MGAB03H3 Lecture Notes - Lecture 12: Payback Period, Marginal Cost, Earnings Before Interest And Taxes
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Question 1: the income statement would be: Sales revenue (72,000 loaves . 25 per loaf) Less cost of ingredients (,000 40%) ,000 15 years = ,200 per year: the formula for the simple rate of return is: Yes, the return will be acceptable since it exceeds mr. perotti"s 12% requirement: the formula for the payback period is: *,800 operating income + ,200 depreciation = ,000. Yes, the oven and equipment would be purchased. The payback period is less than the 6-year period. Question 2 : the net annual cost savings is computed as follows: Less increased maintenance costs (,200 12) . (38,400) B03 chapter 12 supplementary questions: using this cost savings figure, and other data provided in the text, the net present value analysis is: No, the cutting machine should not be purchased. It has a negative net present value at a 16% discount rate: the intangible benefits would have to be worth at least ,263 per year as shown below:
