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Saint MbA560 module 8 problem




Question;Module 8 problem;15-23;Return on investment;Soto Corporation?s balance sheet indicates that the company;has $300,000 invested in operating assets. During 2011, Soto earned operating;income of $45,000 on $600,000 of sales.;REQUIRED;a.;Compute Soto?s profit margin for 2011.;b.;Compute Soto?s turnover for 2011.;c.;Compute Soto?s return on investment for 2011.;d.;Recompute Soto?s ROI under each of the following;independent assumptions.;1.;Sales increase from $600,000 to $750,000;thereby resulting in an increase in operating income from $45,000 to $48,000.;2.;Sales remain constant, but Soto reduces expenses;resulting in an increase in operating income from $45,000 to $48,000.;3.;Soto is able to reduce its invested capital from;$300,000 to $240,000 without affecting operating income.;CHECK FIGURES;c. 15%;d. (3) 18.75%;Problem 16-16 Using present value techniques to evaluate;alternative investment opportunities;Fast delivery is a small company that transports business;packages between New York and Chicago. It operates a fleet of small vans that;moves packages to and from a central depot within each city and uses a common;carrier to deliver the packages between the depots in the two cities. Fast;recently acquired approximately $6 million of cash capital from its owners, and;its president, Don Keenon, is trying to identify the most profitable way to;invest these funds.;Clarence;Roy, the company?s operations manager, believes that the money should be used;to expand the fleet of city vans at a cost of $720,000. He argues that more;vans would enable the company to expand its services into new markets, thereby;increasing the revenue base. More specifically, he expects cash inflows to;increase by $280,000 per year. The additional vans are expected to have an;average life of four years and a combined salvage value of $100,000. Operating;the vans will require additional working capital of $40,000, which will be;recovered at the end of the fourth year.;In;contrast, Patricia Lipa, the company?s chief accountant, believes that the;funds should be used to purchase large trucks to deliver the packages between;the depots in the two cities. The conversion process would produce continuing;improvement in operating savings with reductions in cash outflows as the;following.;Year 1;Year 2;Year 3;Year 4;$160,000;$320,000;$440,000;$440,000;The;large trucks are expected to cost $800,000 and to have a four-year useful life;and a $80,000 salvage value. In addition to the purchase price of the trucks;up-front training costs are expected to amount to $16,000. Fast Delivery?s;management has established a 16 Percent desired rate of return.;REQUIRED;a.;Determine the net present value of the two;investment alternatives.;b.;Calculate the present value index for each;alternative.;c.;Indicate which investment alternative you would;recommend. Explain your choice.;CHECK FIGURES;a.;NPV of the vans investment: $100,811.42;b.;NPV index of the trucks investment: 1.126


Paper#49531 | Written in 18-Jul-2015

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