Jamies Motor Home Sales currently sells 1000 Class A motor homes 2500 Class C

# Jamies motor home sales currently sells 1000 class a

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47. Jamie's Motor Home Sales currently sells 1,000 Class A motor homes, 2,500 Class C motor homes, and 4,000 pop-up trailers each year. Jamie is considering adding a mid-range camper and expects that if she does so she can sell 1,500 of them. However, if the new camper is added, Jamie expects that her Class A sales will decline to 950 units while the Class C campers decline to 2,200. The sales of pop-ups will not be affected. Class A motor homes sell for an average of \$125,000 each. Class C homes are priced at \$39,500 and the pop-ups sell for \$5,000 each. The new mid-range camper will sell for \$47,900. What is the erosion cost? A. \$6,250,000 B.\$18,100,000 C. \$53,750,000 D. \$93,150,000 E. \$118,789,500 Erosion cost = [(1,000 - 950) \$125,000] + [(2,500 - 2,200) \$39,500] = \$18,100,000 Difficulty level: Medium Topic: EROSION COST Type: PROBLEMS
Chapter 06 - Making Capital Investment Decisions 6-20 48. Ernie's Electrical is evaluating a project which will increase sales by \$50,000 and costs by \$30,000. The project will cost \$150,000 and will be depreciated straight-line to a zero book value over the 10 year life of the project. The applicable tax rate is 34%. What is the operating cash flow for this project? Difficulty level: Medium Topic: OCF Type: PROBLEMS 49. Kurt's Kabinets is looking at a project that will require \$80,000 in fixed assets and another \$20,000 in net working capital. The project is expected to produce sales of \$110,000 with associated costs of \$70,000. The project has a 4-year life. The company uses straight-line depreciation to a zero book value over the life of the project. The tax rate is 35%. What is the operating cash flow for this project? Difficulty level: Medium Topic: OCF Type: PROBLEMS
Chapter 06 - Making Capital Investment Decisions 6-21 50. Peter's Boats has sales of \$760,000 and a profit margin of 5%. The annual depreciation expense is \$80,000. What is the amount of the operating cash flow if the company has no long-term debt? Difficulty level: Medium Topic: BOTTOM-UP OCF Type: PROBLEMS 51. Le Place has sales of \$439,000, depreciation of \$32,000, and net working capital of \$56,000. The firm has a tax rate of 34% and a profit margin of 6%. The firm has no interest expense. What is the amount of the operating cash flow? A. \$49,384 B. \$52,616 C. \$54,980 D.\$58,340 E. \$114,340 OCF = (\$439,000 .06) + \$32,000 = \$58,340 Difficulty level: Medium Topic: BOTTOM-UP OCF Type: PROBLEMS
Chapter 06 - Making Capital Investment Decisions 6-22