Ford Motor Company is considering purchasing a new pieceequipment for one of its plants. Thecontribution margin is expected to increase from $275,000 to $330,000. Net income is expectedto remain at $100,000 for each year. Compute the degree of operating leverage before and afterthe purchase of the new equipment. (Round answers to 2 decimal places, e.g. 15.25.)Degree of Operating LeverageBeforeAfter

Contribution margin = Sales - variable cost / sales - variable…

Answered: Ford Motor Company is considering…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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A manufacturing company is considerign the purchase of new machinery to increase its production capacity. The company has identified a new machine that costs $500,000 and is expected to increase production by 20%. The company expects to sell the additional products for $600,000, resulting in a net profit of $100,000. The company can finance the purchase through a bank loan with an interest rate of 5% over a five year term. What is the expected return on investment (ROI) for the purchase of the new machinery 5% 10% 20% 25%
If we consider the effect of taxes, then the degree of operating leverage can be written as: DOL = 1 + [FC × (1 – TC) – TC × D]/OCF Consider a project to supply Detroit with 20,000 tons of machine screws annually for automobile production. You will need an initial $3.1 million investment in threading equipment to get the project started; the project will last for five years. The accounting department estimates that annual fixed costs will be $925,000 and that variable costs should be $185 per ton; accounting will depreciate the initial fixed asset investment straight-line to zero over the five-year project life. It also estimates a salvage value of $400,000 after dismantling costs. The marketing department estimates that the automakers will let the contract at a selling price of $295 per ton. The engineering department estimates you will need an initial net working capital investment of $380,000. The tax rate is 22 percent. a. What is the DOL at the base-case…
The management of Indiana Corporation is considering the purchase of a new machine costing $400,000. The company's desired rate of return is 10%. The present value factors for $1 at compound interest of 10% for Years 1 through 5 are 0.909, 0.826, 0.751, 0.683, and 0.621, respectively. In addition to the foregoing information, use the following data in determining the acceptability of this investment: Year Income fromOperations Net CashFlow 1 $100,000 $180,000 2 60,000 120,000 3 30,000 100,000 4 10,000 90,000 5 10,000 90,000 The average rate of return for this investment is a.53% b.18% c.10% d.21%
A proposed project has fixed costs of $108,000 per year. The operating cash flow at 6,800 units is $96,600. Ignore the effect of taxes. a. What is the degree of operating leverage? (Do not round intermediate calculations and round your answer to 4 decimal places, e.g., 32.1616.) b. If units sold rise from 6,800 to 7,300, what will be the new operating cash flow? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. If units sold rise from 6,800 to 7,300, what is the new degree of operating leverage? (Do not round intermediate calculations and round your answer to 4 decimal places, e.g., 32.1616.)
The management of California Corporation is considering the purchase of a new machine costing $400,000. The company's desired rate of return is 10%. The present value factors for $1 at compound interest of 10% for 1 through 5 years are 0.909, 0.826, 0.751, 0.683, and 0.621, respectively. In addition to the foregoing information, use the following data in determining the acceptability of this investment: Year Operating Income Net Cash Flow 1 $100,000 $180,000 2 40,000 120,000 3 20,000 100,000 4 10,000 90,000 5 10,000 90,000 The present value index (rounded to two decimal places) for this investment is a. 1.45 b. 1.14 c. 0.70 d. 0.88
The management of Dakota Corporation is considering the purchase of a new machine costing $420,000. The company's desired rate of return is 10%. The present value factors for $1 at compound interest of 10% for Years 1 through 5 are 0.909, 0.826, 0.751, 0.683, and 0.621, respectively. In addition to the foregoing information, use the following data in determining the acceptability of this investment: Year Income fromOperations Net CashFlow 1 $100,000 $180,000 2 40,000 120,000 3 20,000 100,000 4 10,000 90,000 5 10,000 90,000 The present value index for this investment is
Assume that a company is considering purchasing a machine for $70,000 that will have a seven-year useful life and no salvage value. The machine will lower operating costs by $18,000 per year and increase sales volume by 1,000 units per year. The company earns a contribution margin of $3.00 per unit. The company's required rate of return is 17%. The internal rate of return for this investment is closest to: Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided. Multiple Choice O 23%. 25%. 21%. 19%.
The management of Idaho Corporation is considering the purchase of a new machine costing $430,000. The company's desired rate of return is 10%. The present value factors for $1 at compound interest of 10% for Years 1 through 5 are 0.909, 0.826, 0.751, 0.683, and 0.621, respectively. In addition to the foregoing information, use the following data in determining the acceptability of this investment: Year Income fromOperations Net CashFlow 1 $100,000 $180,000 2 40,000 120,000 3 20,000 100,000 4 10,000 90,000 5 10,000 90,000 The net present value for this investment is
The management of Idaho Corporation is considering the purchase of a new machine costing $430,000. The company's desired rate of return is 10%. The present value factors for $1 at compound interest of 10% for Years 1 through 5 are 0.909, 0.826, 0.751, 0.683, and 0.621, respectively. In addition to the foregoing information, use the following data in determining the acceptability of this investment: Year Income fromOperations Net CashFlow 1 $100,000 $180,000 2 40,000 120,000 3 20,000 100,000 4 10,000 90,000 5 10,000 90,000 The net present value for this investment is a.$(99,600) b.$(126,800) c.$25,200 d.$16,400 The management of Idaho Corporation is considering the purchase of a new machine costing $430,000. The company's desired rate of return is 10%. The present value factors for $1 at compound interest of 10% for Years 1 through 5 are 0.909, 0.826, 0.751, 0.683, and 0.621, respectively. In addition to the foregoing information, use the following…
Consider a four-year project with the following information: initial fixed asset investment = $590,000; straight-line depreciation to zero over the four-year life; zero salvage value; price = $34; variable costs = $26; fixed costs = $230,000; quantity sold = 89,000 units; tax rate = 35 percent. What is the degree of operating leverage at the given level of output? What is the degree of operating leverage at the accounting break-even level of output?
Phillips Refining plans to expand capacity by purchasing equipment that will provide additional smelting capacity. The cost of the initial investment is expected to be $16 million. The company expects revenue to increase by $3.8 million per year after the expansion. If the company’s MARR is 18% per year, how long will it take for the company to recover its investment? Identify the engineering economy symbols involved and their values.
The management of Arkansas Corporation is considering the purchase of a new machine costing $490,000. The company's desired rate of return is 10%. The present value factors for $1 at compound interest of 10% for Years 1 through 5 are 0.909, 0.826, 0.751, 0.683, and 0.621, respectively. In addition to the foregoing information, use the following data in determining the acceptability of this investment: Income from Net Cash Year Operations Flow 1. $100,000 $180,000 2 40,000 120,000 40,000 100,000 4 10,000 90,000 5 10,000 120,000 The net present value for this investment is Oa. $5,200 Ob. $(16,170) Oc. $36,400 Od. $(126,800)

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