Wivenhoe Ltd wants to expand its market and is considering two mutually exclusive projects as follows:...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Wivenhoe Ltd wants to expand its market and is considering two mutually exclusive projects as follows: Project A: This project requires an initial investment of £178,000 with a four- year life span. Wivenhoe Ltd has already paid £20,000 to a market research company. Forecasted sales and operating expenses are shown in the table below: Sales revenue (£) Material cost (£) Labour cost (£) Other fixed cost (not including depreciation) Year 1 Year 2 260,000 290,000 100,000 120,000 60,000 72,000 10,000 10,000 Year 3 300,000 115,000 52,000 18,000 The following information applies to both projects: Year 4 280,000 118,000 66,000 18,000 Project B: This project requires an initial investment of £480,000 with a four- year life span. The forecasted annual accounting profit is £80,000 over four years. • Residual value at the end of the economic life of each project is nil, and straight line depreciation applies. . All sales are expected to be cash sales, and operation expenses are paid for in cash as and when incurred. Required: (a) (b) (C) (d) • Depreciation is the only adjustment difference between accounting profit and cash flows for each project. (e) What is meant by 'mutually exclusive projects'? Wivenhoe Ltd's managers sought your advice regarding which of the projects to select. (1) (ii) (1) Calculate for each project the payback period (Assume that cash flows will occur evenly throughout the year). For Project A: calculate the breakeven point in sales revenue for year 4. (ii) Advise Wivenhoe Ltd's managers as which project to select in (b) (i) above. Calculate the NPV of Project A using a cost of capital of 9%. (Assume that all cash flows occur at the year-end). Comment on the viability of the project. Calculate the unit cost under marginal costing and absorption costing for the second year of project A. 5,000 units of the product are expected to be produced and sold. Wivenhoe Ltd wants to expand its market and is considering two mutually exclusive projects as follows: Project A: This project requires an initial investment of £178,000 with a four- year life span. Wivenhoe Ltd has already paid £20,000 to a market research company. Forecasted sales and operating expenses are shown in the table below: Sales revenue (£) Material cost (£) Labour cost (£) Other fixed cost (not including depreciation) Year 1 Year 2 260,000 290,000 100,000 120,000 60,000 72,000 10,000 10,000 Year 3 300,000 115,000 52,000 18,000 The following information applies to both projects: Year 4 280,000 118,000 66,000 18,000 Project B: This project requires an initial investment of £480,000 with a four- year life span. The forecasted annual accounting profit is £80,000 over four years. • Residual value at the end of the economic life of each project is nil, and straight line depreciation applies. . All sales are expected to be cash sales, and operation expenses are paid for in cash as and when incurred. Required: (a) (b) (C) (d) • Depreciation is the only adjustment difference between accounting profit and cash flows for each project. (e) What is meant by 'mutually exclusive projects'? Wivenhoe Ltd's managers sought your advice regarding which of the projects to select. (1) (ii) (1) Calculate for each project the payback period (Assume that cash flows will occur evenly throughout the year). For Project A: calculate the breakeven point in sales revenue for year 4. (ii) Advise Wivenhoe Ltd's managers as which project to select in (b) (i) above. Calculate the NPV of Project A using a cost of capital of 9%. (Assume that all cash flows occur at the year-end). Comment on the viability of the project. Calculate the unit cost under marginal costing and absorption costing for the second year of project A. 5,000 units of the product are expected to be produced and sold.
Expert Answer:
Answer rating: 100% (QA)
SOLUTION a Mutually exclusive projects refer to a situation where a company has to choose between two or more projects that serve similar purposes or compete for the same resources In this case Wivenh... View the full answer
Related Book For
Financial Management Theory and Practice
ISBN: 978-1305632295
15th edition
Authors: Eugene F. Brigham, Michael C. Ehrhardt
Posted Date:
Students also viewed these accounting questions
-
The board of directors of Portand Ltd are considering two mutually exclusive investments each of which is expected to have a life of five years. The company does not have the physical capacity to...
