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Managing Financial Resources Internal Lecture 9 Exercises Bent Steenholt Kragelund benk@itu.dk

Managing Financial Resources Internal Lecture 9 Exercises Bent Steenholt Kragelund benk@itu.dk. Exercise 2 – Investment. Excalibur is growing and need more plant capacity. The total expected investment to occur in year 0 is €500.000.

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Managing Financial Resources Internal Lecture 9 Exercises Bent Steenholt Kragelund benk@itu.dk

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  1. Managing Financial Resources Internal Lecture 9 Exercises Bent Steenholt Kragelund benk@itu.dk

  2. Exercise 2 – Investment • Excalibur is growing and need more plant capacity. The total expected investment to occur in year 0 is €500.000. • The estimated cash-flow from the investment is € 1.080.000 over five years: • Year 1: € 100.000 • Year 2: € 150.000 • Year 3: € 180.000 • Year 4: € 250.000 • Year 5: € 400.000 • From the balance sheet we have the following • Equity: € 3.000.000 • Debt: € 500.000 • The mangement has set the cost of equity at 14.5% and the interest rate on the debt is 11.0% • Calculat the WACC, the NPV and the IRR from this investment

  3. Exercise 1.2 - Overhead Allocation • The CFO attended a course on cost allocation and wants to use the Activity Based Costing methodology. He analysed the workflow and found that the overhead can be allocated to the following activities: • Material handling: €150.000 • Setup €100.000 • Assembly: €80.000 • Test, packaging and control €70.000 • The cost drivers for these activities are: • Material handlins: Number of parts • Setup: Units produced • Assembly: Assembly time • Test, packaging and control Units produced • The number of parts / unit is as follows: • Receivers: 35, Speaker sets: 20, Alarm clock: 15 • Calculate the total cost per unit (direct + overhead costs) for each of the product lines by allocating the cost based on the ABC methodology • Assuming the price remains the same as the previous example, what is the profit per unit ? • What are the main reason for the difference?

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