36000 plus or minus 10 b 46000 plus or minus 10 c

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A. $36,000 (plus or minus $10)B. $46,000 (plus or minus $10)C. $32,000 (plus or minus $10)D. $26,000 (plus or minus $10)E. None of the above is within $10 of the correct answerThe relevant net income depends on incremental revenues and incremental costs. In order to determine these in this case, side effects must be taken into account.Relevant revenue for the sprinkle cookie = Sales of sprinkle cookie + effect on sales of frosted cookie + effect on sales from change in traffic to bakeries= 140,000 – 30,000 + 20,000 = $130,000Relevant costs for the sprinkle cookie = Costs associated with sprinkle cookie + effect on costs of frosted cookie + effect on costs from change in traffic to bakeriesRelevant costs for the sprinkle cookie = 68,000 – 16,000 + 14,000 = $66,000Year 1Revenue130,000Costs66,000Annual depreciation0=EBIT64,000×Tax rate0.50=Taxes paid32,000Net income = EBIT – taxes32,000Note that the cost of capital is not relevant
6. Paul Bakery operates a chain of bakeries and is considering the sprinkle cookie project, which would involve selling sprinkle cookies for 1 year. The firm expects sales of sprinkle cookies to be $140,000 and associated costs from flour, butter, sugar, etc. used to make sprinkle cookies to be $68,000. The firm believes that sales of frosted cookies, a type of cookie that is currently offered by the firm, would be $30,000 less with the addition of sprinkle cookies, and that costs associated with frosted cookies would be $16,000 less with the addition of sprinkle cookies.Finally, Paul Bakery believes that sprinkle cookies would increase traffic to its bakeries, which would increase expected sales of bread, cakes, and other items by $26,000 more than it would be without the addition of sprinkle cookies, and increase costs of bread, cakes, and other items by $10,000 more than it would be without the addition of sprinkle cookies. What is the relevant net income in year 1 that Paul Bakery should use to analyze the sprinkle cookie project? The tax rate is 50 percent, the cost of capital is 3.6 percent, and there is no relevant depreciation.

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