![]() ![]() The sales mix is assumed to be constant.Expected sales volumes for the two products are as follows: ![]() The company plans tolaunch two new products, Alpha and Beta, at the start of July 20X7,which it believes will each have a life-cycle of four years. (a) Calculate the following values for the investment proposal:Ĥ Investment appraisal – Further aspectsĪRG Co is a leisure company that is recovering from a loss-makingventure into magazine publication three years ago. For investmentappraisal purposes, Breccon uses a nominal (money) discount rate of 10%per year and a target return on capital employed of 20% per year. No terminal value or machinery scrap value is expected at the endof four years, when production of DV is planned to end. Again,this will last for the remainder of the life of the product. However, if production is increased, it is expected thatthe selling price will fall to $45 per unit for all units sold. If production remained at 5,000 units, the current selling pricewould be expected to continue throughout the remainder of the life ofthe product. The followinginformation relating to this investment proposal has now been prepared: The directors are now considering investing in a second machinethat will allow the company to satisfy the excess demand. The marketing department hasprepared the following demand forecast for future years as a result offeedback from customers. The DV product has been a huge success in the marketplace and as aresult, all items manufactured are sold. Perform calculations to show whether the company should convert the product.ģ Investment appraisal – Discounted cash flow techniquesīreccon Co introduced a new product, DV, to its range last year.The machine used to mould each item is a bottleneck in the productionprocess meaning that a maximum of 5,000 units per annum can bemanufactured. (7) The conversion project will be allocated a share of central overheads calculated at a rate of $4 per skilled labour hour worked. The factory is being depreciated anddepreciation for the duration of the project will be $10,000. (6) The project will take place in afactory which is currently empty. A similar replacement machine could be purchased for$15,000 and would have a zero residual value after the conversionproject. The machine is currently being used elsewhere in thebusiness where it generates a present value of $20,000 it has a scrapvalue of $12,000. (5) A machine bought for $30,000four years ago. Each hour used on this other productioncurrently generates contribution of $4 per hour (being revenue of $25,material cost of $15 and labour of $6). Therefore the only way to get the required hours is to movestaff from other production. Due to union restrictions, staff willnot work overtime and there is no other labour available at such shortnotice. Semi skilled labour is paid at $6 per hour but is currentlyfully occupied on other projects. The remaininghours would be made up through overtime which would be paid at $12 perhour. (3) 4,000 hours of skilled labour.Skilled labour is paid a fixed weekly wage and there is currently sparecapacity sufficient to provide half the required hours. There isno other use for the material and it has a scrap value of $1.00 per kg. Thecompany currently has 600kgs in stock which was bought last month for$3.00 per kg although the current purchase price is now $3.50. Material A is regularly used in the company's other products. Thecompany currently has 2,500kgs in stock which was bought last month for$2.00 per kg, although the current purchase price has now increased to$2.15. The conversion would require the following: The company has the option of converting the product into a different version which it estimates could be sold for $85,000. A company has produced a made-to-order product for a customer at acost of $50,000, which was to have been sold to the customer for$120,000.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |