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Financial Management – NPV, IRR and Sensitivity Analysis

Emu Electronics is an electronics manufacturer located in Box Hill, Victoria. The company’s managing director is Shelly Chan, who inherited the company from her father. The company originally repaired radios and other household appliances when it was founded more than 50 years ago. Over the years, the company has expanded, and it is now a reputable manufacturer of various specialty electronic items. Robert McCanless, a recent MBA graduate, has been hired by the company in the finance department. One of the major revenue-producing items manufactured by Emu Electronics is a smart phone. Emu Electronics currently has one smart phone model on the market and sales have been excellent. The smart phone is a unique item in that it comes in a…

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Investment appraisal

Investment appraisal The Company X. is considering tendering for a local authority contract to supply school snacks. If they decide to tender and are successful, this will be their first contract in the public sector. The contract is for a period of five years. The company has spent $2,500 on a feasibility study related to this contract. From this study, they have obtained the following estimates of costs, revenues and volumes. The initial cost of the investment for the necessary cooking equipment will be $30,000. This sum will be payable at the beginning of the contract. Selling price of snacks: $1.00 per snack for the first three years, than $1.20 for years four and five. Cost of snacks: $0.60 per snack…

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Portfolio, Bond and Share valuation

Question 1 Portfolio valuation Consider shares in two companies, JAY and KAY, as follows: Expected Return E(R) Standard Deviation Correlation Coefficient Share JAY 12% 18% – 0.3 Share KAY 24% 32% a) Calculate the covariance between Share JAY and KAY returns. b) What is the expected return and standard deviation of returns on a portfolio comprising 35% in Share JAY and 65% in Share KAY? c) If you wanted to create a portfolio consisting only of these two shares, how much would you need to invest (weights) in each share so that your portfolio return would be equal to 15.6%? Note: do not round. d) Using the weights calculated in part c), calculate the variance and standard deviation of…

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Variance Analysis

Question 1: Calculate the material purchase price variance, which is
(actual price – standard price) × actual quantity of materials used
Question 2: Work out the actual hours worked, to the nearest hour, remembering that the direct labour usage variance is equal to:
(actual labour hours – standard labour rate hours) × standard labour rate

Standard unit price of materials	£9.00
Actual unit price of materials	£8.68
Standard quantity of material for actual production (units)	3,300
Actual quantity of materials purchased and used (units)	3,600
Standard direct labour rate	£28.00
Actual direct labour rate	£24.40
Standard direct labour hours	24,000
Direct labour usage variance	£28,280 U = unfavourable or adverse