If Roche expands its capacity to serve 700,000 customer per year now (end of year 0), what are the projected annual incremental pretax cash flows attributable to this expansion? If Roche expands its capacity to serve 700,000 customer per year at the end of year 2, the landowner will build the same addition for $240,000 and a 3-year lease at $12,000 per month. What are the projected annual incremental pretax cash flows attributable to this expansion alternative
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Roche Brother is considering a capacity expansion of its supermarket. The landowner will build the addition to suit in return for $200,000 upon completion and a 5-year lease. The increase in rent for the addition is $10,000 per month. The annual sales projected through year 5 follows. The current effective capacity is equivalent to 500,000 customers per year. Assume a 2% pretax profit on sales
Year |
1 |
2 |
3 |
4 |
5 |
Customers |
560,000 |
600,000 |
685,000 |
700,000 |
715,000 |
Ave. Sales per Customer |
50.00 |
53.00 |
56.00 |
60.00 |
64.00 |
- If Roche expands its capacity to serve 700,000 customer per year now (end of year 0), what are the projected annual incremental pretax cash flows attributable to this expansion?
- If Roche expands its capacity to serve 700,000 customer per year at the end of year 2, the landowner will build the same addition for $240,000 and a 3-year lease at $12,000 per month. What are the projected annual incremental pretax cash flows attributable to this expansion alternative?
- Compute the NPV (
net present value ) for each alternative. Assume an 8% discount rate, which expansion alternative is better? - Show breakdown of work
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- Roche Brothers is considering a capacity expansion of itssupermarket. The landowner will build the addition to suit inreturn for $200,000 upon completion and a 5-year lease. Theincrease in rent for the addition is $10,000 per month. Theannual sales projected through year 5 follow. The currenteffective capacity is equivalent to 500,000 customers per year.Assume a 2 percent pretax profit on sales a. If Roche expands its capacity to serve 700,000 customers peryear now (end of year 0), what are the projected annual incre-mental pretax cash flows attributable to this expansion?b. If Roche expands its capacity to serve 700,000 customersper year at the end of year 2, the landowner will build thesame addition for $240,000 and a 3-year lease at $12,000 permonth. What are the projected annual incremental pretaxcash flows attributable to this expansion alternative?Spectrum Hair Salon is considering expanding itsbusiness, as it is experiencing a large growth. Th e question iswhether it should expand with a bigger facility than needed,hoping that demand will catch up, or with a small facility,knowing that it will need to reconsider expanding in three years.Th e management at Spectrum has estimated the followingchances for demand:• Th e likelihood of demand being high is 0.70.• Th e likelihood of demand being low is 0.30.Estimated profi ts for each alternative are as follows:• Large expansion has an estimated profi tability of either$100,000 or $70,000, depending on whether demand turnsout to be high or low.• Small expansion has a profi tability of $50,000, assuming thatdemand is low.• Small expansion with an occurrence of high demand wouldrequire considering whether to expand further. If thebusiness expands at this point, the profi tability is expected tobe $90,000. If it does not expand further, the profi tability isexpected to be $60,000.Spectrum Hair Salon is considering expanding itsbusiness, as it is experiencing a large growth. Th e question iswhether it should expand with a bigger facility than needed,hoping that demand will catch up, or with a small facility,knowing that it will need to reconsider expanding in three years.Th e management at Spectrum has estimated the followingchances for demand:• Th e likelihood of demand being high is 0.70.• Th e likelihood of demand being low is 0.30.Estimated profi ts for each alternative are as follows:• Large expansion has an estimated profi tability of either$100,000 or $70,000, depending on whether demand turnsout to be high or low.• Small expansion has a profi tability of $50,000, assuming thatdemand is low.• Small expansion with an occurrence of high demand wouldrequire considering whether to expand further. If thebusiness expands at this point, the profi tability is expected tobe $90,000. If it does not expand further, the profi tability isexpected to be $60,000.Draw a…
- 4.) After 10 years of production, the chemical manufacturing plant has become very successful. Because of its success, a great demand for products came as many consumers wanted the company to sell them their products. To meet the demand, three alternatives were considered. Work overtime to meet demands. Annual overtime expenses are $500,000. Expand the plant to accommodate more production. Fixed annual expenses are $2,500,000. Make a contract with another company to produce additional products at a rate of $1,000,000. The cost of manufacturing products from the three alternatives are $3500, $3000 and $3250 per unit respectively. The plant sells every unit made regardless of how they were made at $15,000 per unit. The expected demand for the product is 150 units with a probability of 50% 250 units with a probability of 35% 350 units with a probability of 7.5% 400 units with a probability of 5% 500 units