problem 1 what is the internal rate of return on the following projects each of whic 4527141

Problem 1
What is the internal rate of return on the following
projects, each of which requires a $20,000 cash outlay now and returns the cash
flows indicated?
A.
$10,426.72 at the end of Years 1 and 2.
B.
$3,196.40 at the end of Years 1 through 10.
C.
$3,429.28 at the end of Years 1 through 13.
D.
$3,939.00 at the end of Years 1 through 15.
E.
$8,397.84 at the end of Years 3 through 7.
F.
$3,618.80 at the end of Years 2 through 10.
G.
$37,508.98 at the end of Year 5 only.
Problem 2
Specialized Consulting Service Company’s after-tax net cash
flows associated with two mutually exclusive projects, Alpha and Beta, are as
follows:
Cash Flow, End of
Year
Project 0
1
2
Alpha $(100) $125 –

Beta 100 50 $84

a) Calculate the net present value for each project using
discount rates of 0, 0.04, 0.08, 0.12, 0.15, 0.20, and 0.25.
b) Prepare a graph as follows. Label the vertical axis ‘‘Net
Present Value in Dollars’’ and the horizontal axis ‘‘Discount Rate in Percent
per Year.’’ Plot the net present value amounts calculated in part a. for
project Alpha and project Beta.
c) State the decision rule for choosing between projects
Alpha and Beta as a function of the firm’s cost of capital.
d) What generalizations can you draw from thisexercise?
Problem 3
Solving for cash payments (Appendix 9.1). Alabama
Corporation purchases raw materials on account from various suppliers. It
normally pays for 70 percent of these in the month purchased, 20 percent in the
first month after purchase, and the remaining 10 percent in the second month
after purchase. Raw materials purchases during the last five months of the year
are expected to be

August…………………………………………………………………………………………………………………………………………..

$1,000,0000

September ………………………………………………………………………………………………………………………………………………..

900,000

October ……………………………………………………………………………………………………………………………………..

1,250,000

November
……………………………………………………………………………………………………………………………………………….

1,750,000

December……………………………………………………………………………………………………………………………………

950,000

Compute the expected amount of cash payments to suppliers
for the months of October, November, and December.
Problem 4
Flexible
budgeting-manufacturing costs. As a result of studying past cost behavior and
adjusting for expected price increases in the future, Nicholson Company
estimates that its manufacturing costs will be as follows:
Direct Materials……………………………………………………………………………………………………………..
$10.00 per Unit
Direct Labor
…………………………………………………………………………………………………………………..
$6.00 per Unit
Manufacturing
Overhead:
Variable
……………………………………………………………………………………………………………………..
$3.00 per Unit
Fixed
………………………………………………………………………………………………………………………….
$100,000 per Period
Nicholson uses
these estimates for planning and control purposes.
a. Nicholson expects to produce
20,000 units during the next period. Prepare a schedule of the expected
manufacturing costs.
b. Suppose that Nicholson
produces only 16,000 units during the next period. Prepare a flexible budget of
manufacturing costs for the 16,000-unit level of activity.
c.
Suppose that Nicholson produces 25,000 units during the next period.
Prepare a flexible budget of manufacturing costs for the 25,000-unit level of
activity.
Problem 5
KJ Company manufactures furniture and carriages for infants.
The accounting staff is currently preparing next year’s
budget. Kyle Lansing is new to the firm and is interested in learning how this
process occurs. He has lunch with the sales manager and the production manager
to discuss further the planning process.
Over the course of lunch, Kyle discovers that the sales
manager lowers sales projections 5 to 10 percent before submitting her figures,
while the production manager increases cost estimates by 10 percent before
submitting his figures. When Kyle asks about why this is done, the response is
simply that everyone around here does it.
a)
What do the sales and production managers hope
to accomplish by their methods?
b)
How might this backfire and work against them?
c)
Are the actions of the sales and production
managers unethical?

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