franklin lumber capital budgeting procedures case 21 solution of all 13 questions

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franklin lumber capital budgeting procedures case 21 solution of all 13 questions

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Fort Greenworld Capital Budgeting Case 20 Solutions For all 11 questions

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American Grain Company Equipment replacement Case 22 solution of all 9 questions

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Soldrum Company is considering automating its production facility. The initial investment in automation would be $13.54 million, and the equipment has a useful life of 11 years with a residual value of $1.11 million. The company will use straight-line depreciation. Soldrum could expect a production increase of 37,000 units per year and a reduction of 20 percent in the labor cost per unit.

Current Proposed

(no automation) (automation)

Production and sales volume 86,000 units 123,000 units

Per Unit Total per Unit Total

Sales revenue $ 95 ? $ 95 ?

Variable costs

Direct materials $ 19 $ 19

Direct labor 30 ?

Variable manufacturing overhead 12 12

Total variable manufacturing costs 61 ?

Contribution margin $34 ? $40 ?

Fixed manufacturing costs 1,230,000 2,310,000

Net income ? ?

Required:

1) Complete the preceding table showing the totals.

2) Determine the project’s accounting rate of return.

3) Determine the project’s payback period

4) Using a discount rate of 17 percent, calculate the net present value (NPV) of the proposed investment

5) Recalculate the NPV using a 12% discount rate.

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Rainwater Corp. expects to sell 630 umbrellas in May and 310 in June. Each umbrella sells for $20. Rainwater’s beginning and ending finished goods inventories for May are 85 and 55 units, respectively. Ending finished goods inventory for June will be 60 units. Each umbrella requires a total of $4.00 in direct materials that includes an opening mechanism that the company purchases from a supplier at a cost of $1.50 each. Rainwater wants to have 27 mechanisms on hand at May 1, 20 mechanisms at May 31, and 20 mechanisms at June 30. Additionally, Rainwater’s fixed manufacturing overhead is $1,000 per month, and variable manufacturing overhead is $0.75 per unit produced.

Required:

1. Compute the budgeted cost of mechanisms purchased for May and June.

2. Compute the budgeted manufacturing overhead for May and June places.

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Rainwater Corp. expects to sell 540 umbrellas in May and 360 in June. Each umbrella sells for $18. Rainwater’s beginning and ending finished goods inventories for May are 70 and 50 units, respectively. Ending finished goods inventory for June will be 65 units.

Required:

1. Compute the budgeted sales for May and June.

2. Compute the budgeted production for May and June.

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Soldrum Company is considering automating its production facility. The initial investment in automation would be $13.33 million, and the equipment has a useful life of 11 years with a residual value of $1.01 million. The company will use straight-line depreciation. Soldrum could expect a production increase of 49,000 units per year and a reduction of 20 percent in the labor cost per unit.

Current Proposed

(no automation) (automation)

Production and sales volume 79,000 units 128,000 units

Per Unit Total Per Unit Total

Sales revenue $ 91 ? $91 ?

Variable costs:

Direct materials $20 $ 20

Direct labor 25 ? ?

Variable manufacturing overhead 8 8

Total variable manufacturing costs 53 ?

Contribution margin $ 38 ? $ 43 ?

Fixed manufacturing costs 1,200,000 2,200,000

Net income ? ?

Requirement 1:

Complete the preceding table showing the totals.

Requirement 2:

Determine the project’s accounting rate of return.

Requirement 3:

Determine the project’s payback period.

Requirement 4:

Using a discount rate of 16 percent, calculate the net present value (NPV) of the proposed investment.

Requirement 5:

Recalculate the NPV using a 11% discount rate.

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Dayton Corp has $2.25 million to invest in new projects. The company’s managers have presented a number of possible options that the board must prioritize. Information about the projects follows:

Project A Project B Project C Project D

Initial investment $590,000 $270,000 $830,000 $985,000

Present value of

Future cash flows 805,000 435,000 1,240,000 1,600,000

Requirement 1:

Is Dayton able to invest in all of these projects simultaneously?

Requirement 2:

(a) Calculate the profitability index for each project.

(b) In order of preference, rank the four projects in terms of profitability index for Dayton.

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Dayton Corp has $2.25 million to invest in new projects. The company’s managers have presented a number of possible options that the board must prioritize. Information about the projects follows:

Project A Project B Project C Project D

Initial investment $590,000 $270,000 $830,000 $985,000

Present value of

Future cash flows 805,000 435,000 1,240,000 1,600,000

Requirement 1:

Is Dayton able to invest in all of these projects simultaneously?

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Your friend Jose is trying to decide whether to buy or lease his next vehicle. He has gathered information about each option but is not sure how to compare the alternatives. Purchasing a new vehicle will cost $26,500, and Jose expects about $500 per year in maintenance costs. He would keep the vehicle for five years and estimates the salvage value to be $8,500. Alternatively, Jose could lease the same vehicle for five years at a cost of $4,200 per year including maintenance. Assume a discount rate of 10 percent.

Requirement 1:

Determine the net present value of Jose’s options.

Requirement 2:

Determine which option Jose should choose.

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