Finance Exercises
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Q1(Inflation and project cash flows)
Carlyle Chemicals is evaluating a new chemical compound used in the manufacturing of a wide range of consumer products. The firm is concerned that inflation in the cost of raw materials will have an adverse effect on the projects cash flows. Specifically, the firm expects the cost per unit (which is currently $0.85) will rise at a rate of 12% annually over the next three years. The per-unit selling price is currently $0.95 and this price is expected to rise at a meager 3% annual rate over the next three years. If Carlyle expects to sell 5.5, 7.2, and 9.5 million units for the next three years, respectively, what is your estimate of the gross profits to the firm? Based on these estimates, what recommendation would you offer to the firm's management with the regard to this product? (Note: be sure to round each unit price and unit cost per year to the nearest cent)
The gross profit or (loss) for year 1 is $___ (round to the nearest dollar)
The gross profit or (loss) for year 2 is $___ (round to the nearest dollar)
The gross profit or (loss) for years 3 is $___ (round to the nearest dollar)
Q2 (Inflation and project cash flows)
Carlyle Chemicals is evaluating a new chemical compound used in the manufacturing of a wide range of consumer products. The firm is concerned that inflation in the cost of raw materials will have an adverse effect on the projects cash flows. Specifically, the firm expects the cost per unit (which is currently $0.86) will rise at a rate of 11% annually over the next three years. The per-unit selling price is currently $0.96 and this price is expected to rise at a meager 3% annual rate over the next three years. If Carlyle expects to sell 5.5, 6.8, and 10 million units for the next three years, respectively, what is your estimate of the gross profits to the firm? Based on these estimates, what recommendation would you offer to the firm's management with the regard to this product? (Note: be sure to round each unit price and unit cost per year to the nearest cent.)
The gross profit or (loss) for year 1 is $___ (round to the nearest dollar)
The gross profit or (loss) for year 2 is $___ (round to the nearest dollar)
The gross profit or (loss) for years 3 is $___ (round to the nearest dollar)
Q 4 As a project manager, what general categories of information would you want to have on a cost control report to properly evaluate what you think is a developing overrun on an operation? Why?
Q 4 We typically think of labor as a variable cost; however it can also be a fixed cost or a step cost. Under what circumstances can labor cost be a fixed or step cost?
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The solution provides finance exercises with answers.
Education
- BA, Ain Shams University, Cairo Egypt
- MBA, California State University, Sacramento
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