The cash flow details of a public project is as follows Initial cost = BD 210000 Annual operating cost = BD 10000 Worth of annual benefits = BD 12,000 %3D %3D Worth of annual disbenefits = BD 1245 Salvage value = BD 150000 Interest rate per year = 8% and useful lie = 30 Years Using benefit-cost ratio method and find out the economical acceptability of the public project. Use PW and AW methods to find out the equivalent worth of costs, benefits and disbenefits, also discuss why it is profitable(Use excel)
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- 2. A city is holding an annual marathon event and wants to produce t-shits. Alfonso was able to obtain previous years' demand and probability data as given in below table. The selling price is $10, cost is $5, and the salvage value is $1. Calculate all payoff numbers in the table and profit. Show work. How many shirts should they prepare? Prepare 1000 Prepare 2000 Prepare 3000 Demand=1000| Demand=2000 Demand=3000 30% 35% 35% Profit IA. A company wants to produce a souvenir with a marketing life of six months. Uncertainty surrounds the likely sales volume as well as the fixed costs of the venture as shown below: Sales units Probability Contrn. /unit Probability Fixed cost K7 K5 100 000 0.3 80 000 0.6 60 000 0.1 1.0 0.5 0.5 1.0 Determine the expected value of the contribution K400 000 K450 000 K500 000 Probability 0.2 0.5 0.3 1.0Capital Budgeting with Taxes (Non-MACRS Depreciation); Sensitivity Analysis GravinaCompany is planning to spend $6,000 for a machine that it will depreciate on a straight-line basisover 10 years with no salvage value. The machine will generate additional cash revenues of $1,200 ayear. Gravina will incur no additional costs except for depreciation. Its income tax rate is 35%. Thepresent value annuity factor for 15%, 10 years (from Appendix C, Table 2) is 5.019.Required1. What is the payback period of the proposed investment (in years, and rounded to 1 decimal place) underthe assumption that the cash inflows occur evenly throughout the year?2. What is the accounting (book) rate of return (ARR) based on the initial investment outlay? Round youranswer to 1 decimal place (e.g., 13.571% = 13.6%).
- Uncertainty and risk are sometimes used interchangeably, but they are not really the same, please discuss?Consider the planned construction of new office building in a downtown area of a large city when office space in in surplus demand (i.e. more office space than users). 1.Construct a risk analysis that examines the various forms of risks (technical, commercial, financial etc) related to the creation of this office building. 2. Explain how the analysis would change if the office were in high demand.Relevant Cost Exercises Each of the following situations is independent:a. Make or Buy Terry Inc. manufactures machine parts for aircraft engines. CEO Bucky Waltersis considering an offer from a subcontractor to provide 2,000 units of product OP89 for $120,000.If Terry does not purchase these parts from the subcontractor, it must continue to produce themin-house with these costs:[LO 11-1, 11-2, 11-3,11-4, 11-7]Cost per UnitDirect materials $28Direct labor 18Variable overhead 16Allocated fixed overhead 4Required1. What is the relevant cost (per unit, rounded to 2 decimal places) to make the product internally?2. What is the estimated increase or decrease in short-term operating profit of producing the productinternally versus purchasing the product from a supplier? (Round your answer to nearest whole dollar.)3. What strategic considerations likely bear on this make-vs.-buy decision?
- Organizing a Risk Analysis. You are the director of internal auditing of a large municipal hospital. You receive monthly financial reports prepared by the accounting department, and your review of them has shown that total accounts receivable from patients has steadily and rapidly increased over the past eight months.Other information in the reports shows the following conditions:a. The number of available hospital beds has not changed.b. The bed occupancy rate has not changed.c. Hospital billing rates have not changed significantly.d. The hospitalization insurance contracts have not changed since the last modification 12 months ago.Your internal audit department audited the accounts receivable 10 months ago. The audit file for that assignment contains financial information, a record of the risk analysis, documentation of the study and evaluation of management and internal risk mitigation controls, documentation of the evidence-gathering procedures used to produce evidence about the…Suppose that Skipper's insurer views him as having the following distribution for the present value of losses: (i) Probability 0.02 0.04 0.10 0.84 Loss $20,000 5,000 1,000 0 What is the fair premium for full coverage if the competitive loading (administrative costs and capital costs) equals 15% of expected claim cost? Suppose that Skipper believes his probabilities of losses are one-half of what the insurer believes (expected claim). What is the loading- as a dollar value, and as a percentage of the expected claim on the policy from Skipper's perspective?Kabelo and Hendrik are joint owners of Fitness Gym. They are currently investigating the option of investing in cryotherapy, a cold therapy that may reduce inflammation in tendons or joints. Their investment would provide Fitness Gym members with equipment which may be used to reduce post-exercise recovery times, at an additional cost. The addition of cryotherapy to the gym represents a strategic service for Fitness Gym. Which one of the following statements reflect the importance of capital-investment projects such as the example above. a. The relative magnitude of the amounts involved. b. The short-term nature of capital-investment decisions. c. The operational nature of capital-investment projects. d. The direct effect of the time value of money on capital-investment projects.
- How the risk appetite of a business can affect theNature of product being manufactured.Classification of Costs The following is a list of costs from the accounting records of SunshinePool Management Inc. Each of Sunshine’s 77 customers is a swim club. Sunshine maintains eachcustomer’s pool by providing lifeguards, supplies, cleaning, and repairs.1. Lifesaving supplies2. Salaries of Sunshine’s managers3. Pool chemicals4. Sunshine’s office rental expense5. Wages of lifeguards6. Workers’ compensation insurance7. Training for lifeguards8. pH testing supplies9. Office expense, including bookkeeping and clerical10. Depreciation on cleaning and testing equipmentRequired Classify each item as direct or indirect assuming that the cost objects are each of the77 swim clubs.S1: Cost plus contract is a contract used on long term construction contracts in which the contractor agrees to a contract price that is fixed, either at the inception or at a fixed rate per unit of output, which in some cases may be subject to cost escalation clauses.S2: Variable contract is a construction contract in which the contractor is reimbursed for allowable or otherwise defined costs, plus a percentage of these costs or a fixed fee * A. Both are true B. S2 True; S1 False C. Both are false D. S1True; S2 False