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Part A, B and C_Chapter 12 ad 13_Monarch Corporation is going to start a new product line of products in a whole new Market_Answer

Part A, B and C_Chapter 12 ad 13_Monarch Corporation is going to start a new product line of products in a whole new Market_Answer

Part A, B and C_Chapter 12 ad 13_Monarch Corporation is going to start a new product line of products in a whole new Market_Answer

Part A, B and C_Chapter 12 ad 13_Monarch Corporation is going to start a new product line of products in a whole new Market_Answer

Part A, B and C_Chapter 12 ad 13_Monarch Corporation is going to start a new product line of products in a whole new Market_Answer

Part A, B and C_Chapter 12 ad 13_Monarch Corporation is going to start a new product line of products in a whole new Market_Answer

PART A

COMPREHENSIVE CHAPTER 12 & 13 PROBLEMS
MONARCH CORPORATION IS GOING TO START A NEW PRODUCT LINE OF PRODUCTS IN A WHOLE NEW MARKET.
THE DATA FOR ANALYSIS IS PRESENTED BELOW:

COST OF THE EQUIPMENT NEEDED $2,00,000 FIVE YEAR PROPERTY LIFE FOR TAX DEPRECIATION
NEW WORKING CAPITAL NEEDS $50,000 WILL BE RECOVERED AT THE END OF THE THIRD YEAR
PROJECTED NEW REVENUES:
SALES PROBABILITY
$2,25,000 30%
$3,50,000 50%
$5,00,000 20%
COST OF GOOD SOLD 25% OF SALES
VARIABLE CASH COSTS 15% OF SALES
ANNUAL FIXED CASH COSTS:
RENT $50,000
CLEANING $20,000
MAINTENANCE & OTHER $20,000
TOTAL FIXED COSTS $90,000
EQUIPMENT DISPOSAL PROCEEDS $20,000 SALVAGE VALUE AT THE END OF YEAR 6
FIRM’S COST OF CAPITAL 9.00%
TAX RATE 30%
NOTE – WHEN COMPUTING TAX A NET LOSS FOR THE YEAR A POSITIVE TAX SAVINGS IS CREATED
SINCE THERE IS OTHER INCOME TAX ON OTHER INCOME TO OFFSET
DEPRECIATION RATES FOR TAX PURPOSES:
YEAR ONE 20.00%
YEAR TWO 32.00%
YEAR THREE 19.20%
YEAR FOUR 11.50%
YEAR FIVE 11.50%
YEAR SIX 5.80%
ASSUMPTIONS:
ALL CASH FLOWS IN YEARS 1-6 OCCUR AT THE END OF THE YEAR. ALL INITIAL CASH INFLOWS OR
OUTFLOWS OCCUR TODAY.
REQUIRED:
A. ASSUMING SALES ARE $225,000 COMPUTE THE PAYBACK, IRR AND NPV. FOR THE NPV COMPUTE
AT BOTH THE FIRM’S DISCOUNT RATE AND 11%, WHICH IS A 2% PREMIUM ADDED TO THE RATE.
B. COPY THE WHOLE WORKSHEET AND SOLUTIONS FOR PART A TO THE WORSHEET NAMED PART B,
AND REDO THE COMPUTATIONS BY CHANGING THE ANNUAL SALES TO $350,000.
C. COPY THE WHOLE WORKSHEET AND SOLUTIONS FOR PART A TO THE WORSHEET NAMED PART C,
AND REDO THE COMPUTATIONS BY CHANGING THE ANNUAL SALES TO $500,000.

Fill in all of the Cells below in Yellow using the information given above.

PART B

COMPREHENSIVE CHAPTER 12 & 13 PROBLEMS
MONARCH CORPORATION IS GOING TO START A NEW PRODUCT LINE OF PRODUCTS IN A WHOLE NEW MARKET.
THE DATA FOR ANALYSIS IS PRESENTED BELOW:

