1. Mouser Company is evaluating a capital expenditure proposal with the following predicted cash flows:
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Initial investment:
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$110,000
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Operations:
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|
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Year 1
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$40,000
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|
Year 2
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30,000
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Year 3
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55,000
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Salvage value:
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-0-
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Discount rate
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12%
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Required: Determine the following values:
a. Net present value of the investment at a discount rate of 12 percent, using a spreadsheet or financial calculator
b. Payback period
c. Accounting rate of return using average investment
2. Provide the missing data for the following divisions.
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CD Division
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MP3 Division
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DVD Division
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Asset base
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$ (a)
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$ (e)
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$200,000
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Income
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$96,000
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$580,000
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$ (g)
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Investment turnover
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(c)
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(f)
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4.0
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Return on sale ratio
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(b)
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12%
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14%
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Return on investment
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15%
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15%
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(h)
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Sales
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$1,500,000
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$ (d)
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$800,000
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3. Willow brook Company has the following data for this year:
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Bottling Division
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Mixing Division
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Average operating assets
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$320,000
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$ 800,000
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|
Contribution margin
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160,000
|
500,000
|
|
Operating income
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80,000
|
120,000
|
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Sales
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500,000
|
1,300,000
|
|
Weighted-average cost of capital
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17%
|
17%
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Willow brook Company has a target ROI of 17 percent.
Required: Calculate the following amounts for each division:
a. Return on sales ratio
b. Operating investment turnover
c. ROI
d. Residual income
4. The Big Blackbird Company manufactures decorative scarecrows that have a standard cost of $3.50 per pound for direct materials used in the manufacturing process. During September, 30,000 pounds of materials were purchased for $4.00 per pound, and 24,000 pounds were actually used in making 5,000 scarecrows. There were no beginning inventories.
Required:
a. Determine the materials price variance assuming that materials costs are the responsibility of the materials purchasing manager.
b. Determine the materials price variance assuming that materials costs are the responsibility of the production manager.
c. Determine the material quantity variance if the standard materials for each scarecrow are 6 pounds.
5. Band Instruments Company has the following sales budget for the first three months of the current year:
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Month
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Sales Revenue
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January
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$600,000
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February
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150,000
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|
March
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440,000
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Historically, the following trend has been established regarding cash collection of sales:
- 65 percent in month of sale
- 25 percent in month following sale
- 8 percent in second month following sale
- 2 percent uncollectible The company allows a 2 percent cash discount for payments made by customers during the month of the sale. November and December sales were $100,000 and $200,000, respectively.
Required: Prepare a schedule of budgeted cash collections from sales for January, February, and
March 26. Washington Corporation sells a product for $400 per unit. Its market share is 35 percent of the units sold. The marketing manager believes that the market share can be increased to 40 percent of the units sold with a reduction in price to $350. The product is currently earning a profit of $60 per unit. The president of Washington Corporation believes that his company needs to maintain the same profit level per unit. The total market for the product has annual sales of 12,500 units.
Required:
a. How many dollars does Washington Corporation currently sell of the product each year?
b. What is the target price per unit?
c. What is the target cost per unit?