Performance Ltd is a tyre manufacturing company that is hoping to expand its operations. A manager...
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Performance Ltd is a tyre manufacturing company that is hoping to expand its operations. A manager has identified two new ranges of tyre, 'Performance Value' and 'Performance Premium', which could be produced for three years. The manager of the company has noted that there is limited capital and therefore can only choose one type of tyre to produce. Estimated details regarding each type of tyre are as follows: Equipment cost - immediate outlay Demand (units) Contribution (per unit) Fixed costs per year (excluding depreciation) Profit per year Performance Performance Value Premium ii £40,000 5,200 £6 £13,000 £4,867 £70,000 1,000 £46 £13,000 £9,667 The Internal Rate of Return (IRR) for Performance Premium is 15.3% and the cost of capital for the company is 14%. REQUIRED: (a) Using the above information, calculate: i The Net Present Value (NPV) for both types of tyre. The Internal Rate of Return (IRR) for Performance Value only. The Accounting Rate of Return (ARR) for both types of tyre. Performance Ltd is a tyre manufacturing company that is hoping to expand its operations. A manager has identified two new ranges of tyre, 'Performance Value' and 'Performance Premium', which could be produced for three years. The manager of the company has noted that there is limited capital and therefore can only choose one type of tyre to produce. Estimated details regarding each type of tyre are as follows: Equipment cost - immediate outlay Demand (units) Contribution (per unit) Fixed costs per year (excluding depreciation) Profit per year Performance Performance Value Premium ii £40,000 5,200 £6 £13,000 £4,867 £70,000 1,000 £46 £13,000 £9,667 The Internal Rate of Return (IRR) for Performance Premium is 15.3% and the cost of capital for the company is 14%. REQUIRED: (a) Using the above information, calculate: i The Net Present Value (NPV) for both types of tyre. The Internal Rate of Return (IRR) for Performance Value only. The Accounting Rate of Return (ARR) for both types of tyre.
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Related Book For
Management Accounting
ISBN: 9780730369387
4th Edition
Authors: Leslie G. Eldenburg, Albie Brooks, Judy Oliver, Gillian Vesty, Rodney Dormer, Vijaya Murthy, Nick Pawsey
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