COST OF THE EQUIPMENT NEEDED $2,00,000 FIVE YEAR PROPERTY LIFE FOR TAX DEPRECIATION
NEW WORKING CAPITAL NEEDS $50,000 WILL BE RECOVERED AT THE END OF THE THIRD YEAR
PROJECTED NEW REVENUES:
SALES PROBABILITY
$2,25,000 30%
$3,50,000 50%
$5,00,000 20%
COST OF GOOD SOLD 25% OF SALES
VARIABLE CASH COSTS 15% OF SALES
ANNUAL FIXED CASH COSTS:
RENT $50,000
CLEANING $20,000
MAINTENANCE & OTHER $20,000
TOTAL FIXED COSTS $90,000
EQUIPMENT DISPOSAL PROCEEDS $20,000 SALVAGE VALUE AT THE END OF YEAR 6
FIRM’S COST OF CAPITAL 9.00%
TAX RATE 30%
NOTE – WHEN COMPUTING TAX A NET LOSS FOR THE YEAR A POSITIVE TAX SAVINGS IS CREATED
SINCE THERE IS OTHER INCOME TAX ON OTHER INCOME TO OFFSET
DEPRECIATION RATES FOR TAX PURPOSES:
YEAR ONE 20.00%
YEAR TWO 32.00%
YEAR THREE 19.20%
YEAR FOUR 11.50%
YEAR FIVE 11.50%
YEAR SIX 5.80%
ASSUMPTIONS:
ALL CASH FLOWS IN YEARS 1-6 OCCUR AT THE END OF THE YEAR. ALL INITIAL CASH INFLOWS OR
OUTFLOWS OCCUR TODAY.
REQUIRED:
A. ASSUMING SALES ARE $225,000 COMPUTE THE PAYBACK, IRR AND NPV. FOR THE NPV COMPUTE
AT BOTH THE FIRM’S DISCOUNT RATE AND 11%, WHICH IS A 2% PREMIUM ADDED TO THE RATE.
B. COPY THE WHOLE WORKSHEET AND SOLUTIONS FOR PART A TO THE WORSHEET NAMED PART B,
AND REDO THE COMPUTATIONS BY CHANGING THE ANNUAL SALES TO $350,000.
C. COPY THE WHOLE WORKSHEET AND SOLUTIONS FOR PART A TO THE WORSHEET NAMED PART C,
AND REDO THE COMPUTATIONS BY CHANGING THE ANNUAL SALES TO $500,000.

PART C

COMPREHENSIVE CHAPTER 12 & 13 PROBLEMS
MONARCH CORPORATION IS GOING TO START A NEW PRODUCT LINE OF PRODUCTS IN A WHOLE NEW MARKET.
THE DATA FOR ANALYSIS IS PRESENTED BELOW:

COST OF THE EQUIPMENT NEEDED $2,00,000 FIVE YEAR PROPERTY LIFE FOR TAX DEPRECIATION
NEW WORKING CAPITAL NEEDS $50,000 WILL BE RECOVERED AT THE END OF THE THIRD YEAR
PROJECTED NEW REVENUES:
SALES PROBABILITY
$2,25,000 30%
$3,50,000 50%
$5,00,000 20%
COST OF GOOD SOLD 25% OF SALES
VARIABLE CASH COSTS 15% OF SALES
ANNUAL FIXED CASH COSTS:
RENT $50,000
CLEANING $20,000
MAINTENANCE & OTHER $20,000
TOTAL FIXED COSTS $90,000
EQUIPMENT DISPOSAL PROCEEDS $20,000 SALVAGE VALUE AT THE END OF YEAR 6
FIRM’S COST OF CAPITAL 9.00%
TAX RATE 30%
NOTE – WHEN COMPUTING TAX A NET LOSS FOR THE YEAR A POSITIVE TAX SAVINGS IS CREATED
SINCE THERE IS OTHER INCOME TAX ON OTHER INCOME TO OFFSET
DEPRECIATION RATES FOR TAX PURPOSES:
YEAR ONE 20.00%
YEAR TWO 32.00%
YEAR THREE 19.20%
YEAR FOUR 11.50%
YEAR FIVE 11.50%
YEAR SIX 5.80%
ASSUMPTIONS:
ALL CASH FLOWS IN YEARS 1-6 OCCUR AT THE END OF THE YEAR. ALL INITIAL CASH INFLOWS OR
OUTFLOWS OCCUR TODAY.
REQUIRED:
A. ASSUMING SALES ARE $225,000 COMPUTE THE PAYBACK, IRR AND NPV. FOR THE NPV COMPUTE
AT BOTH THE FIRM’S DISCOUNT RATE AND 11%, WHICH IS A 2% PREMIUM ADDED TO THE RATE.
B. COPY THE WHOLE WORKSHEET AND SOLUTIONS FOR PART A TO THE WORSHEET NAMED PART B,
AND REDO THE COMPUTATIONS BY CHANGING THE ANNUAL SALES TO $350,000.
C. COPY THE WHOLE WORKSHEET AND SOLUTIONS FOR PART A TO THE WORSHEET NAMED PART C,
AND REDO THE COMPUTATIONS BY CHANGING THE ANNUAL SALES TO $500,000.

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