Allegience Insurance Company's management is considering an advertising program that would require an initial expenditure of $185,360 and bring in additional sales over the next five years. The projected additional sales revenue in year 1 is $87,000, with associated expenses of $31,000. The additional sales revenue and expenses from the advertising program are projected to increase by 10 percent each year. Allegience's tax rate is 30 percent (Hint: The $185,360 advertising cost is an expense.) Use Appendix A for your reference. Note: Use appropriate factor(s) from the tables provided. Required: 1. Compute the payback period for the advertising program. 2. Calculate the advertising program's net present value, assuming an after-tax hurdle rate of 10 percent. Note: Round your intermediate calculations and final answer to the nearest whole dollar. 1. Payback period 2. Net present value years

Allegience Insurance Company's management is considering an advertising program that would require an initial expenditure of $185,360 and bring in additional sales over the next five years. The projected additional sales revenue in year 1 is $87,000, with associated expenses of $31,000. The additional sales revenue and expenses from the advertising program are projected to increase by 10 percent each year. Allegience's tax rate is 30 percent (Hint: The $185,360 advertising cost is an expense.) Use Appendix A for your reference. Note: Use appropriate factor(s) from the tables provided. Required: 1. Compute the payback period for the advertising program. 2. Calculate the advertising program's net present value, assuming an after-tax hurdle rate of 10 percent. Note: Round your intermediate calculations and final answer to the nearest whole dollar. 1. Payback period 2. Net present value years

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter22: Providing And Obtaining Credit

Section: Chapter Questions

Problem 5P: Relaxing Collection Efforts The Boyd Corporation has annual credit sales of 1.6 million. Current...

