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27/08/2022
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7830 Nov.Dec 2015 Final Exam – New Product Line ScenarioMake sure you read, understand and apply all elements in scenario …CFO REQUEST You are the new finance manager just hired.Your new company is paying you $200,000 in base salary with a 50% bonus.Your first assignment given to you by the CFO is to decide whether to launch a HIGH END bicycle line.Your company has enjoyed profits in the mid to low end markets, but growth has stagnated.Your marketing department sees a niche in the high-end market now. MARKETING DATAprice of new product for 1st year$390price increase each year$100price of new product for 1st year should be DIRECT COSTS + this gross-up30.0%EG: if an item has direct costs of $100, a 20% gross-up = $20. Sales price would be $100 + $20(markup) = $120 total.SALES DATA# of new bikes sold in year 1yearly increases – for bikes sold 1,0002,000 COSTS OF NEW BIKEcost of new manufacturing machine(which includes taxes, delivery and installation) $ 800,000 Direct CostsDirect Costs cost of labor / per bike madecost of materials / per bike made $$ 100200 cost of new facility additioncost of new sales person. Starts in year 0. $$ 150,000125,000 $$$$$$ 1,075,000100,000200,000800,00014,500,00016,675,000 $$$$$$ 300,0001,015,0005,000,00010,000,000360,00016,675,000 BALANCE SHEET DATAcashmarketable securitiesaccounts receivableinventoryproperty, plant & equipment (PP&E)total assetsratescurrent liabilitieslong term debt (7% of the PP&E was financed with long term debt)preferred stockcommon stock (there are $2 of common stock to every $1 of preferred stock)retained earningstotal liab + equityINCOME STATEMENT DATArevenues (for previous year before the launch of new bike line)net profit marginuse this dividend payout ratio to calculate dividends paid out to shareholdersnet profits – transferred to retained earnings 4%8%10% $ $ LOAN DATA — CFO tells you the following:1. If company has to take a loan, the cheapest money it can get is …2. Term of loan are these # of years …3. It is OK to exhaust this% of marketable securities for the purchase of a new machine.BUDGET INFORMATIONoperating expense allocation – per bikefacility depreciation (in years)new machine depreciation (in years)income tax rate 7830 Final Exam (Mar.Apr 2016) – MOCK (only post PDF). – 1 2,000,00030%40%360,000 5.0%380% $ 60.0051030% 4/19/2016
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