at Titan\'s Furniture are considering the purchase of a new computer sysem. The
ID: 2590232 • Letter: A
Question
at Titan's Furniture are considering the purchase of a new computer sysem. The ing estimates are available: Initial outlay Annual cost savings from new system Estimated life of computer Estimated residual life $16,000 $4.100 5 years sO Required: A. Determine the internal rate of return for the computer purchase. B. Indicate whether the computer purchase should be accepted under each of the following assumptions: 1) The cost of capital is 5.75%? 2) The cost of capital is 6%? 3) The cost of capital is 9.15% 4) The cost of capital is 12%? 26. Snow Slope Ski Shop plans to sell the following quantity of snow skis during the first four months of 2016: Units 700 January800 February900 March Ap 800 Snow Slope pays S28 for each pair of skis (a pair equals one unit). The skis sell for $60 per pair. · At the beginning of January, the shop plans to have 125 pairs of skis on hand, and hopes to maintain an ending inventory equal to 25% of next month's sales. Required: Prepare a purchases budget for the first quarter of 2016.Explanation / Answer
1-
Year
cash flow
0
-16000
1
4100
2
4100
3
4100
4
4100
5
4100
IRR - using irr function in Ms excel spreadsheet =irr(-16000,4100,4100,4100,4100,4100
8.87%
1-
Yes
because IRR is greater than cost of capital
2-
Yes
because IRR is greater than cost of capital
3-
No
because IRR is lesser than cost of capital
4-
No
because IRR is lesser than cost of capital
2-
sales in units
700
800
900
800
selling price per unit
60
60
60
60
total sales
42000
48000
54000
48000
no of units sold
700
800
900
800
ending inventory-25% of next months units sold
200
225
200
total no of unit available during the month
900
1025
1100
less opening inventory
125
200
225
units purchased during the month
775
825
875
cost of purchase= units purchased*purchase price per unit
21700
23100
24500
1-
Year
cash flow
0
-16000
1
4100
2
4100
3
4100
4
4100
5
4100
IRR - using irr function in Ms excel spreadsheet =irr(-16000,4100,4100,4100,4100,4100
8.87%
1-
Yes
because IRR is greater than cost of capital
2-
Yes
because IRR is greater than cost of capital
3-
No
because IRR is lesser than cost of capital
4-
No
because IRR is lesser than cost of capital
2-
sales in units
700
800
900
800
selling price per unit
60
60
60
60
total sales
42000
48000
54000
48000
no of units sold
700
800
900
800
ending inventory-25% of next months units sold
200
225
200
total no of unit available during the month
900
1025
1100
less opening inventory
125
200
225
units purchased during the month
775
825
875
cost of purchase= units purchased*purchase price per unit
21700
23100
24500
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