REVISION QUESTION QUESTION 1 Yummy Candy Company is considering purchasing a second chocolate dipping machine in order to expand their business. The information Yummy has accumulated regarding the new machine is: Cost of the machine $120,000 Life of the machine 5 years Required rate of return 6% Increased annual contribution margin 37,000 Year 1 20,000 120, 000 Year 2 30,000 Year 3 40,000 Year 4 45,000 Year 5 50,000 Yummy estimates they will be able to produce more candy using the second machine and thus increase their annual contribution margin. They also estimate there will be a small disposal value of the machine but the cost of removal will offset that value. Ignore income tax issues in your answers. Assume all cash flows occur at year-end except for initial investment amounts. Required: Calculate the following for the new machine: a. Net present value b. Payback period c. Discounted payback period d. Internal rate of return (using the interpolation method) QUESTION 2 New Venture Company operates a new car division and pre-owned. Some division financial measures for 2023 are as follows: New Car Pre-Owned Division Division Total Asset $30,000,000 $25,000,000 Current Liabilities $6,000,000 $8,000,000 Operating Income $2,000,000 $2,000,000 Required Rate of Return 9% 9% Required: 1. Calculate return on investment (ROI) for each division using operating income as a measure of income and total assets as a measure of investment.2. Calculate residual income (RI) for each division using operating income as a measure of income and total assets minus current liabilities as a measure of investment. . New Venture Company, whose tax rate is 30%, has two sources of funds: debt with a market value of $20,000,000 at an interest rate of 10% and equity capital with a market value of $10,000,000 and a cost of equity of 15%. Applying the same weighted-average cost of capital (WACC) to each division, calculate EVA for each division. QUESTION 3 SlowMot Service repairs photocopiers for five multisite companies. SlowMot's costs consist of staff and material costs are directly traceable to the customer and a pool of office overhead. Until recently, SlowMot estimated customer profitability by allocating the office overhead to each customer based on share of revenues. For 2023, SlowMot reported the following results: A B C D E Total Revenue 312,000 240,000 386,000 146,000 254,000 1,338,000 Staff and 218,400 210,000 270,000 128,400 213,600 1,040,400 material costs Office overhead 12, 102 9,309 14,973 5,663 9,852 51,900 allocated Hillary, SlowMot's new controller found the following information regarding the consumption of office overhead resources by customers. Activity Area Rate Cost Driver Rates Parts ordering $80 Per part order Billing and collection |$150 Per bill (or reminder) A B C D E Parts 30 40 50 30 30 ordering Billing and 40 50 70 40 50 collection Required: 1. Compute customer-level operating income using the existing information 2. Compute customer-level operating income using the new information that was gathered. 3. Why customer profitability analysis is important