a) You work for Dynamic Hardware Division (DHD) of Dynamic IT plc. DHD is considering the...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
a) You work for Dynamic Hardware Division (DHD) of Dynamic IT plc. DHD is considering the development of a wireless router that will provide both the hardware and the software necessary to connect PCs, printers and other appliances in a property. DHD has already conducted an intensive, 300,000 feasibility study to assess the attractiveness of the new product. DHD expects the product will have a three-year life. The sales forecast for the DHD project is 50,000 units in year 1 increasing by 50,000 units per year over the life of the project. The year 1 sales price of 260/unit will decrease by 10% annually and the year 1 cost of 120/unit will decrease by 20% annually. It is expected that 20% of sales will come from customers who would have purchased an existing DHD router for 100/unit and that this router costs 60/unit to manufacture. DHD expects total engineering and design costs to amount to 5 million. In addition to the hardware requirements, DHD must build a new software application to allow virtual control of the home from the Web. This software development project requires a dedicated team of 50 software engineers for a full year to complete. The cost of a software engineer (including benefits and related costs) is 200,000 per year. DHD's new router production lab will be housed in warehouse space that the company would have otherwise rented out for 200,000 per year during years 1-3. Once routers are ready to ship, DHD expects to spend 2.8 million per year on marketing and support for this product. For the purposes of the project, DHD must also install new equipment that will require an upfront investment of 6 million. New tax laws allow the depreciation of the equipment over three years using straight-line depreciation, while the marginal corporate tax rate for the DHD project is 40% each year. Finally, DHD will have no incremental cash or inventory requirements (products will be shipped directly from the contract manufacturer to customers). However, receivables related to DHD are expected to account for 10% of annual sales, and payables are expected to be 10% of the annual cost of goods sold. The company's investment in working capital will be refunded after the project's completion (in Year 4). REQUIRED: i. Identify the costs which should be used to decide whether to proceed with the project or not, and give reasons for why you are including or excluding a specific cost. ii. Calculate the operating cash flows for the duration of the project. (8 marks) (10 marks) a) You work for Dynamic Hardware Division (DHD) of Dynamic IT plc. DHD is considering the development of a wireless router that will provide both the hardware and the software necessary to connect PCs, printers and other appliances in a property. DHD has already conducted an intensive, 300,000 feasibility study to assess the attractiveness of the new product. DHD expects the product will have a three-year life. The sales forecast for the DHD project is 50,000 units in year 1 increasing by 50,000 units per year over the life of the project. The year 1 sales price of 260/unit will decrease by 10% annually and the year 1 cost of 120/unit will decrease by 20% annually. It is expected that 20% of sales will come from customers who would have purchased an existing DHD router for 100/unit and that this router costs 60/unit to manufacture. DHD expects total engineering and design costs to amount to 5 million. In addition to the hardware requirements, DHD must build a new software application to allow virtual control of the home from the Web. This software development project requires a dedicated team of 50 software engineers for a full year to complete. The cost of a software engineer (including benefits and related costs) is 200,000 per year. DHD's new router production lab will be housed in warehouse space that the company would have otherwise rented out for 200,000 per year during years 1-3. Once routers are ready to ship, DHD expects to spend 2.8 million per year on marketing and support for this product. For the purposes of the project, DHD must also install new equipment that will require an upfront investment of 6 million. New tax laws allow the depreciation of the equipment over three years using straight-line depreciation, while the marginal corporate tax rate for the DHD project is 40% each year. Finally, DHD will have no incremental cash or inventory requirements (products will be shipped directly from the contract manufacturer to customers). However, receivables related to DHD are expected to account for 10% of annual sales, and payables are expected to be 10% of the annual cost of goods sold. The company's investment in working capital will be refunded after the project's completion (in Year 4). REQUIRED: i. Identify the costs which should be used to decide whether to proceed with the project or not, and give reasons for why you are including or excluding a specific cost. ii. Calculate the operating cash flows for the duration of the project. (8 marks) (10 marks)
Expert Answer:
Answer rating: 100% (QA)
Answer To calculate the operating cash flows for the duration of the project we need to co... View the full answer
Posted Date:
Students also viewed these accounting questions
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
The Glory Mountain State Ski Are expects to attract 292,500 skier days during the coming ski season. A skier day represents one skier at the mountain for one day. In addition to a $ 2,000,000 per...
-
A Howe scissors roof truss is loaded as shown. Determine the force in members DF, DG, and EG. 2AN KN 2kN F! 1AN L5 m
-
What difference does it make whether the dollar or the local currency is the "functional currency" when it comes to the accounting treatment of currency translations gains or losses?
-
When 2-phenyl-2-butanol is allowed to stand in ethanol containing a few drops of sulfuric acid, the following ether is formed:
-
A company recognizes a lease as a capital lease when a. the lease term is less than 75% of the estimated useful life of the leased asset. b. the lease has no option to purchase the asset at the end...
-
Manon Corporation applies ASPE and sponsors a defined benefit pension plan. The following pension plan information is available for 2017 and 2018: The pension fund paid out benefits in each year....
-
Pittsburgh Aluminum Company uses process costing to record the costs of manufacturing rolled aluminum, which consists of the smelting and rolling processes. Materials are entered from smelting at the...
-
Early diagnosis and proper monitoring and treatments can help children with Hyper IgM avoid some life threatening infections. However, without a successful bone marrow transplant the life expectancy...
-
True or False. The Runge-Kutta method can be used to solve to numerically solve differential equations of any order.
-
Along what dimensions does domestic HRM differ from international HRM?
-
Fill in the Blank. The response of a linear system under any periodic force can be found by ___________ appropriate harmonic responses.
-
What are the three forms of exchange rate exposure that MNCs confront? What techniques are available to MNCs to reduce or control these exchange rate exposures?
-
\(F(t)=\alpha\) t corresponds to: a. an impulse b. step force c. ramp force
-
1. Which of the following is the most likely response to Company ABC's password reset policy ? Users will write down their passwords Users will become friends with people in the IT office because...
-
Orange juice producers are dismayed and puzzled. An economist told them that the reason the demand for orange juice fell is that a new technology allow tomato producers to pick ripe tomatoes more...
-
You have been approached by promoters to give an opinion on the financial statements to be included in the prospectus of a proposed corporation to be named U-Park Corporation. U-Park will own and...
-
The following questions relate to the auditor's responsibility for reporting on inconsistency of application of accounting principles. Select the best response. a. Raider uses the last-in, first-out...
-
J.O. Cole, a sole proprietor, operates a trucking business. Cole also has assets and liabilities in connection with other activities. You are retained to audit the accounts of the J.O.C. Truck Lines...
Study smarter with the SolutionInn App