $23,000, and Garfield expects to sell the equipment for $9,000 at the end of the tenth year. The equipment will be depreciated on a straight-line basis over seven years for tax purposes. The project requires a working capital investment of $7,000 at...
A company is considering buying a new machine and replacing the old one. The managers have...
A company is considering buying a new machine and replacing the old one. The managers have collected the following information: Current machine (old machine): ISK ISK The purchase price 50,000 Accumulated depreciation 40,000 Annual operating expenses 5,000 market 1,500 Impact value after 5 years 0 Repair of current machine (old machine): Repair costs, improvements 12,000 Annual operating expenses after improvements 2,000 New engine: The purchase price 56,000 Annual operating expenses 1,000 Impact value after 5 years 0 1. What is...
Cheezburger Distributors handles the warehousing of perishable foods and is considering replacing one of its primary...
Cheezburger Distributors handles the warehousing of perishable foods and is considering replacing one of its primary cold storage units. Supplier A has offered a unit for $250,000 with an expected life of 10 years. The unit is projected to reduce electricity costs by $50,000 per year. However, it requires a $20,000 refurbishing every two years, beginning two years after purchase. Supplier B has offered a cold storage unit with similar capabilities for $300,000. It will produce the same savings in...
Liberty Products, Inc., is considering a new product launch. The firm expects to have annual free...
Liberty Products, Inc., is considering a new product launch. The firm expects to have annual free cash flow of $5.3 million for the next eight years. The company uses a discount rate of 11% for new product launches. The initial investment is $23 million. Assume that the project has no salvage value at the end of its economic life. After the first year, the project can be dismantled and sold for $18 million after taxes. a. Ignoring the option to...
Vanderheiden Inc. (Q2) is considering two average-risk alternative ways of producing its patented polo shirts.  Process S...
Vanderheiden Inc. (Q2) is considering two average-risk alternative ways of producing its patented polo shirts.  Process S has a cost of $8,000 and will produce net cash flows of $5,000 per year for 2 years.  Process L will cost $11,500 and will produce cash flows of $4,000 per year for 4 years.  The company has a contract that requires it to produce the shirts for 4 years, but the patent will expire after 4 years, so the shirts will not be produced after...
Midwest Industrial Products Corporation makes two products: product H and product L. Product H is expected...
Midwest Industrial Products Corporation makes two products: product H and product L. Product H is expected to sell 30,000 units and product L 50,000 units next year. A unit of either product requires 0.2 direct labour-hours. The company’s total manufacturing overhead for the year is expected to be $2,920,000. Required: The company currently applies manufacturing overhead to products using direct labour-hours as the allocation base. If this method is followed, how much overhead cost will be applied to each product?...
The following question requires you do a simple cost-benefit analysis: Honda Motor Company is considering offering...
The following question requires you do a simple cost-benefit analysis: Honda Motor Company is considering offering a $2000 rebate on its minivan. The marketing group estimates that this rebate will increase sales over the next year from 40,000 to 55,000 vehicles. Suppose Honda’s gross profit after the rebate is $6000 per vehicle. And, suppose the change in sales is the only consequence of this decision. [1] What is the (opportunity) cost of doing the rebate? [2] What is the benefit...
Allied Products, Inc., is considering a new product launch. The firm expects to have annual operating...
Allied Products, Inc., is considering a new product launch. The firm expects to have annual operating cash flow of $9 million for the next 8 years. Allied Products uses a discount rate of 14 percent for new product launches. The initial investment is $39 million. Assume that the project has no salvage value at the end of its economic life. a. What is the NPV of the new product? (Do not round intermediate calculations. Enter your answer in dollars, not...
Question 2 Smith Ltd manufactures and sells one product. You are presented with the following information...
Question 2 Smith Ltd manufactures and sells one product. You are presented with the following information for the preparation of the annual operating budget for the period ending 31 December 2021: Estimated sales in units are 50,000 units for Quarter 1, 53,000 units for Quarter 2, 62,000 units for Quarter 3, and 65,000 units for Quarter 4. The estimated per unit selling price is $9 for Quarters 1-3, and $10 for Quarter 4. Smith Ltd has set the desired ending...
Please answer every question in detail PRACTICE QUESTION Perlin Promotions Limited manufactures promotional items. One of...
Please answer every question in detail PRACTICE QUESTION Perlin Promotions Limited manufactures promotional items. One of the company’s most popular products is a multi-coloured pen (called the “Stripey”) that is imprinted with the name and advertising slogan of each of its customer firms. In September, the company sold 50,000 Stripey pens with the following operating results: Sales (50,000 pens) $40,000 Variable expenses 22,000 Contribution margin $18,000 Fixed expenses 15,000 Income before tax $ 3,000 The company is subject to a...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT