Compute the necessary calculations and advise DD Traders Limited if it is worth investing in neither, in one or both of these two opportunities.
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DD Limited, South Africa, is a specialist manufacturer of electronic scooters. In seeking to expand its operations, it could acquire a French subsidiary company, AAA Limited, or set up a new division in its home market.
The relevant figures for these two options are:
Set up new division at home R and
Cost of setting up premises 2 2 440 000
Cost of machinery 8 7 00 000
Annual sales 33 000 000
Annual variable cost 1 4 050 000
Additional head office expenses 1 300 000
Existing head office expenses 3 220 000
Depreciation: machinery 10% on cost annually 8 7 0 000
Acquisition Euro
Acquire shares from existing shareholders 28 000 000
Redundancy costs 5 000 000
Annual Sales 39 000 000
Annual variable costs 18 000 000
Annual fixed costs 10 000 000
Consultants fees 750 000
Additional information:
- The project is expected to last for 7 years.
- DD Limited, current cost of capital is 10%.
- The French inflation is expected to be below the South African inflation by 1% per year, throughout the life of this
investment.
- The current exchange spot rate is R24.50 to the Euro (€).
Required:
Compute the necessary calculations and advise DD Traders Limited if it is worth investing in neither, in one or
both of these two opportunities.
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- Bollozos Afterlife Corporation's Division A manufactures and sells product Brand X, which is used in refrigeration systems. Per-unit variable manufacturing and selling costs amount to P20 and P5, respectively The Division can sell this item to external domestic customers for P36 or, alternatively, transfer the product to the company's Division B. Division B is currently purchasing a similar unit from Taiwan for P33. Assume use of the general transfer-pricing rule. •What is the most that the Division B would be willing to pay the Division A for one unit? • If Division A had excess capacity, what transfer price would the Division's management set? · If Division A had no excess capacity, what transfer price would the Divisions management set? If Division A had no excess capacity, what transfer price would the Divisions management set assuming that Division A was able to reduce the variable cost of internal transfers by P4 per unitConsider a Japanese firm that sells product Y in the local market and contemplates sales to the US. If the Japanese firm enters the American market it will compete in quantities against a US firm already in the market. The inverse demand for Y in the US is Pus = 250 - Q (all prices and costs in this problem are in ŞUS), where Q = qu + qj, is total quantity eventually sold by the two competitors. The production of Y requires operating a plant at a fixed cost F = 300, as well as 1 unit of labor and 1 unit of capital per unit of output. Currently, at both the US and Japan the cost of capital is $15/unit and that of labor $10/unit. The Japanese firm has the option to either invest directly in operating a plant in the US, or use at no extra fixed cost its already existing plant in Japan, shipping its product to the US. In that case a transportation cost of $10/unit has to be paid on top of any production cost; also, American customs require a $5/unit duty for any Y imports. a) Find the…Two possible transfer prices (for 4,000 units) are under consideration by two divisions: P35, the minimum transfer price and P40, the maximum transfer price. Corporate profits would be ______________ if P35 is selected as the transfer price rather than P40, and the Computer Division purchases from the Computer Chip Division instead of from the external supplier a.40,000 larger b.20,000 larger c. the same d. 20,000 smaller
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