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##### FIN - Maryland Technical Acumen (MTA)

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Question;Maryland Technical Acumen (MTA) is considering a new product line which will require an investment in production equipment and facilities in the current year.Below is an Income and cash flow statements that management has approved. (If there are errors or oversights, that is their problem, not yours).a Determine the how the present worth would be affected by prices of \$47, \$49, \$51 and \$53 with a quantity sold of 55,000. Briefly state how you determined this. b Determine the quantity that would need to be sold to attain the MARR (PW = 0) for prices of \$47, \$49, and \$51. Briefly state how you determined this. Price each \$50 Fixed COGS \$300,000Quantity 55,000 Variable COGS \$17.00Income tax rate 35% G.S.& A. \$800,000 annual Capital Gains Tax rate 0% Depreciation MACRS 5 20.00% 32.00% 19.20% 11.52% 11.52% 5.76%Working capital no change salvage \$0 in year 5 MARR 15% Investment \$1,800,000Income Statement 0 1 2 3 4 5 Sales revenue \$2,750,000 \$2,750,000 \$2,750,000 \$2,750,000 \$2,750,000Cost of goods sold (\$1,336,292) (\$1,336,292) (\$1,336,292) (\$1,336,292) (\$1,336,292) Gross Margin \$1,413,708 \$1,413,708 \$1,413,708 \$1,413,708 \$1,413,708General, Sales and Admin. (\$800,000) (\$800,000) (\$800,000) (\$800,000) (\$800,000) Depreciation (\$360,000) (\$576,000) (\$345,600) (\$207,360) (\$103,680) EBIT \$253,708 \$37,708 \$268,108 \$406,348 \$510,028Income tax (\$88,798) (\$13,198) (\$93,838) (\$142,222) (\$178,510) Net income \$164,910 \$24,510 \$174,270 \$264,126 \$331,518Cash Flow Statement Net Income \$164,910 \$24,510 \$174,270 \$264,126 \$331,518Add depreciation \$360,000 \$576,000 \$345,600 \$207,360 \$103,680Investment (1,800,000) Salvage \$0Tax on gain \$0Cash flow (\$1,800,000) \$524,910 \$600,510 \$519,870 \$471,486 \$435,198Present Worth = (\$61,716) Solution a Determine the how the present worth would be affected by prices of \$47, \$49, \$51 and \$53 with a quantity sold of 55,000.\$47 \$49 \$51PW b Determine the quantity that would need to be sold to attain the MARR (PW = 0) for prices of \$47, \$49, and \$51.\$47 \$49 \$51Quantity

Paper#48012 | Written in 18-Jul-2015

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