Answered step by step
Verified Expert Solution
Question
1 Approved Answer
With the possibility of the US Congress relaxing restrictions on cutting old growth forests, Timber Lumber Company is considering an expansion of its facilities. The
With the possibility of the US Congress relaxing restrictions on cutting old growth forests, Timber Lumber Company is considering an expansion of its facilities. The company believes it can sell lumber for $0.18 per board foot. A board foot is a measure of lumber. The tax rate for the company is 34.5%. The company is presented with the following four independent opportunities:
- Build factory A with annual fixed costs of $22 million and variable costs of $0.10 per board foot. The factory has an annual capacity of producing 500 million board feet.
- Build factory B with annual fixed costs of $11 million and variable costs of $0.12 per board foot. The factory has an annual capacity of producing 300 million board feet.
- Build factory C with annual fixed costs of $14 million and variable costs of $0.11 per board foot. The factory has an annual capacity of producing 400 million board feet.
Required:
- What is the break-even point of production in board feet for factory A?
- If the company desires to generate a before tax profit of $1.5 million with factory B, how many board feet would the company have to process and sell?
- If the company desires to generate an after tax profit of $2.5 million with factory C, how many board feet would the company have to process and sell?
- Which factory exposes Timber Lumber Company to a higher level of risk and what is your rationale?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started