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Questions and Answers
(26 solutions)

Before franchising her happy noodles restaurant concept, owner Sung Chi had made the following assumptions

Chi

believed people would pay

$ 5.00

for a large bowl of noodles. Variable costs would be

$ 2.00

a bowl creating a contribution margin of $ 3.00 per bowl. Sung Chi estimated monthly fixed costs for franchisees at $ 8 comma 400.

Franchisees wanted a minimum monthly operating income of

$ 6 comma 000.

Chi did franchise her restaurant concept. Because of Happy Noodles's success. Noodles - n - More has come on the scene as a competitor. To maintain its market share, Happy Noodles will have to lower its sales price to $4.50 per bowl. At the same time, Happy Noodles hopes to increase each restaurant's volume to 8,000 bowls per month by embarking on a marketing campaign. Each franchise will have to contribute $500 per month to cover the advertising costs. Prior to these changes, most locations were selling 7,500 bowls per month.

Requirement 1. What was the average restaurant's operating income before these changes?Identify the formula labels and compute the operating income before the changes.Contribution margin per unit$3.00Times:Average sales volume units7,500Contribution margin$22,500Less:Fixed expenses8,400O...

Posted by Cleveland on September 29, 2024

Owner

Jackie Lo Woo

is considering franchising her

Oriental Express

restaurant concept. She believes people will pay

$ 6.00

for a large bowl of noodles. Variable costs are

$ 2.10

a bowl.

Woo

estimates monthly fixed costs for franchisees at

$ 7 comma 800.

Read the requirements.

Requirement 1. Find a franchisee's breakeven sales in dollars.

Begin by identifying the formula to compute the sales in units at various levels of operating income using the contribution margin approach.

Requirement 2. Is franchising a good idea for

Woo

if franchisees want a minimum monthly operating income of

$ 6 comma 500

and

Woo

believes that most locations could generate

$ 24 comma 000

in monthly sales?

The target sales in dollars to reach the minimum monthly operating income for franchises is

Requirement 1Fixed expenses+Operating income) ÷Contribution margin ratio=Breakeven sales in dollarsBreakeven Sales in Units=3.907,800≈2,000Breakeven Sales in Dollars=2,000×6.00=12,000Requirement 2Total Contribution Required=7,800+6,500=14,300Contribution ...

Posted by Cleveland on September 29, 2024

Colton

Dry Cleaners has determined the following about its costs: Total variable expenses are

$ 42 comma 000,

total fixed expenses are

$ 30 comma 000 comma

and the sales revenue needed to break even is

$ 50 comma 000.

Determine the company's current 1) sales revenue and 2) operating income.

(Hint:

First, find the contribution margin ratio; then prepare the contribution margin income statement.)

Use the contribution margin income statement and the shortcut contribution margin approaches to determine

Colton's

current (1) sales revenue and (2) operating income.

Begin by computing the contribution margin ratio. (Enter the result as a whole number.)

The contribution margin ratio is		%.

The answer is 60%Part BContribution Margin Income StatementSales revenue$105,000Less: Variable expenses42,000Contribution margin$63,000Less: Fixed expenses30,000Operating income (loss)$33,000...

Posted by Cleveland on September 29, 2024

Gammaro Games is considering an equipment investment that will cost $970,000. Projected net cash inflows over the equipment's three-year life are as follows: Year 1: $484,000; Year 2: $384,000; and Year 3: $296,000. Gammaro Games wants to know the equipment's IRR.

View the present value of $1 table.

View the future value of $1 table.

Requirement

View the present value of annuity of $1 table.

View the future value of annuity of $1 table.

Use trial and error to find the IRR within a 2% range. (Hint: Use Gammaro Games' hurdle rate of 8% to begin the trial-and-error process.) Use a business calculator or spreadsheet to compute the exact IRR.

Begin by calculating the NPV at three rates: 8%, 10%, and 12%. (Round your answers to the nearest whole dollar. Use parentheses or a minus sign for negative net present values.)

The NPV at 8% is

Begin by calculating the NPV at three rates: 88%, 1010%, and 1212%. (Round your answers to the nearest whole dollar. Use parentheses or a minus sign for negative net present values.)The NPV at 8% is$42,296Part 2The NPV at 10% is$9,436Part 3The NPV at 12% is$(20,998)Part 4The IRR is s...

Posted by Cleveland on September 5, 2024

Bramley Manufacturing is considering three capital investment proposals. At this time, the company has funds available to pursue only one of the three investments.

View the capital investment proposals.

Requirement

Which investment should Bramley Manufacturing pursue at this time? Why?

Since each investment presents a positive NPV, Bramley Manufacturing should use the compare the profitability of each investment.

ince each investment presents a positive NPV, BramleyBramley Manufacturing should use the profitability index to compare the profitability of each investment.Part 2Use the method selected above to compare the profitability of each investment beginning with Equipment A. (Enter all amounts as p...

