**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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