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Basil Robekins has an idea for a new type of ice cream cone made-(Answered)

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Question

Basil Robekins has an idea for a new type of ice cream cone made from candy bars (like Butterfinger, etc.). He bounced this idea off of his current customers and thinks they will buy more often because they can pick and choose from over 31 different candy bars and won?t get bored with the selection of either a sugar or a waffle cone. He would like to try out his idea in an adjacent state because they are offering some tax benefit. He has a location selected where the demographics are similar to his current location. However, he will need to upgrade to a more flexible cone maker that can adjust to the different hardness of each type of candy bar. He has located such a cone maker for a cost of $40,000. He knows this will be a big risk for him and remembers how his brother-in-law got burned buying a $20,000 tunnel oven for ?super-duper long? pizzas. Basil thinks he can get 5 years out of the flexible cone maker. But he knows that is what his brother-in-law thought about the tunnel oven which lasted only 3 years. Basil also knows that nobody will want his flexible cone maker because the corn syrup in most candy bars leaves a really ugly stain on the metal. However, he knows a scrap metal dealer who will haul away any equipment for free. He has done some market research, mostly surveying his customers and figures he can increase his annual sales by 27%. This would translate into an extra profit of $11,000 per year.

a) Which one of the following suggested risk-adjusted interest rates table below most closely represents Basil?s idea?

Answer:????????????????????????????????? ????????????????????????????????????????< 10 pts>

Suggestion: Look carefully at the scenario and quote specific items from it that support your answer.

Reasoning:

Rate (%)

Applies to:

6

Equipment replacement

8

New equipment

10

New product in normal market

12

New product in related market

16

New product in new market

20

New product in foreign market


b) Based on a present worth analysis, find the IRR of Basil?s idea.

Suggestion: The PW will include the first cost and the annual savings.

Answer:?? ???????????????????????????????????????????????????????????????????????????????< 8 pts>

Reasoning/Work.

c) Would you recommend Basil by the new machine or not?

Answer:????????????????? ???????????????????????????????????????????????????????????????? < 2 pts>

Reasoning/Work.

 

Paper#9210339 | Written in 27-Jul-2016

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