-
Smith Ltd is a small company established in Exeter some years ago. Over the last couple of years, the company has been facing tough competition from some newly established local businesses, which is...
-
Rosa's employer has instituted a flexible benefits program. Rosa will use the plan to pay for her daughter's dental expenses and other medical expenses that are not covered by health insurance. Rosa...
-
Refer to the Electrical Engineering (Vol. 95, 2013) study of transformer voltage sags and swells, Exercise 2.76 (p. 86). Recall that for a sample of 103 transformers built for heavy industry, the...
-
Define and give an example of each of the following costs for a manufacturing company: (a) Fixed cost, (b) Variable cost (c) Mixed cost.
-
US Obesity Levels by State and over Time These questions refer to the graphs found at http://stateofobesity.org/adult-obesity/ which show a sequence of maps of US states, colored by the proportion of...
-
Shrieves Casting Company is considering adding a new line to its product mix, and the capital budgeting analysis is being conducted by Sidney Johnson, a recently graduated MBA. The production line...
-
What challenges might organizations encounter during the implementation and sustenance of Lean Management practices, and what strategies can be employed to overcome these obstacles and ensure...
-
On January 1, 20X5, Piper Ltd. purchased 100% of the shares of Sutton Ltd. for $ 1,085,000. At that time Sutton Ltd. had the following SFP: The bonds were issued at par and will mature in 10 years....
-
Topic area: Internal Fit-Out works (partition systems, ceiling systems and internal fixtures and finishes. The context of the investigation is commercial building construction. Specifically cairns...
-
We meet Robert Triffin once again. The case concerns a \($301.17\) check dated August 20, 2015, bearing the words NOT VALID AFTER 180 DAYS. The check was drawn against the bank account of TWC...
-
In 2008, Ghahan, LLC, entered into a management agreement with Palm Steak House, LLC, to manage and invest in a nightclub. Nick Hasan and Steve Roumaya, two of Ghahans owners, represented Ghahan in...
-
This tort suit was brought by Jane Doe 1 and Jane Doe 2 against Uber Technologies, Inc., stemming from separate alleged sexual assault incidents. In February 2015, in Boston, Massachusetts, Doe 1 and...
-
In 2011, Airpro Mobile Air entered into a \($1,705,649.70\) loan agreement with Prosperity Banks predecessor. The loan was secured by Airpros assets, including its inventory, parts, accounts,...
-
Kia Motors America sells its cars through hundreds of dealerships in the United States. Kia has the exclusive right to use and license others to use its trademarks, service marks, and trade name. If...
-
How many liters does the tank hold which has a leak in the bottom that can empty the full tank in 6 hours. An inlet pipe fills water at the rate of 6 liters a minute. When the tank is full, the inlet...
-
Kenneth Hubbard has prepared the following list of statements about managerial accounting and financial accounting. 1. Financial accounting focuses on providing information to internal users. 2....
-
a. Describe briefly the legal rights and privileges of common stockholders. b. What is free cash flow (FCF)? What is the weighted average cost of capital? What is the free cash flow valuation model?...
-
a. (1) What is the present value of owning the equipment (2) Explain the rationale for the discount rate you used to find the PV. b. What is Lewis's present value of leasing the equipment? (Hint:...
-
Begin with the partial model in the file Ch02 P14 Build a Model.xlsx on the textbook's Web site. a. The 2016 sales of Cumberland Industries were $455,000,000; operating costs (excluding depreciation)...
-
A gene is a segment of DNA that contains the information to produce a functional product. The functional product of most genes is a. DNA. b. mRNA. c. a polypeptide. d. none of the above.
-
Which of the following is not a constituent of a cells proteome? a. An enzyme b. A cytoskeletal protein c. A transport protein in the plasma membrane d. An mRNA
-
The function of the genetic code is to a. promote transcription. b. specify the amino acids within a polypeptide. c. alter the sequence of DNA. d. do none of the above.
Study smarter with the SolutionInn App