cost of capital, Financial Management

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
Posted Date: 10/26/2012 11:18:00 AM | Location : United States







Related Discussions:- cost of capital, Assignment Help, Ask Question on cost of capital, Get Answer, Expert's Help, cost of capital Discussions

Write discussion on cost of capital
Your posts are moderated
Related Questions
'Foreign Exchange Market': Definition of 'Foreign Exchange Market' The markets, in which participants are able to sell, buy exchange and speculate on currencies.  Foreign e

Here is currently making investment appraisals of two potential long-term supermarket projects, A and B. Both projects needs the similar initial investment of £20m. The following r

Question 1 Globalization is a process of international integration that arises due to increasing human connectivity as well as the interchange of products, ideas and other aspe

Q. Define Arbitrage Process ? The basic theory of the MM approach if we ignore the taxes is that the total value of a firm should be constant irrespective of the degree of leve

What is Financial risk Financial risk is affected by mixture of long-term financing or capital structure, of firm. Firms with high levels of long-term debt in proportion to t

Q. Compute the economic order quantity? TNG has a current order size of 50000 units Average number of orders per year = demand/order size = 255380/50000 = 5·11 orders Ann

A total of $426,000 seed-funding would be ideal to start the project on a local basis. The cost analysis done above is for the material required to perform the work, and as the wor

LP Problem, Financial Management Max Z = 107x1+x2+2x3 Subject to 14x1+x2-6x3+3x4=7 16x1+x2-6x3 3x1-x2-x3 x1,x2,x3,x4 >=0

The objective of the assignment is to develop an understanding of the factors that influence changes in the prices of stocks. *A person has $ 100,000 that they have to invest in s

The Final Project for this module is a consultancy report to Anthony’s Orchard, an expanding apple orchard and distributor. The company has been entertaining the idea of expanding