Group number >>> 4

Group members
Name Student number
Anusuya venkatsubban 8829815
Joy Omawumi-Ogele 8876611
Seyi Ojo 8746343
Sharmina Mattathil subier 8868339
Danish arora 8846650
Gauri Shankar Bharti 8898300
Item 5 4 3 2 1 0 Student score

Appendix one Clear One minor item missing Few minor items missing Major items missing Few items mentioned Unclear 5

All explanations Two explanations Three explanations Four explanations

Appendix two provided One explanation missing missing missing missing None explained 5

Appendix three Clear One minor item missing Few minor items missing Major items missing Few items mentioned Unclear 5

Appendix four Clear One minor item missing Few minor items missing Major items missing Few items mentioned Unclear 5
Formatting All six followed One missing Two missing Three missing Four missing Five or more missing 5

Writing mechanics:
Appropriate with some
business tone, use of Exceeds expectations Appropriate Somewhat appropriate Adequate Major errors 5
errors
vocabulary and spelling

Total 30
 Data set
Option 1: Construct
Costs to incur:
Buying land, construct building and getting ready $ 900,000
for use

Taxes, insurance, and repairs (per year) $ 50,000

Intended years of use 11
Projected market value in 15 years $ 2,300,000
Maximum down payment FSL can make $ 1,800,000
Remainder in four payments of $ 230,000
Option 2: Lease
Intended years of use 11
First lease payment due now $ 82,000
Rest of the lease payments (years 2-15) $ 115,000
Operating costs to be paid by FSL
Property taxes (annual) $ 14,000
Insurance (annual) $ 24,000
Initial one-time deposit, will be returned in year $ 75,000
15
One time restoration expense to take place in $ 27,000
Year 10
Required rate of return 10%
 Calculations

Lease or Purchase Scenario

Purchase- 11 years @10% Years Cashflows

Intial payment for getting ready to use Now ($900,000)
Annual Payments for next four years 4 Years ($230,000)
Annual Operating costs 11 Year ($50,000)
Salvage value at the end Year 11 $2,300,000

Lease-11 Years@10% Years Cashflows

First Lease Payment Now ($82,000)
One Time Deposit-Returned at the End Now ($75,000)
Remainning Lease Payments (years 2-15) 15 Years ($115,000)
Annual Operating Costs 11 Years ($65,000)

One time Deposit - Released Year 10 $75,000

Ans: FSL should lease their own production as the NPV of

Lease is Less negative than the NPV of Purchase.
Leasing will be less be creating less loss than construction.
If FSL lease their production, they can save upto $484,610
as the differece of both NPVs is $484,610.
 Marks

Interest Factor NPV

1.000 ($900,000)
2.798 ($643,540)
5.818 ($290,900)
0.069 $158,700
($1,675,740)

Interest Factor NPV

1.000 ($82,000)
1.000 ($75,000)
5.749 ($661,135)
5.818 ($378,170)

0.069 $5,175

($1,191,130)

Differene in NPV ($484,610)

Lease or Purchase Lease

Total marks 0
 Ratio
a current ratio= current assets/ current liabilities 2.92 1.78

b recievable's turnover ratio= 5

c time's interest earned= 9.5

d profit margin= 15.0

e days in inventory= 111

f return on assets= 16.45

g cash current and debt coverage ratio= 0.82

Compared to Industry Marks

Total 0
 Data set
Sale Volume of Packaged food item (unit) 50,000

Revenue $ 1,200,000

Variable Expense $700,000

Contribution Margin $ 500,000

Fixed Expenses $ 200,000

Net Operating Income $ 300,000
 Calculations
Current Proposed

Revenue/sales(
Selling price/unit unit) $ 24 $ 24
variable
expense/sales(
variable unit price unit) $ 14 $ 14
Selling price-
variable unit
Contribution Margin per unit price $ 10 $ 10
CM(unit)/
Contribution Margin ratio Selling Price 42% 42%
Fixed Expense $ 200,000 $ 320,000
Fixed
expense/CM(u
Break Even sales nit) 20,000 32,000
Fixed
expense/CM
Break Even in dollars ratio $ 480,000 $ 768,000
Revenue proposed increase 20% $ 360,000
Proposed Revenue (40%) $ 1,680,000
What if Analysis Current Proposed
Sale Volume of Packaged food item (unit) 50,000 70,000
Revenue $ 1,200,000 $ 1,680,000
Variable Expense $ 700,000 $ 980,000
Contribution Margin $ 500,000 $ 700,000
Fixed Expenses $ 200,000 $ 320,000
Net Operating Income $ 300,000 $ 380,000

Change in NOI $ 80,000

Accept or Reject ACCEPT

I recommend that this approach is commendable as it would increase the

company's Net Income by 80,000. After increasing the fixed expenses, the
company would then break even after 32,000 unit sales of product, left
with 18,000 units to sell, but using the current sales, the company would
break even after 20,000 units leaving them with 30,000 units. The
company tends to gain moe from increase in the fixed expense, so I
RECOMMEND the change.

Total
z
 Data Set
Explanation: The maximum capacity is 30000 units, market demad
through regular channels is 20000. For special order no additional
manufacturing overhead/fixed selling expense added. Cost of the
freezer boxes will be added. Variable selling will also be reduced by
70%.

Maximum capacity 30000

Special order 9000
 Calculations

Variable seelling expense reduced by 70% 4-70% 1.2

ITEM Per unit For 9000 units

Direct material cost $18.00 $162,000
direct labor cost 9 81000
Variable Manufacturing Overhead cost 2 18000
Variable selling expense 6 54000
Freezer box 2 18000

Total 37 333000

Minimum selling price per unit is $ 37.00

For 9000 orders $ 333,000.00

Recommendation: The offer price of the large volume order should be $50.75.
Details: Total variable expenses are $35 (Not including freezer boxes as those are not variable
expense).
Offer price should be $35 +45% of 35 (15.75)= $50.75
Marks