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Financial Analysis and Decision Making: Tools and Techniques to Solve Financial Problems and Make Effective Business Decisions

76 SOLVED PROBLEMS

Question: 10.3

A project has cash inflows of Y1 = $30,000, Y2 = $50,000, and Y3 = $70,000. The project costs $100,000 in year 0. Assume a discount rate of 12%. ...

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This problem could be solved by using either the p...
Question: 10.2

A project costs $100,000 in year 0. Cash inflows are Y1 = $30,000, Y2 = $50,000, Y3 = $70,000, where year 0 is the present, and Y1, Y2, and Y3 are the inflows in one, two, and three years, respectively. Assume a discount rate of 12%. Figure 10–2 provides a format for computing discounted payback. ...

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Projects with the shortest discounted payback rank...
Question: 10.4

Consider a project with cash inflows of Y1 = $30,000, Y2 = $50,000, and Y3 = $70,000. The project costs $100,000 in year 0. Having just computed the NPV for this problem, we know that 12% is an insufficient discount rate to achieve an NPV of zero. Ideally, a test discounted cash inflows would ...

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\begin{aligned}\text { test } 1= & \$ 3...
Question: 9.11

Micron’s board of directors wants to raise $2,000,000 of capital this year. Retained earnings are only $100,000. Interest is 12%, their tax rate is 40%, and they have decided not to issue any preferred stock. Their optimum capital structure for new capital is 80% debt, of which 5% will be raised by ...

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To solve this problem, we must determine how much ...
Question: 17.6

August is running a bakery, selling bread for $1.50 per loaf. She has a hundred pounds of flour, fifty pounds of yeast, and a dozen eggs. What’s the problem? Not enough eggs. Assume for purposes of this illustration that the recipe for bread is 1 pound flour, 2 cups of water, 3 eggs, and an ounce ...

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One way is to list all the raw materials, then div...
Question: 17.3

Murray, an architect, has an associate and a secretary. He pays the associate $30 per hour and the secretary $15 per hour. They work 40 hours, making their salaries $1,200 ($30 × 40) and $600 ($15 × 40), respectively, for a total of $1,800 per week. What is the journal entry to record their wages? ...

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Question: 17.2

Pitcarn Corporation’s casting department has the following costs: What is the allocable cost of the casting department? ...

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\begin{aligned}& \text { Labor }=(6,000...
Question: 17.1

Pitcarn Corporation makes pump housings of various sizes. The activities necessary to make a pump housing are casting, grinding, painting, inspecting, and testing. The casting department costs $120,000 per year for direct labor, the working supervisor, employee taxes, sand for molds, and fuel for ...

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Suppose pump housings vary widely in weight, that ...
Question: 16.2

Sprite Machinery makes small backhoes for light-duty work, like trenching fiber optic cables, landscaping, and for working in cramped quarters. Their variable costs are $10,800, their full absorption cost is $10,200, and their target profit margin is 40%, which means Sprite backhoes are priced at ...

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If they sell for less than their variable costs of...
Question: 16.1

Phil’s Hardware in Dry Hole, Texas, is the only store within 40 miles that sells plumbing supplies. In the average year, Phil sells 24 sinks at $80 each. Phil decides to cut his prices to $75, and the next year he sells 25 sinks. Is Phil’s market for sinks elastic or inelastic? ...

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Under the old pricing structure, sinks generated $...
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