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Specialty Cakes, Inc. produces two types of cakes, a round cake and a heart-shaped cake. Total fixed costs for the firm are $92,000 Variable costs and sales data for these cakes are presented below
How many cakes will be required to reach the breakeven point?
In a multiproduct setting, the contribution margin of each product must be weighted according to its proportion of total sales. Specialty's breakeven quantities can therefore be derived thus:
The breakeven point in round cakes is therefore 8,000 units (20.000 composite x 40%), and the breakeven point in heart-shaped cakes is 12,000 units (20,000 composite x 60%).
Woods, Inc. is considering four independent investment proposals. Woods has $3 million available for investment during the present period. The investment outlay for each project and its projected net present value (NPV) is presented below.
Which of the following project options should be recommended to Woods' management?
Capital rationing exists when a firm sets a limit on the amount of funds to be invested during a given period. In such situations, a firm cannot afford to undertake all profitable projects. The profitability index (or excess present value index) is a method for ranking projects to ensure that limited resources are placed with the investments that will return the highest net present value (NPV).
The indexes for Woods' potential projects can thus be calculated as follows: Ranked in order of desirability, they are III, II, IV, and I . Since only $3 million is available for funding, only Ill, II, and I will be selected.
Which strategy in a global industry is most Ikea to be facilitated by a transnational coalition?
Broad line global competition is competition over the full product line of the firm based on differentiation or low cost. The firm needs large resources for this long-term strategy. Governmental relations should emphasize impediment reduction. Transnational coalitions may be created to help the firms overcome impediments to executing the broader strategies, for example, market access or technology barriers.
Harrison's Spot scars is able k borrow at an annual rate of 7% for two years, using its automobile loans as collateral The loans are made from Nanto Acceptance Company, a whole owned subsidiary. It estimates that its overhaul return from car loans is 11%, once the return on the loans (6.9%) and economies realized from manifesting costs are factored into the analysis. If the average automobile loan is three years in length, what forward interest rate is implied by this homemade forward contract?
The forward interest rate is found using the two time-related rates mentioned in the problem as follows:
{[(+ 3 year rate)3 .b (1 + 2 year rate)2] --- 1}.
In the problem, the stated three-year rate is 11%. and the two-year rate is 7%, so the forward rate that this homemade forward contract implies is 19.45%. derived as follows:
{[(1 +.11)(1 ,07)2]_1}
The internal rate of return (IRR) is the
The IRR is the interest rate at which the present value of the expected future cash inflows is equal to the present value of the cash outflows for a project. Thus1 the IRR is the interest rate that will produce a net present value (NPV) equal to zero. The IRR method assumes that the cash flows will be reinvested at the internal rate of return.
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