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

Depreciation (to be computed), I just do not know which form those numbers ...

I just do not know which form those numbers should go in. I would canculate the results myself. Thanks John and Ellen Brite are married and file a joint return. They have no depend

Prepare of the final accounts of a business, You are assisting the accounta...

You are assisting the accountant on the preparation of the final accounts of a business with a year-end of 31 December. A trial balance has been drawn up and a suspense account ope

Marginal costing and break evan point analysis, what is marginal costing an...

what is marginal costing and explain concept of marginal costing

Generally accepted accounting principles, Generally Accepted Accounting Pri...

Generally Accepted Accounting Principles (GAAP) -Rules, conventions and procedures essential to define accepted accounting practice at a specific time. The highest level of such pr

What is the steady-state value of capital labor ratio, 1. A country has the...

1. A country has the per-worker production function  y t = 6 k t 0.5   where y t is output per worker and k t is the capital-labor ratio. The depreciation rate is 0.1 and t

Calculate the cost of direct material used during the period, A company add...

A company adds overhead costs to jobs at the rate of $8 per direct labor hour. It accumulates overhead costs in a seperate manufacturing overhead account and uses normal costing to

Investment, under which type of asset the investment comes

under which type of asset the investment comes

Break even analysis, B REAK EVEN ANALYSIS Break even analysis is a bro...

B REAK EVEN ANALYSIS Break even analysis is a broadly used technique to study cost-volume-profit relationship.  It can be explained as - 'a system for determination of that le

Differential costing, DIFFERENTIAL COSTING Marginal costing is often co...

DIFFERENTIAL COSTING Marginal costing is often confused with differential costing. The word 'DIFFERENTIAL COSTING' means 'a technique used in the preparation of adhoc informati

Compute the payback period for this investment, Eagle Company is considerin...

Eagle Company is considering the purchase of an asset for $100,000. It is expected to produce the following net cash flows. The cash flows occur evenly throughout each year. Comput

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