Question #1Consider the following potential investment which has the same risk as the firm s other projects:TimeCash Flow0-$1920001$680002$700003$720004$74000The firm s current weighted-average cost of capital is 15%.a) How much value will this investment create for the firm?b) At what discount rate will this project break even?c) Should the firm do this investment? Be sure to justify your recommendation. d) How would your analysis change if this potential investment was more risky than the firm s other projects? Be specific.Question #2A firm believes it can generate an additional $450000 per year in revenues for the next 6 years if it replaces existing equipment that is no longer usable with new equipment that costs $500000. The additional sales will require an initial investment in net working capital of $35000 which is expected to be recovered at the end of the project (after 6 years). The existing equipment has a book value of $15000 and a market value of $5000. The firm expects to be able to sell the new equipment when it is finished using it (after 6 years) for $20000. The contribution margin is expected to be 40% of revenue. Assume the firm uses straight line depreciation its marginal tax rate is 35% and its weighted-average cost of capital is 14%.a) How much value will this new equipment create for the firm?b) At what discount rate will this project break even?c) Should the firm purchase the new equipment? Be sure to justify your recommendation. Question #3After a study of its processes a firm determines it has the following 4 overhead cost pools related to the production of its 2 products: Set-up Shipping Product design and Plant utilities and administration.Both products are produced in the same facility using the same equipment. Product XYZ is a higher volume product that takes a relatively small amount of machine-time to produce while Product ABC is a lower volume product that takes a significantly higher amount of machine-time. Also Product XYZ requires very little set-up time while Product ABC requires a more time-consuming set-up. Both products are shipped in a similar way with each shipment requiring a similar amount of work.Based on this information determine the hierarchy level for each cost pool and an appropriate allocation base for each pool.Cost PoolHierarchy LevelAllocation BaseSetupShippingProduct designPlant utilities & administrationQuestion #4The Dana Company manufactures a specialized piece of manufacturing equipment. Its machine has always been distinct from its competitors machines and is considered to be superior to their products too. However its competitors are catching up both in terms of features and quality. Dana has refined its manufacturing to the point that it never produces defective machines relying on well-trained workers and highly-complex manufacturing equipment. Without these workers and this equipment Dana would have a difficult time producing its products without defects. Since a large amount of materials are wasted in production however one of its goals is to reduce the amount of direct materials used to produce the machines. Given the unique and specialized nature of the machines Dana often needs to provide a significant amount of support to its customers.a) Based on this information what type of strategy do you believe Dana is pursuing? Be sure to back up your claim with specific evidence.b) List and justify eight metrics (2 in each of the Balanced Scorecard perspectives) that you believe Dana should include in its Balanced Scorecard.c) Dana calculates the following figures:2012 operating income$27000002013 operating income$3319500Growth component$280000Price-recovery component$247500Productivity component$92000In 2013 Dana sold more units and charged a higher price than in 2012. Dana also paid more for raw materials in 2013 than it did in 2012.Based on this information do you believe Dana s increase in operating income in 2013 is consistent with its goals and strategy? Be sure to justify your answer with specific information.Question #5Consider the following quality cost report:Q1Q2Q3Q4Prevention costs$1020$1508$1300$1140Appraisal costs$880$910$766$532Internal failure costs$710$636$472$358External failure costs$1470$1264$672$512Total quality costs$4080$4318$3210$2542Total revenues$16480$18160$18600$18040Do you believe this firm s quality initiatives have been successful? Be sure to justify your opinion with specific information.