Posted by Cleveland on September 5, 2024

Berkner Industries is deciding whether to automate one phase of its production process. The manufacturing equipment has a six-year life and will cost $950,000. Projected net cash inflows are as follows:

View the projected net cash inflows. View the present value of $1 table.

View the future value of $1 table. Read the requirements.

View the present value of annuity of $1 table.

View the future value of annuity of $1 table.

Requirement 1. Compute this project's NPV using Berkner Industries' 14% hurdle rate. Should Berkner Industries invest in the equipment? Why or why not?

Begin by computing the project's NPV (net present value). (Round your answer to the nearest whole dollar. Use parentheses or a minus sign for negative net present values.)

Net present value

Requirement 1. Compute this project's NPV using BerknerBerkner Industries' 1414% hurdle rate. Should BerknerBerkner Industries invest in the equipment? Why or why not?Begin by computing the project's NPV (net present value). (Round your answer to the nearest wh...

Posted by Cleveland on September 5, 2024

Industries is evaluating whether to invest in solar panels to provide some of the electrical needs of its main office building in

Boulder,

Colorado.

The solar panel project would cost

$ 500 comma 000

and would provide cost savings in its utility bills of

$ 65 comma 000

per year. It is anticipated that the solar panels would have a life of

years and would have no residual value.

Requirements

1. Calculate the payback period in years of the solar panel project

If the company uses a discount rate of

10%,

what is the net present value of this project?

If the company has a rule that no projects will be undertaken that have a payback period of more than five years, would this investment be accepted? If not, what arguments could the energy manager make to try to obtain approval for the solar panel project?

What would you do if you were in charge of approving capital investment proposals?

Requirement 1. Calculate the payback period in years of the solar panel project. Determine the formula, then calculate the payback period. (Round your answer to two decimal places.)Part 2 Initial investment÷Expected annual net cash inflow=Payback period$500,000÷$65,000=7.69yearsPar...

Posted by Cleveland on September 5, 2024

Walken

Hardware is adding a new product line that will require an investment of

$ 1 comma 500 comma 000.

Managers estimate that this investment will have a 10-year life and generate net cash inflows of

$ 335 comma 000

the first year,

$ 250 comma 000

the second year, and

$ 225 comma 000

each year thereafter for eight years. The investment has no residual value. Compute the payback period.

First enter the formula, then calculate the payback period. (Round your answer to two decimal places.)Part 2Full years+ (Amount to complete recovery in next year÷Projected cash inflow in next year) =Payback6+ ($15,000÷$225,000) =6.07yea...

Posted by Cleveland on September 5, 2024

The

Boston

Food Bank is a nonprofit organization that receives donations of food and distributes this food to appropriate charitable organizations. He used this wait time data and the following assumptions to determine the financial benefit of buying a second shrink-wrap machine.

Additional Info

Many times, large quantities of food need to be shrink-wrapped to secure the items for shipping to the charitable organizations. The VP of Operations at the

Boston

Food Bank recently performed a time study of the time that its warehouse personnel spend waiting for the shrink-wrap machine to become available

Assumptions

Requirement 1. What is the expected net cash inflow per year from purchasing a second shrink-wrap machine (i.e., how much cost could be saved each year by eliminating the wait time)?

Requirement 2. What is the payback period of the second shrink-wrap machine? Round your answer to two decimal places.

Requirement 3. What would the expected net cash inflow per year be if the hourly wage rate used for this analysis was increased by

20 %

to reflect the cost of employee benefits?

Requirement 4. What is the payback period of the second shrink-wrap machine when the increased wage rate is used to calculate the expected net cash inflow per year? Round your answer to two decimal places

Requirement 5. Did the payback period using the increased hourly wage rate increase or decrease as compared to the original payback period using the hourly rate without any benefits included? Explain

Requirement 13500ExplanationStep 1: Calculate the total wait time per year (in hours)Average wait time per picker per day: 60 minutes = 1 hourNumber of pickers: 15Days worked per year: (5 days/week) × (52 weeks - 2 weeks for holidays) = 250 daysTotal wait time per year=1 hour/day...

Posted by Cleveland on September 5, 2024

Prepare a statement of cash flows using the indirect method. The income statement for

2023

and the balance sheets for

2023

and

2022

are presented for

Hoover

Industries, Inc.

View the income statement. View the balance sheets.

View the additional information.

Requirement

Prepare a statement of cash flows for

Hoover

Industries, Inc., for the year ended December 31,

2023,

using the indirect method.

Prepare the statement one section at a time. (Use parentheses or a minus sign for numbers to be subtracted and for net cash outflows.)Part 2Part 3Part 4 Hoover Industries, Inc. Statement of Cash Flows (Indirect Method) For the Year Ended December 31, 2023 Operating Activit...

Posted by Cleveland on September 5, 2024

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