Costco Ltd. purchased a $5,500,000 machine to produce high-quality laptops. The machine can be used for...
Fantastic news! We've Found the answer you've been seeking!
Question:
![](https://dsd5zvtm8ll6.cloudfront.net/si.experts.images/questions/2022/03/624549b561830_1648708019553.jpg)
Transcribed Image Text:
Costco Ltd. purchased a $5,500,000 machine to produce high-quality laptops. The machine can be used for 10 years and is depreciated at a 20% CCA rate. We assume that no NWC is required. The machine can be sold for $100,000 in 10 years, with no other assets. The number of laptops that can be produced and sold per year is 2,500, and the sales price per laptop is $1,800. Use the following information to answer the questions: Variable costs account for 60% of total revenues per year Fixed costs per year = $120,000 Tax rate = 35% Discount rate = 8% 1. calculate the NPV of this investment. 2. if the price per laptop is $1,500, and variable costs are 70% of sales, re-calculate the NPV. What can you conclude based on this analysis? 3. if the machine is depreciated on a straight-line basis, what must be the minimum price per laptop for the company to receive any accounting profits? What must be the minimum price per laptop for the company to receive any economic profits? 4. Explain the differences between the accounting break-even point and the economic break-even point. 5. if the tax rate is higher than 35%, how your answers for part (c) will change and why? 6. If the machine is depreciated on a straight-line basis, what is the firm's degree of operating leverage? Costco Ltd. purchased a $5,500,000 machine to produce high-quality laptops. The machine can be used for 10 years and is depreciated at a 20% CCA rate. We assume that no NWC is required. The machine can be sold for $100,000 in 10 years, with no other assets. The number of laptops that can be produced and sold per year is 2,500, and the sales price per laptop is $1,800. Use the following information to answer the questions: Variable costs account for 60% of total revenues per year Fixed costs per year = $120,000 Tax rate = 35% Discount rate = 8% 1. calculate the NPV of this investment. 2. if the price per laptop is $1,500, and variable costs are 70% of sales, re-calculate the NPV. What can you conclude based on this analysis? 3. if the machine is depreciated on a straight-line basis, what must be the minimum price per laptop for the company to receive any accounting profits? What must be the minimum price per laptop for the company to receive any economic profits? 4. Explain the differences between the accounting break-even point and the economic break-even point. 5. if the tax rate is higher than 35%, how your answers for part (c) will change and why? 6. If the machine is depreciated on a straight-line basis, what is the firm's degree of operating leverage?
Expert Answer:
Answer rating: 100% (QA)
1 Calculate the NPV of this investment To calculate the Net Present Value NPV we need to find the present value of all cash flows associated with the investment Step 1 Calculate the annual cash flows ... View the full answer
Related Book For
The Economics of the Environment
ISBN: 9780321321664
1st edition
Authors: Peter Berck, Gloria Helfand
Posted Date:
Students also viewed these accounting questions
-
Use the following information to answer questions (a) through (c) below. a. How much cash was received from customers during 2014? b. How much cash was paid for merchandise during 2014? c. How much...
-
Use the following information to answer questions (a) through (e) below. a. How much cash was received from customers during 2014? b. How much cash was paid for merchandise during 2014? c. How much...
-
Use the following information to answer questions l - 7 below: On January l, 2012, Pomegranate Company acquired 90% of the voting stock of Starfruit Company for $91,700,000 in cash. The fair value of...
-
Calculate the managerial remuneration from the following particulars of Zen Ltd. the company has only one Managing Director. Net Profit Net Profit is calculated after considering the following:...
-
A manufacturer is considering changing its process in order to reduce pollution emissions. Production will remain the same. The current process has an annual operating cost of $850,000 and an annual...
-
In Problems 918, solve each linear programming problem. Maximize z = 2x + 4y subject to the constraints x 0, y 0, 2x + y 4, x + y 9
-
6.81 Intro. Psychology Students 74
-
Imagine a simple economy with only two people: Augustus and Livia. a. Let the social welfare function be W = UL + UA where U L and U A are the utilities of Livia and Augustus, respectively. Graph the...
-
All of the following are considered unrelated business income for a 501(c)(7) social club EXCEPT: Fees attributable to nonmembers, Interest and dividend income, Membership dues, Rental income from...
-
Morton Corp., a calendar-year C corporation, started business in Year 1. In Year 5, the company sold its office building and office furniture, and purchased a new office building and office...
-
Number of people who are legally blind have some degree of vision
-
A farmer has an acre of specialty vegetables and is preparing for the summer harvest. Historically, this acre has yielded an average of 2,100 lbs of product with a standard deviation of 950 lbs. A...
-
Solve 3x 82+22 = (4).
-
(c) Compute EVPI and EVSI (in thousands of dollars). (Round your answers to one decimal place.) EVPI $ 3.6 EVSI $ 3.6 Xthousand x thousand Discuss whether the firm should consider a consulting expert...
-
Question 9 (1 point) If the common law requires employees of a bar establishment to monitor a potentially intoxicated patron and to possibly make an effort to intervene if there is an indication the...
-
B. A velocity potential is given by the equation: Q = x-y 3. (10 pts) Short answer, What special characteristics of the velocity potential make it very useful in identifying a type of flow and...
-
How can an organization translate its strategy into a set performance measures? Clarify your answer
-
San Carlos Bank and Trust Company uses a credit-scoring system to evaluate most consumer loans that amount to more than $2,500. The key factors used in its scoring system are found at the conclusion...
-
Now imagine that a national lawmaker, inspired by the willingness to pay in the state lawmaker's survey, sent a similar email survey to the same group of voters, asking if they would be willing to...
-
What is the response of a potential polluter in a marketable permit system? To answer these questions it will help to look back at Figures 13.2 and 13.3. (a) What happens to the emissions standard...
-
The Forest Service is deciding how to allocate its recreational funding. It can increase fishing opportunities in an area (for instance, by stocking), or it can build more hiking trails. It presents...
-
TRACING PORTO PEROEN ANCE. Use Work sheet 11.2to help Grant and Ble Harding, a married couple in their early 30s, evaluate their securities portfolio, which includes these holdings. a. IBM. (NYSE;...
-
MAR IT AND UNIT ORDERS. Victor Gould places an order to buy 100 shares of Google. Explain how the order will be processed if it's a mar ket order. Would it make any difference if it had been a limit...
-
TYPES OF FINANCIAL MAR ETS. What is the differ- ence between primary and secondary markets and between broker and dealer markets?? L01
![Mobile App Logo](https://dsd5zvtm8ll6.cloudfront.net/includes/images/mobile/finalLogo.png)
Study smarter with the SolutionInn App