MGT 325 MONARCH CORPORATION Comprehensive chapter 12 & 13 problems Part A to F Complete Answer

MGT 325_MONARCH CORPORATION Comprehensive chapter 12 & 13 problems_Part A to F Complete_Answer

MGT 325_MONARCH CORPORATION Comprehensive chapter 12 & 13 problems_Part A to F Complete_Answer


MONARCH CORPORATION IS GOING TO START A NEW PRODUCT LINE OF PRODUCTS IN A WHOLE NEW MARKET.
THE DATA FOR ANALYSIS IS PRESENTED BELOW:

COST OF THE EQUIPMENT NEEDED $1,94,000 FIVE YEAR PROPERTY FOR TAX DEPRECIATION
NEW WORKING CAPITAL NEEDS $50,000 WILL BE RECOVERED AT THE END OF THE THIRD YEAR
PROJECTED NEW REVENUES:
SALES PROBABILITY
$2,00,000 30%
$2,50,000 50%
$3,00,000 20%
COST OF GOOD SOLD 30% OF SALES
VARIABLE CASH COSTS 10% OF SALES
ANNUAL FIXED CASH COSTS:
RENT $50,000
CLEANING $20,000
MAINENANCE & OTHER $10,000
TOTAL FIXED COSTS $80,000
EQUIPMENT DISPOSAL PROCEEDS $19,400 SALVAGE VALUE AT THE END OF YEAR 6
FIRM’S COST OF CAPITAL 12.00%
TAX RATE 35%
NOTE – WHEN COMPUTING TAX A NET LOSS FOR THE YEAR A POSITIVE TAX SAVINGS IS CREATED
SINCE THERE IS OTHER INCOME TAX ON OTHER INCOME TO OFFSET
DEPRECIATION RATES FOR TAX PURPOSES:
YEAR ONE 20.00%
YEAR TWO 32.00%
YEAR THREE 19.20%
YEAR FOUR 11.50%
YEAR FIVE 11.50%
YEAR SIX 5.80%
ASSUMPTIONS:
ALL CASH FLOWS IN YEARS 1-6 OCCUR AT THE END OF THE YEAR. ALL INITIAL CASH INFLOWS OR
OUTFLOWS OCCUR TODAY.
REQUIRED:
A. ASSUMING SALES ARE $200,000 COMPUTE THE PAYBACK, IRR AND NPV. FOR THE NPV COMPUTE
AT BOTH THE FIRM’S DISCOUNT RATE AND 16%, WHICH IS A 4% PREMIUM ADDED TO THE RATE.
B. COPY THE WHOLE WORKSHEET AND SOLUTIONS FOR PART A TO THE WORSHEET NAMED PART B,
AND REDO THE COMPUTATIONS BY CHANGING THE ANNUAL SALES TO $250,000.
C. COPY THE WHOLE WORKSHEET AND SOLUTIONS FOR PART A TO THE WORSHEET NAMED PART C,
AND REDO THE COMPUTATIONS BY CHANGING THE ANNUAL SALES TO $300,000.
D. LIST THE RESULTS FOR EACH LEVEL OF SALES FROM PART A-C ON THE WORKSHEET SCHEDULE
ON THE WORKSHEET NAMED PART D-F. COMPUTE THE OVERALL EXPECTED NET PRESENT VALUE
OF THE PROJECT AT 12% AND 16% DISCOUNT RATES, AND COMPUTE THE OVERALL EXPECTED IRR RATE.
E. TAKE THE IRRs AND NPVs FOR THE THREE DIFFERENT LEVELS OF REVENUE AND COMPUTE THE MEAN
(EXPECTED RETURN), STANDARD DEVIATION, AND COEFFICIENT OF VARIATION GIVEN
THE PROBABILITIES THAT A PARTICULAR IRR OR NPV WILL OCCUR. PUT ON WORKSHEET D-F.
[HINT: DIFFERENT IRRs AND NPVS CAN BE LISTED THE BASED ON THEIR PROBABILITES.
HOW OFTEN THEY WILL OCCUR, 30% IS 3 OUT OF TEN TIMES, 50% IS 5 OUT OF TEN TIMES,
AND 20% IS 2 OUT OF TEN TIMES, ON EXCEL TO COMPUTE THE STATISTICS.]
F. ON WORSHEET PART D-F ANALYZE THE RESULTS FOR THE PROJECT. WOULD YOU DO THE PROJECT?
IF SO WHY? IF NOT WHY? BE AS THOROUGH AS POSSIBLE INCLUDING WEAKNESSES.

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MGT 325_MONARCH CORPORATION Comprehensive chapter 12 & 13 problems_Part A to F Complete_Answer