Ben Gualita, vice-president of seles, has recommended adding a new product line. A market Study and...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Ben Gualita, vice-president of seles, has recommended adding a new product line. A market Study and cost analyses show that the new line should yield the following annual results. Net Sales Cost of Sales Operating Expenses Total Expenses Income before income taxes income taxes (40%) Net Income Net Sales Cost of Sales Operating Expense Total Expense Operating Income Interest Expense Income before income taxes Income taxes (40%) Net Income Total Assets Current Liabilities Long term debt Shareholder's Equity Total liabilities & Equities $ $ $ $ Depreciation of $150,000 is included in the total expenses.Cost of Sales and operating expenses include only direct cost of the new line. $ $ $ $ 2,800,000 1,600,000 200,000 1,800,000 1,000,000 400,000 600,000 $ 12,000,000 $ 7,500,000 1,800,000 9,300,000 2,700,000 100,000 S 2,600,000 1,040,000 $ 1,560,000 $ 12,000,000 3,000,000 1,000,000 8,000,000 $ 12,000,000 *Depreciation expense included total $400,000 for the firm The investment in additional equipment for the production and sale of the new product line has been estimated at $3,000,000.00. "The new product line will yield a 20 percent return on assets," Guslits states. Steve Grunewald, the vice president of production, interrupts. "Are you talking about a cash flow return, Ben?" he asks. "No," Guslits answers. "When depreciation is added back, the cash-flow return will be even greater." The vice president of finance, Jude Gallagher, ask, "How do you think we should finance the investment?" "We should be able to issue long-term notes," Guslits responds. "Our debt at the present is modest. And, with debt financing, we gain the advantage of leverage." "In your estimate, Ben, you forgot to include any interest cost. It will cost us $150,000 after income taxes to finance $3,000,000,"Gallagher replies Examine and comment on Guslits' strategy to finance the investment. Is it likely that shareholders will impressed with the investment? Why? Ben Gualita, vice-president of seles, has recommended adding a new product line. A market Study and cost analyses show that the new line should yield the following annual results. Net Sales Cost of Sales Operating Expenses Total Expenses Income before income taxes income taxes (40%) Net Income Net Sales Cost of Sales Operating Expense Total Expense Operating Income Interest Expense Income before income taxes Income taxes (40%) Net Income Total Assets Current Liabilities Long term debt Shareholder's Equity Total liabilities & Equities $ $ $ $ Depreciation of $150,000 is included in the total expenses.Cost of Sales and operating expenses include only direct cost of the new line. $ $ $ $ 2,800,000 1,600,000 200,000 1,800,000 1,000,000 400,000 600,000 $ 12,000,000 $ 7,500,000 1,800,000 9,300,000 2,700,000 100,000 S 2,600,000 1,040,000 $ 1,560,000 $ 12,000,000 3,000,000 1,000,000 8,000,000 $ 12,000,000 *Depreciation expense included total $400,000 for the firm The investment in additional equipment for the production and sale of the new product line has been estimated at $3,000,000.00. "The new product line will yield a 20 percent return on assets," Guslits states. Steve Grunewald, the vice president of production, interrupts. "Are you talking about a cash flow return, Ben?" he asks. "No," Guslits answers. "When depreciation is added back, the cash-flow return will be even greater." The vice president of finance, Jude Gallagher, ask, "How do you think we should finance the investment?" "We should be able to issue long-term notes," Guslits responds. "Our debt at the present is modest. And, with debt financing, we gain the advantage of leverage." "In your estimate, Ben, you forgot to include any interest cost. It will cost us $150,000 after income taxes to finance $3,000,000,"Gallagher replies Examine and comment on Guslits' strategy to finance the investment. Is it likely that shareholders will impressed with the investment? Why?
Expert Answer:
Answer rating: 100% (QA)
Guslits strategy to finance the investment is to use ... View the full answer
Related Book For
Cost Accounting A Managerial Emphasis
ISBN: 978-0133392883
6th Canadian edition
Authors: Horngren, Srikant Datar, George Foster, Madhav Rajan, Christ
Posted Date:
Students also viewed these finance questions
-
New England Metals is considering adding a new product line that has an expected life of 8 years. The product manufacturer would require the firm to incur setup costs of $6,400,000 to handle the new...
