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Which of the following is not an example of synergy?
Synergy occurs when the combination of formerly separate elements has a greater affect than the sum of their individual effects. It is unclear here whether the store is a car dealership or a parts shop. Therefore, this is seen more as an operational service strategy that seeks to gain a competitive advantage and maximize customer value by providing services such as warranties, rather than market synergy. Market synergy arises when products or services have positive complementary effects( i.e., a parts shop and a service warranty on parts).
lrwinn Co. is considering an investment in a capital project. The sole outlay will be $800,000 at the outset of the project and the annual net after-tax cash inflow will be $216,309.75 for 6 years. The present value factors at lrwinn's 8% cost 01 capital are
What is the breakeven time (BET)?
Breakeven time is a more sophisticated version of the payback method. Breakeven time is 'defined as the period required for the discounted cumulative cash inflows on a project to equal the discounted cumulative cash outflows (usually the initial cost). Thus, it is the time necessary for the present value of the discounted cash flows to equal zero. This period begins at the outset of a project, not when the initial cash outflow occurs. Accordingly, the BET is calculated as follows:
Amount required in year 5:
A major supplier has offered Alpha Corporation a year-end special purchase whereby Alpha could purchase 180,000 cases of sport drink at $10 per case. Alpha normally orders 30,000 cases per month at $12 per case. Alpha's cost of capital is 9%. In calculating the overall opportunity cost of this offer, the cost of carrying the increased inventory would be
If Alpha makes the special purchase of 6 months of inventory (180,000 cases + 30,000 cases per month), the average in victory for the 6-month period will be $900,000 [(180,000 x $10) + 2]. If the special purchase is not made, the average in victory for the same period will be the average monthly inventory of $180,000 [(30,000 x $12) + 2]. Accordingly, the incremental average inventory is $720,000 ($900,000 --- $180,000), and the interest cost of the incremental 6-month investment is $32,400 [($720,000 x9%) 2].
Assuming a 360-day year, the current price of a $100 U.S. Treasury bill due in 180 days on a 6% discount basis is
The 6% discount rate is multiplied times the face amount of the Treasury bill to determine the amount of interest the lender will earn. The interest on this Treasury bill is $3 ($100 x 6% x 5 year), thus the purchase price is $97 ($100---$3).
The accountant of Ronier, Inc. has prepared an analysis of a proposed capital project using discounted cash flow techniques. One manager has questioned the accuracy of the results because the discount factors employed in the analysis have assumed the cash flows occurred at the end of the year when the cash flows actually occurred uniformly throughout each year. The net present value calculated by the accountant will
The effect of assuming cash flows occur at the end of the year simply understates the present values of the future cash flows; in realist', they probably occur on the average at mid-year.
