1. Archer Daniels Midland Company is considering buying a new farm that it plans to operate for 10 years. The farm will require an initial investment of $12.20 million. This investment will consist of $2.30 million for land and $9.90 million for trucks and other equipment. The land, all trucks, and all other equipment is expected to be sold at the end of 10 years at a price of $5.08 million, $2.00 million above book value. The farm is expected to produce revenue of $2.10 million each year, and annual cash flow from operations equals $1.96 million. The marginal tax rate is 35 percent, and the appropriate discount rate is 10 percent. Calculate the NPV of this investment. Should it be accepted or rejected?
2. Briarcrest Condiments is a spice-making firm. Recently, it developed a new process for producing spices. The process requires new machinery that would cost $1,541,296. have a life of five years, and would produce the cash flows shown in the following table.
Year Cash Flow
1 $633,804
2 -213,739
3 841,438
4 999,903
5 889,876
What is the NPV if the discount rate is 13.39 percent?
3. Bell Mountain Vineyards is considering updating its current manual accounting system with a high-end electronic system. While the new accounting system would save the company money, the cost of the system continues to decline. The Bell Mountain’s opportunity cost of capital is 13.6 percent, and the costs and values of investments made at different times in the future are as follows:
Year Cost Value of Future Savings
(at time of purchase)
0 $5,000 $7,000
1 4,700 7,000
2 4,400 7,000
3 4,100 7,000
4 3,800 7,000
5 3,500 7,000
Calculate the NPV of each choice. (Round answers to the nearest whole dollar, e.g. 5,275.)
The NPV of each choice is:
NPV0 = $
NPV1 = $
NPV2 = $
NPV3 = $
NPV4 = $
NPV5 = $
Suggest when should Bell Mountain buy the new accounting system?
4. Castle Company produces throw blankets that are popular holiday gifts. Standard variable costs relating to a single blanket are given below
Standard Quantity or Hours
Standard Price or Rate
Standard Cost
Direct materials
2.62 yards
$5 per yard$?
Direct labor
1.35 DLH
$6.80 per DLH $?
Variable manufacturing overhead
1.35 DLH
$2 per direct labor-hour$?
Total standard cost $?
Overhead is applied to production on the basis of direct labor hours. During March, 924 blankets were manufactured and sold.
Selected information related to the month’s production is given below:
Materials Used
Direct Labor
Variable Manufacturing Overhead
Actual costs incurred
$11,500
$8,408
$3,100
Direct materials price variance?
Actual
2,620 yards
1400 hours
Direct materials quantity variance
$1,000 U
Direct labor rate variance ?
Direct labor efficiency variance ?
Variable overhead rate variance?
Variable overhead efficiency variance ?
*For this month’s production of 924 blankets
Submit an Excel document with each tab labeled by item number in good form that demonstrates the following through your calculations:
1. What is the standard cost of a single blanket?
2. What was the actual cost per blanket produced during March?
3. What was the direct materials price variance for March?
4. What was the direct labor rate variance for March? The direct labor efficiency variance?
5. What was the variable overhead rate variance for March? The variable overhead efficiency variance?
