United Recycling Inc. is one of the largest recyclers of glass and paper products in the United States. The company is looking intoexpanding into the cardboard recycling business. The company's CFO has performed a detailed analysis of the proposed expansion.The company's CFO hired a third-party consulting firm to estimate the cost per ton of processing the cardboard. The consulting firm's cost estimate forprocessing the cardboard was significantly higher than what the CFO had been using in his financial model.Based on the information given, determine which of the statements is correct.O When the CFO adjusts the cost per ton of processing the cardboard, the project's NPV will decrease.O When the CFO adjusts the cost per ton of processing the cardboard, the project's NPV will increase.Which of the following is measured by its effect on the firm's beta coefficient?O Stand-alone riskBeta, or market, riskCorporate, or within-firm, risk

The risk analysis is an important part in a decision making because that is affect the return. The…

Answered: United Recycling Inc. is one of the…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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MSI is considering outsourcing the production of the handheld control module used with some of its products. The company has received a bid from Monte Legend Co. (MLC) to produce 10,000 units of the module per year for $16 each. The following information pertains to MSI’s production of the control modules: Direct materials $ 9 Direct labor 4 Variable manufacturing overhead 2 Fixed manufacturing overhead 3 Total cost per unit $ 18 MSI has determined that it could eliminate all variable costs if the control modules were produced externally, but none of the fixed overhead is avoidable. At this time, MSI has no specific use in mind for the space that is currently dedicated to the control module production. Suppose that the MSI space currently used for the modules could be utilized by a new product line that would generate $35,000 in annual profit. Recompute the difference in cost between making and buying under this scenario.
Johnson Limited is contemplating the installation of a new system that would allow for automated handling of customer inquiries about their order status, account balances, etc. Currently all such inquiries are handled manually by customer service representatives. The software for the new system would cost $214,000. An additional $169,000 would be required for one-time installation costs. Management estimates that the new system would result in costs of $10,300 per year related to addressing software issues and other technological problems that may arise. However, the new system is expected to reduce labour costs by $65,000 per year. Management estimates that the system would be used for five years. Severance costs related to the employees that would be laid off after implementing the new system would be $22,600. Johnson Limited requires a return of at least 15% on investments of this type. Required: Ignore income taxes. 1. Compute the net annual cost savings promised by the new system.…
A global manufacturer of electrical switching equipment (ESE) is considering outsourcing the manufacturing of an electrical breaker used in the manufacturing of switch boards. The company estimates that the annual fixed cost of manufacturing the part in-house, which includes equipment, maintenance, and management, amounts to $8 million. The variable cost of labor and materials are $11.00 per breaker. The company has an offer from a major subcontractor to produce the part for $16.00 per breaker.a. How many breakers would the electrical switching equipment company need per year to make the in-house option the least costly?b. Assume the subcontractor wants the company to share in the costs of the equipment. The ESE company estimates that the total annual cost would be $5 million, which also includes management oversight for the new supply contract. For this concession, the subcontractor will drop the per-unit price to $12.00. Under this assumption, how many breakers would the ESE company…
Bigdeal Corporation manufactures paper and paper products and istrying to decide whether to purchase Smalltek Company. Smalltek has developed a process for manufacturing boxes that can replace containers that use fluorocarbons for expelling a liquid product. The price may be as high as $45 million. Bigdeal prefers to buy Smalltek and integrate its products while leaving the Smalltek management in charge of day-to-dayoperations. A major consideration is the efficiency and effectiveness of Smalltek’s operations. Bigdeal wants to obtain a report on the operational efficiency and effectiveness of the Smalltek sales, production, and research and development departments.Required:Who can Bigdeal engage to produce the report resulting from this operational audit? Several possibilities exist. Are there any particular advantages or disadvantages in choosing from among them?
Magnificent Modems has excess production capacity and is considering the possibility of making and selling security tokens. The following estimates are based on a production and sales volume of 1,000 security tokens. Unit-level manufacturing costs are expected to be $20. Sales commissions will be established at $1 per unit. The current facility-level costs, including depreciation on manufacturing equipment ($60,000), rent on the manufacturing facility ($50,000), depreciation on the administrative equipment ($12,000), and other fixed administrative expenses ($71,950), will not be affected by the production of the security tokens. The chief accountant has decided to allocate the facility-level costs to the existing product (modems) and to the new product (security tokens) on the basis of the number of units of product made (i.e., 5,000 modems and 1,000 security tokens). Required a. Determine the per-unit cost of making and selling 1,000 security tokens. Note: Do not round intermediate…
