Unformatted text preview: ents, if any, by Ms. Harper
in each of the following situations.
a. Southwest Development Company is a sole proprietorship owned by Ms.
b. Southwest Development Company is a 50–50 partnership of Ms. Harper and
c. Southwest Development Company is a corporation. LG4 1–2 Marginal analysis and the goal of the firm Ken Allen, capital budgeting analyst
for Bally Gears, Inc., has been asked to evaluate a proposal. The manager of the
automotive division believes that replacing the robotics used on the heavy truck
gear line will produce total benefits of $560,000 (in today’s dollars) over the
next 5 years. The existing robotics would produce benefits of $400,000 (also in
today’s dollars) over that same time period. An initial cash investment of
$220,000 would be required to install the new equipment. The manager estimates that the existing robotics can be sold for $70,000. Show how Ken will
apply marginal analysis techniques to determine the following:
a. The marginal (added) benefits of the proposed new robotics.
b. The marginal (added) cost of the proposed new robotics.
c. The net benefit of the proposed new robotics.
d. What should Ken Allen recommend that the company do? Why?
e. What factors besides the costs and benefits should be considered before the
final decision is made? PROBLEMS LG2 36 PART 1 Introduction to Managerial Finance LG2 1–3 Accrual income versus cash flow for a period Thomas Book Sales, Inc., supplies textbooks to college and university bookstores. The books are shipped with
a proviso that they must be paid for within 30 days but can be returned for a full
refund credit within 90 days. In 2003, Thomas shipped and billed book titles
totaling $760,000. Collections, net of return credits, during the year totaled
$690,000. The company spent $300,000 acquiring the books that it shipped.
a. Using accrual accounting and the preceding values, show the firm’s net profit
for the past year.
b. Using cash accounting and the preceding values, show the firm’s net cash
flow for the pas...
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- Fall '13
- Finance, Corporation, Types of business entity