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Aa.14 Allegience Insurance Company’s management is considering an advertising program that would require an initial expenditure of $177,085 and bring in additional sales over the next five years. The projected additional sales revenue in year 1 is $82,000, with associated expenses of $28,500. The additional sales revenue and expenses from the advertising program are projected to increase by 10 percent each year. Allegience’s tax rate is 30 percent. (Hint: The $177,085 advertising cost is an expense.)Required:1. Compute the payback period for the advertising program.2. Calculate the advertising program’s net present value, assuming an after-tax hurdle rate of 10 percent. (Round your intermediate calculations and final answer to the nearest whole dollar.)
P15-15 Lockbox system Eagle Industries believes that a lockbox system can shorten its accounts receivable collection period by 3 days. Credit sales are $3,240,000 per year, billed on a continuous basis. The firm has other equally risky investments that earn a return of 15%. The cost of the lockbox system is $9,000 per year. (Note: Assume a 365-day year.) What amount of cash will be made available for other uses under the lockbox system?
Xerčise 16-36 Payback Period; Uneven Cash Flows (Section 3) (LO 16-1, 16-6, 16-8) Allegience Insurance Company's management is considering an advertising program that would require an initial expenditure of $172,120 and bring in additional sales over the next five years. The projected additional sales revenue in year 1 is $79,000, with associated expenses of $27,000. The additional sales revenue and expenses from the advertising program are projected to increase by 10 percent each year. Allegience's tax rate is 30 percent. (Hint: The $172,120 advertising cost is an expense.) Use Appendix A for your reference. (Use appropriate factor(s) from the tables provided.) Required: 1. Compute the payback period for the advertising program. 2. Calculate the advertising program's net present value, assuming an after-tax hurdle rate of 10 percent. (Round your intermediate calculations and final answer to the nearest whole dollar.) 1. Payback period years 2. Net present value
6. A report from the marketing department indicates that a new product will generate the following revenue stream: P62,500 in the first year, P89,400 in year two, P136,200 in year three, P128,300 in year four, and P112,000 in year five. If your firm's discount rate is 11% and the cash flows are received at the end of each year, what is the present value of this cash flow stream? a.P379,435.35b.P421,173.24c.P476,036.04d.P528,400.00
The Sandbox Company is planning to increase its level of collection expenditures form the current P250,000 to P400,000, on credit sales of P24,000,000. This move is expected to accelerate payments and increase turnover of receivables from 8 to 12 times and cut bad debts from two percent to one percent of credit sales. The opportunity cost of funds is 12 percent. The company uses a 360-day year in planning and controlling. Required: Calculate the following (show your solution): 1. Receivables turnover before and after the change in the collection policy. 2. Average receivable balance before and after the change in collection policy. 3. Net advantage or disadvantage of the new collection policy
Tyler, Inc., is considering switching to a new production technology. The cost of the required equipment will be $3,727,533 . The discount rate is 12.86 percent. The cash flows that the firm expects the new technology to generate are as follows. Years CF 0 $(3,727,533) 1–2 0 3–5 $874,667 6–9 $1,546,005 a. Compute the payback and discounted payback periods for the project. b. What is the NPV for the project? Should the firm go ahead with the project? c. What is the IRR, and what would be the decision based on the IRR?
Problem 12-13 (Algo) Internal rate of return [LO12-4] Home Security Systems is analyzing the purchase of manufacturing equipment that will cost $70,000. The annual cash inflows for the next three years will be: Year 1 2 3 Cash Flow $ 35,000 33,000 28,000 Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the financial calculator method. a. Determine the internal rate of return. Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Internal rate of return % b. With a cost of capital of 18 percent, should the equipment be purchased? Yes No
Relaxing Collection Efforts The Boyd Corporation has annual credit sales of 1.6 million. Current expenses for the collection department are 35,000, bad-debt losses are 1.5%, and the days sales outstanding is 30 days. The firm is considering easing its collection efforts such that collection expenses will be reduced to 22,000 per year. The change is expected to increase bad-debt losses to 2.5% and to increase the days sales outstanding to 45 days. In addition, sales are expected to increase to 1,625,000 per year. Should the firm relax collection efforts if the opportunity cost of funds is 16%, the variable cost ratio is 75%, and taxes are 40%?
Chang Consulting. Inc., has a $15,000 overdue debt with Supplier No. 1. The company is low on cash, with only $4,000 in the checking account and does not want to borrow any more cash. Supplier No. 1 agrees to settle the account in one of two ways: Option 1: Pay $4,000 now and $18.750 when some large projects are finished, two years from today. Option 2: Pay $25,000 three years from today, when even larger projects are finished. Assuming that the only factor in the decision is the cost of money (8%), which option should Clary choose?
Riggs Corp. management is planning to spend $650,000 on a new marketing campaign. They believe that this action will result in additional cash flows of $276,000 over the next three years. If the discount rate is 17.5 percent, what is the NPV on this project?(Enter negative amounts using negative sign e.g. -45.25. Do not round discount factors. Round other intermediate calculations and final answer to 2 decimal places, e.g. 15.25.) The NPV is $ Crescent Industries management is planning to replace some existing machinery in its plant. The cost of the new equipment and the resulting cash flows are shown in the accompanying table. If the firm uses an 18 percent discount rate for project. Year Cash Flow 0 -$3,485,400 1 $871,710 2 $896,700 3 $1,104,400 4 $1,340,360 5 $1,450,600 What is the NPV of this project?(Enter negative amounts using negative sign e.g. -45.25. Do not round discount factors. Round intermediate calculations to 4 decimal places,…
$1.5 million budget to spend on new projects for the year. Should the company move forward with one, both, or neither of the two new products? Show your work to support your answer. Insert your answer. 3 4. Calculate the internal rate of return (IRR) of the following cash flows: 4 Year Cash Flow B D Project B NPV: -11271.38 E F 4 G H J K L The company move forward with project A only as it has a positive NPV which give the the profit in the 6 0 1 2 3 5 6 7 330,000 365,000 380,000 415,000 405,000 370000 294,000
NEED PART 4 & 5 ANSWERED ONLY Boston Cola is considering the purchase of a special-purpose bottling machine for $35,000. It is expected to have a useful life of 4 years with no terminal disposal value. The plant manager estimates the following savings in cash operating costs: Boston Cola uses a required rate of return of 14% in its capital budgeting decisions. Ignore income taxes in your analysis. Assume all cash flows occur at year-end except for initial investment amounts. Data Table Year Amount Year 1 $15,000 Year 2 11,000 Year 3 10,000 Year 4 8,000 Total $44,000 (Use factor amounts rounded to three decimal places. Round your answers to the nearest whole dollar. Use a minus sign or parentheses for a negative net present value.) Calculate the following for the special purpose bottling machine: 1. Net present value = -1900 2. Payback period = 2.90 3. Discounted payback period: Amount can not be determined…