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chap008

# chap008 - Chapter 8 Strategy and Analysis in Using Net...

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2 * Chapter 8: Strategy and Analysis in Using Net Present Value 8.1 Go directly: NPV = 0.5 × \$20 million + 0.5 × \$5 million = \$12.5 million Test marketing: NPV = -\$2 million + (0.75 × \$20 million + 0.25 × \$5 million) / 1.15 = \$12.13 million Go directly to the market. 8.2 Focus group: -\$120,000 + 0.70 × \$1,200,000 = \$720,000 Consulting firm: -\$400,000 + 0.90 × \$1,200,000 = \$680,000 Direct marketing: 0.50 × \$1,200,000 = \$600,000 The manager should conduct a focus group. 8.3 Price more aggressively: -\$1,300,000 + (0.55 × 0) + 0.45 × (-\$550,000) = -\$1,547,500 Hire lobbyist: -\$800,000 + (0.75 × 0) + 0.25 × (-\$2,000,000) = -\$1,300,000 Tandem should hire the lobbyist. 8.4 Let sales price be x. Depreciation = \$600,000 / 5 = \$120,000 BEP: (\$900,000 + \$120,000) / (x - \$15) = 20,000 x = \$66 8.5 The accounting break-even = (120,000 + 20,000) / (1,500 - 1,100) = 350 units 8.6 a. The accounting break-even = 340,000 / (2.00 - 0.72) = 265,625 abalones b. [(\$2.00 × 300,000) - (340,000 + 0.72 × 300,000)] (0.65) = \$28,600 This is the after tax profit. 8.7 EAC = \$140,000 / 7 15 . 0 Α = \$33,650 Depreciation = \$140,000 / 7 = \$20,000 BEP = {\$33,650 + \$340,000 × 0.65 - \$20,000 × 0.35} / {(\$2 - \$0.72) × 0.65} = 297,656.25 297,657 units Answers to End-of-Chapter Problems B-91

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8.8 Depreciation = \$200,000 / 5 = \$40,000 EAC = \$200,000 / 5 12 . 0 Α = \$200,000 / 3.60478 = \$55,482 BEP = {\$55,482 + \$350,000 × 0.75 - \$40,000 × 0.25} / {(\$25 - \$5) × 0.75} = 20,532.13 20533 units 8.9 Let I be the break-even purchase price. Incremental C 0 Sale of the old machine \$20,000 Tax effect 3,400 Total \$23,400 Depreciation per period = \$45,000 / 15 = \$3,000
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