-
A company that is considering adding a new product line has determined that the first cost would be $80 million. The company is not sure about how the product will be received, so it has projected...
-
A company is trying a new product line in a random sample of stores.Previously; the average of sales at all stores was $5,000 a week. Weekly sales at the stores trying out the new product line were...
-
On the cost of goods manufactured schedule, depreciation onfactory equipment... A. is not listed because it is not a product cost. B. is not an inventoriable cost. C. is not listed because it is...
-
Do you think that SWOT analysis is a useful tool for career development? Why or why not?
-
Which country has the comparative advantage? What is the opportunity cost? What the production pre specialisation? What is the production post specialisation? By how much has production in both goods...
-
For each of the following situations, calculate the population standard error of the mean \(\sigma \mathrm{X}^{-}\). a. \(\sigma=18 ; N=36\) b. \(\sigma=9.42 ; N=49\) c. \(\sigma=1.87 ; N=60\) d....
-
Consider the quarterly sales data for Worthington Health Club shown here (also available on the worksheet C11P9 in the OM4 Data Workbook): a. Develop a four-period moving average model and compute...
-
Consider the following combinational circuit with 3 inputs a, b, c and two outputs F1 and Fo given by its truth table. a b C Fo F 0 0 0 1 0 0 1 0 1 0 1 0 0 1 0 1 1 1 1 1 0 0 0 1 1 0 1 0 0 1 1 0 0 1 1...
-
How much fruit do adolescent girls eat? Figure 1.14 (page 39) is a histogram of the number of servings of fruit per day claimed by 74 seventeen-year-old girls. (a) With a little care, you can find...
-
Determine the ending balance of each of the following T-accounts. Cash 120 320 40 Supplies 10,200 1,300 Wages Payable 720 70 80 4,000 720 Accounts Payable 2,200 2,900 Accounts Receivable 700 Cash...
-
Algebraically solve the equation for x: 2+1.2-4x+10 == 25z 2-3
-
Josie Is Buying A Samsung Refrigerator And With No Down Payment She Borrows $12000 To Finance The Purchase The Appliance. She Agrees To Repay By Making Equal Monthly Payments For 2 Years At 1.82%...
-
A car and a bus set out at 2 pm from the same spot, headed in the same direction. The average speed of the car is twice the average speed of the bus. After 2 hours, the car is 68 miles ahead of the...
-
Broussard Skateboard's sales are expected to increase by 20% from $8.4 million in 2019 to $10.08 million in 2020. Its assets totaled $5 million at the end of 2019. Broussard is already at full...
-
Rankin, the comptroller of Lazy, Inc. has been embezzling funds from his employer for many years, To date, he has taken almost $5,000,000. In view of the fact that Rankin will have to repay this to...
-
EnHakore Ltd has bought a consignment of goods from a UK supplier and has been invoiced for 60,000. EnHakore Ltd has assumed an average annual exchange rate of 1-GH2.9 in its budget. The invoice was...
-
A company produces earbuds. The revenue from the sale of x units of these earbuds is R = 8x. The cost to produce x units of earbuds is C = 3x + 1500. In what interval will the company at least break...
-
Deli One operates a chain of 10 retirement homes in the Toronto area. Its central food-catering facility, Deliman, prepares and delivers meals to the retirement homes. It has the capacity to deliver...
-
Rashid Daley is the manager of the athletic shoe division of Raider Products. Raider is a European-based company that has just purchased Fastfoot, a leading European shoe company. Fastfoot has...
-
Appleton Company makes wooden toys in its Forming department, and it uses the weighted-average method of process costing. All direct materials are added at the beginning of the process, and...
-
The magical elevator. There is a man who lives on the top floor of a very tall building. Every day he gets the elevator down to the ground floor to leave the building to go to work. Upon returning...
-
A murderer is condemned to death. He has to choose between three rooms. The first is full of raging fires, the second is full of assassins with loaded guns, and the third is full of lions that havent...
-
Five pieces of coal, a carrot, and a scarf are lying on the lawn. Nobody put them on the lawn, but there is a perfectly logical reason they should be there. What happened? How do you explain this?
Study smarter with the SolutionInn App