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Solution - Exam 230608

The document provides the solutions to exam questions about calculating net present value, break even analysis, and total costs. 1) It calculates the net present value of an investment by discounting annual cash flows of $390,000 over 9 years at a 12% cost of capital, finding the NPV is $127,920, indicating the investment should be made. 2) It calculates the break even point in units for a product with fixed costs of €21,000 and variable costs of €4.5 per unit sold at €9.5 per unit, finding the break even is 4,200 units. 3) It calculates the total cost of €48,000 for producing 6,000 units

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Elin Ekström
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9 views2 pages

Solution - Exam 230608

The document provides the solutions to exam questions about calculating net present value, break even analysis, and total costs. 1) It calculates the net present value of an investment by discounting annual cash flows of $390,000 over 9 years at a 12% cost of capital, finding the NPV is $127,920, indicating the investment should be made. 2) It calculates the break even point in units for a product with fixed costs of €21,000 and variable costs of €4.5 per unit sold at €9.5 per unit, finding the break even is 4,200 units. 3) It calculates the total cost of €48,000 for producing 6,000 units

Uploaded by

Elin Ekström
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Exam 230608

Solutions

Question 4b)

Initial investment: 1950000 GBP

Annual cashflow years 1-9: 390000 GBP

Cost of capital: 12 %

Time Present value factor Cash-flows Present value


0 1 1950000
1 0,8929 390000*,8929=348231 348231
2 0,7972 390000*,7972=310908 310908
3 0,7118 390000*,7118=277602 277602
4 0,6355 390000*,6355=247845 247845
5 0,5674 390000*,5674=221286 221286
6 0,5066 390000*,5066=197574 197574
7 0,4523 390000*4523=176397 176397
8 0,4039 390000*,4039=157521 157521
9 0,3606 390000*,3606=140634 140634
SUM discounted cash- 2077998
flows

-initial investment + (discounted cashflows * PVfactor)=Net present value

-1950000 + (2077998) = 1279987

Alternative solution

-1950000 + (390000*5,328)=-1950000+2077920 = 127920

Net present value is 127920 GBP, which means that the investment exceeds the requirements set out
by the company. So the company should invest in this machine because the NPV is positive.

5a)

Total cost for the product:

Fixed cost: 21000 EUR

Variable cost: 4,5 EUR/unit

Volume: 6000 units

Total cost = Fixed cost + (Variable cost *Volume) = 21000 + (4,5*6000)= 21000 + 27000 = 48000 EUR

Total cost for this production (initial phase) is 48000 EUR.

b)

Price 9,5 EUR/unit for 8000 units (volume)


Total income = Price*Volume = 9,5*8000 = 76000 EUR

Profit = Total income – Total cost => Total income – Fixed cost – (Variable cost * Volume) =

76000 – 21000 – (4,500*8000) = 76000-21000-36000=19000 EUR profit for one month

c) Break even point in units – Volume is an unknown

Price * x = FC + (VC*x) = 9,5X = 21000 + 4,5X => 5X = 21000 => X= 4200

Minimum number of units for the company to sell is 4200 units. If they sell below this point they will
make a loss.

6)

Answer to question A) is the cost-driver rate column above.

b) Total cost for the order is 303969,33 SEK

Question 7) – see the excel from the exercises for solution.

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