Badger Valve and Fitting Company, located in southern Wisconsin, manufactures a variety of industrial valves and pipe fittings that are sold to customers in nearby states. Currently, the company is operating at about 70 percent capacity and is earning a satisfactory return on investment. Management has been approached by Glasgow Industries Ltd. of Scotland with an offer to buy 130,000 units of a pressure valve. Glasgow Industries manufactures a valve that is almost identical to Badger's pressure valve; however, a fire in Glasgow Industries' valve plant has shut down its manufacturing operations. Glasgow needs the 130,000 valves over the next four months to meet commitments to its regular customers. Glasgow is prepared to pay $30.40 each for the valves. Badger's total product cost, based on current attainable standards, for the pressure valve is $32.00, calculated as follows: Direct material Direct labor Manufacturing overhead Total product cost Manufacturing overhead is applied to…
A firm that manufactures paper is considering a project to set up a logging operation. Wood pulp generated by the project - normally an unwanted by-product of a logging operation - is an input to the paper manufacturing process. This will save the company $340,000 in wood pulp purchases, but it will cost $50,000 more to transport the wood pulp to the paper factory than it would cost to dump it as waste. How would you describe this situation in terms of the NPV analysis for the logging operation? Question 2Answer a. There is a positive externality equal to $290,000 which should be included in the NPV analysis. b. There is a positive externality equal to $340,000 which should be included in the NPV analysis. c. There is a negative externality equal to $290,000 which should be included in the NPV analysis. d. There is a negative externality equal to $340,000 which should be included in the NPV analysis.
Badger Valve and Fitting Company, located in southern Wisconsin, manufactures a variety of industrial valves and pipe fittings that are sold to customers in nearby states. Currently, the company is operating at about 70 percent capacity and is earning a satisfactory return on investment. Management has been approached by Glasgow Industries Ltd. of Scotland with an offer to buy 130,000 units of a pressure valve. Glasgow Industries manufactures a valve that is almost identical to Badger's pressure valve; however, a fire in Glasgow Industries' valve plant has shut down its manufacturing operations. Glasgow needs the 130,000 valves over the next four months to meet commitments to its regular customers. Glasgow is prepared to pay $30.40 each for the valves. Badger's total product cost, based on current attainable standards, for the pressure valve is $32.00, calculated as follows: Direct material Direct labor Manufacturing overhead Total product cost Manufacturing overhead is applied to…
Premo Pens, Inc., is in the process of developing a newpen to replace its existing top-of-the-line Executive Model.Market research has identified the critical features the pen must have, and it is estimated that customers would be will-ing to pay $30 for a pen with these features. Premo’s produc-tion manager estimates that with existing equipment it will cost $26 to produce the proposed model. The current Execu-tive Model sells for $24 and has a total production cost of $20. A competitor sells a pen similar to the proposed model,but without Premo’s patented easy retract feature, for $28. Itis estimated to cost the competitor $25 to produce. If Premoseeks to earn a 20 percent return on sales on the new model,which of the following represents the target cost for the newpen?a. $26.00.b. $22.40.c. $24.00.d. $19.80.
Monty Company manufactures automobile components for the worldwide market. The company has three large production facilities in Virginia, New Jersey, and California, which have been operating for many years. Brett Harker, vice president of production, believes it is time to upgrade operations by implementing computer-integrated manufacturing (CIM) at one of the plants. Brett has asked corporate controller Connie Carson to gather information about the costs and benefits of implementing CIM. Carson has gathered the following data: Initial equipment cost $ 7,400,000 Working capital required at start-up $ 600,000 Salvage value of existing equipment $ 107,400 Annual operating cost savings $ 1,202,880 Salvage value of new equipment at end of its useful life $ 286,400 Working capital released at end of its useful life 2$ 600,000 Useful life of equipment 10 years Monty Company uses a 12% discount rate.
MSI is considering outsourcing the production of the handheld control module used with some of its products. The company has received a bid from Monte Legend Company (MLC) to produce 10,000 units of the module per year for $16 each. The following information pertains to MSI’s production of the control modules: Direct materials $ 9 Direct labor 4 Variable manufacturing overhead 2 Fixed manufacturing overhead 3 Total cost per unit $ 18 MSI has determined it could eliminate all variable costs if the control modules were produced externally, but none of the fixed overhead is avoidable. At this time, MSI has no specific use in mind for the space that is currently dedicated to the control module production. Required: 1. Compute the difference in cost between making and buying the control module. 2. Should MSI buy the modules from MLC or continue to make them? 3-a. Suppose the MSI space currently used for the modules could be utilized by a new product line that would generate…
Algonac Moldings produces a product made from a metal alloy. Two suppliers, Liebold Metal and Cecil Distributors, supply the alloy. Neither supplier can meet Algonac's typical demand, because of capacity constraints. The material from Liebold is less expensive to buy but more difficult to use, resulting in greater waste. The metal alloy is highly toxic and any waste requires costly handling to avoid environmental accidents. Last year the cost of handling the waste totaled $1,200,000. Additional data from last year’s operations are shown as follows: Liebold Metals Cecil Distributors Amount of material purchased (tons) 64.8 115.2 Amount of waste (tons) 9.0 11.0 Cost of purchases $ 1,488,000 $ 3,312,000 Required: Allocate the cost of the waste handling to the two suppliers based on: Amount of material purchased. Amount of waste. Cost of material purchased. Amount of material purchased. Note: Do not round intermediate calculations. A.)…

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