with a probability of 2.5%2) A company is considering a plan to produce or buy/outsource a certain item used in the production of new type of cars. Making the item would involve annual lease costs of $150,000. Cost and volume estimates are as follows: Make Buy Annual fixed cost $150,000 None Variable cost/unit $60 $80 Annual volume 12,000 12,000 (units) a. Given these numbers, should the firm buy or make this item? b. There is a possibility that volume could change in the future. At what volume would the company be indifferent between making and buying?The Candle Company plans to open a new retail store in Portland, Maine. The store will sell specialty candles for an average of $10 each. The average variable costs per candle are as follows: Wax $4 Other additives $2 Base $1 The company is negotiating its lease for the new location. The landlord has offered two leasing options: Option A) a lease of $2,500 per month; or Option B) a monthly lease cost of $2,000 plus 10% of the company's monthly sales revenue. The lease option that is more attractive for the company under its current sales expectations is option B, the fixed lease payment plus sales based commission because it results in the lowest total lease costs The indifference point is The company expects to sell approximately 400 candles per month. Requirement 2. At what level of sales (in units) would the company be indifferent between the two lease options? Show your proof. candles. Begin by selecting the equation to determine the indifference point. (Abbreviations used" FC =…
- During a major expansion in 2004, Douwalla’s Import Company developed a new processing line for which the delivered equipment cost was $1.75 million. This year, the board of directors decided to expand into new markets and expects to build the current version of the same line. Estimate the cost if the following factors are applicable: construction cost factor is 0.20, installation cost factor is 0.50, indirect cost factor applied against equipment is 0.25, and the total plant cost index has risen from 2509 to 3713 over the years.2. An educational institution has total direct labor and material costs of $1964 per student. Its fixed costs are $352,800. Total revenues for the year were $1,800,000. It had 800 students in the past year. How many students should they accept in the next year to break even assuming the variable cost margins are equal to this year, and assuming fixed costs are to increase by $19,000 due to increased rent for expansion? (round to the nearest whole number).A firm’s manager must decide whether to make or buy a certain item used in the production of vending machines. Making the item would involve annual lease costs of $150,000. Cost and volume estimates are as follows:Make BuyAnnual fixed cost $150,000 None Variable cost/unit $ 60 $ 80 Annual volume (units) 12,000 12,000 a. Given these numbers, should the firm buy or make this item?b. There is a possibility that volume could change in the future. At what volume would the managerbe indifferent between making and buying?
- DAMENTALS%20OF%20PRODUCT NorSal TRONDHEIM NorSal Trondheim operatea a salmon processing facility where fish are purchased from local sources along the North Sea, processed at the facility, and sold to customers for distribution. The plant manager, Inger Hansen, is contemplating a plant modermization to upgrade the technology in the plant. While the plant performs well enough now, modernizing equipment would allow the plant to increase capacity per hour, which is particularly advantageous because the factory has enough demand to cover the additional capacity. Currently, the plant operates seven days a week, three shifts of 20 workers per shift The workers are paid $15 per hour. The firm is contemplating a plant modernization to upgrade existing equipment, which should increase the plant's output while lowering energy costs. Using the current equipment, around 1.500 pounds of salmon can be processed each hour, while the new plant would be able to processed each hour, while the new plant…1. Eastern Visayas State University (EVSU) has facilities and faculty to handle an enrollment of 25,000students per semester. However, in an effect to limit class sizes to a reasonable level (under 2,000generally), the EVSU VPAA, placed a ceiling on enrollment of 18,000. Although there was ampledemand for all courses last semester, conflicting schedules allowed only 1,500 students percollege. There are 10 colleges in EVSU.a. What is the utilization rate of EVSU?b. What is efficiency of EVSU?A health centre specializes in the provision of sports/exercise and medical/dietary advice to clients. The service is provided on a residential basis and clients may stay for whatever number of days to suit their needs. Budgeted estimates for the year ending 30 June 2020 are as follows: (i) The maximum capacity of the centre is 50 clients per day for 350 days in a year. (ii) Clients will be invoiced at a fee per day. The budgeted occupancy level will vary with the client fee level per day and is estimated at different percentages of maximum capacity as follows: Client fee per day Occupancy level Occupancy as percentage of maximum capacity RM180 High 90% RM200 Most likely 75% RM220 Low 60% (iii) Variable costs are also estimated at one of three levels per client day. The high, most likely and low levels per client day are RM95, RM85 and RM70 respectively. The range of cost levels reflects only the possible effect of the purchase prices of goods…