Mr. Sy is the general manager of the XXX Division, and his performance is measured using the residual income method. Mr. Sy is reviewing the following forecasts to his division for the next year: Category Amounts Working Capital P 1,800,000 Revenue 30,000,000 Plant and Equipment 17,200,000 If the imputed interest charge is 15% and Mr. Sy wants to achieve a residual income of P2,000,000 what will costs (total expenses) have to be in order to achieve the targeted residual income?
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Mr. Sy is the general manager of the XXX Division, and his performance is measured using the
residual income method. Mr. Sy is reviewing the following
Category Amounts
Working Capital P 1,800,000
Revenue 30,000,000
Plant and Equipment 17,200,000
If the imputed interest charge is 15% and Mr. Sy wants to achieve a residual income of
P2,000,000 what will costs (total expenses) have to be in order to achieve the targeted residual income?
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- Consider an order delivery business that will be a 5-year project. The required net working capital is $6.6 million and it will be returned at the end of the life of the project. Required equipment (net capital spending) will cost $15 and it will be depreciated straight-line to 0 over the 5-year life of the project. The business will have sales of $3 million in year 1, $6 million in year 2, and $10 million in years 3, 4, and 5. Costs are 30% of sales and the tax rate is 20%. (If there is a loss at the EBIT line, assign taxes of 0 for that year and do not carry tax losses forward.) The equipment has no salvage value. Create an income statement for years 1, 2, and 3, 4, and 5 (3, 4, and 5 will have the same income statement). Use the information from the income statement to calculate the operating cash flow using EBIT + depreciation – taxes for each year. Put all cash flows (net working capital, net capital spending, and operating cash flows) on a timeline. Using total cash flows from…You are asked to evaluate the following project for a corporation with profitable ongoing operations. The required investment on January 1 of this year is $31.000. The firm will depreciate the investment at a CCA rate of 20 percent. The firm is in the 40 percent tax bracket. The price of the product on January 1 will be $106 per unit. That price will stay constant in real terms. Labour costs will be $15.20 per hour on January 1. They will increase at 1 percent per year in real terms. Energy costs will be $7.30 per physical unit on January 1; they will increase at 2.5 percent per year in real terms. The inflation rate is 3.2 percent. Revenue is recelved and costs are paid at year-end: Year 1 Year 2 Year 3 Year 4 Physical production, in units Labour input, in hours Energy input, physical units 390 1,120 170 340 170 1,120 180 1,120 180 1,120 180 180 The risk-free nominal discount rate is 77 percent. The real discount rate for costs and revenues is 4.7 percent. Calculate the NPV of this…1. The A Division of Sam Products Co. is considering an investment in a new project. The project has an estimated cost of P1,000,000. If Sam Products Co. has a target rate of return of 12%, how large does the return on investment on this project need to be to generate P170,000 of residual income? 2. Sam Division reported a residual income of P200,000 for the year just ended. The division has P8,000,000 of invested capital and P1,000,000 of income. On the basis of this information, the required rate of return was: (round off to 1 decimal places) 3. If the turnover increased by 40 percent and the margin decreased by 30 percent, the ROI would decreased by?
- When calculating Return on Investment (ROI) we take the benefit/cost x 100. Or as we reviewed in class: ROI= (average annual profit/total investment) x 100. So, if I invest in Fall protection for my company at a cost of $10,000, and for the purposes of calculation, you determine if it saves that company 10% of it's fall- related WC claims annually, the annual benefit would be around $3,000 annually, what would you project your ROI to be? (one best answer) 30% 10% $3,000 I don't need to calculate the ROI, because it is required by law.The Best Manufacturing Company is considering a new investment. Financial projections for the investment are tabulated here. The corporate tax rate is 34 percent. Assume all sales revenue is received in cash, all operating costs and income taxes are paid in cash, and all cash flows occur at the end of the year. All net working capital is recovered at the end of the project. Investment Sales revenue Operating costs Depreciation Net working capital spending Net income Year O $27,000 Year 1 $ Cash flow 330 Year 1 $14,000 $14,500 3,000 6,750 380 280 a. Compute the incremental net income of the investment for each year. (Do not round intermediate calculations.) Year 2 Year 2 Year O $-27330 Year 3 3,100 3,200 6,750 6,750 430 330 3069 $15,000 $12,000 2,400 6,750 ? Year 1 $ Year 4 Year 3 b. Compute the incremental cash flows of the investment for each year. (Do not round intermediate calculations. A negative answer should be indicated by a minus sign.) 3333 Year 4 $ Year 2 $ c. Suppose the…The manager of Stock Division projects the following for next year: Sales $185,000 Operating income Operating assets The manager can invest in an additional project that would require $40,000 investment in additional assets and would generate $6,000 of additional income. The company's minimum rate of return is 14%. What is the residual income for Stock Division with the additional project? $60,000 $375,000 O .000 O 000 O 900 The Engine Division provides engines for the Tractor Division of a company The standard unit costs for Engine Division are: Direct materials $ 600 Direct labor Variable overhead 1,200 300 150 Fixed overhead Market price per unit 2,730 What is the transfer price based on ful cost plus a markup of 30%? O ssas O 1270