Please answer all three. Thank you. Bailey Sheppard Corp. ("BSC") manufactures musical equipment and is evaluating...

Irrelevant Cash Flows:

Thus, as can be seen, except for Marketing Research Study costs, all other costs are relevant costs and only the Marketing Research Study costs are irrelevant.

Hence answer is, Yes , the market research study (4th option)

After Tax Salvage Value:

After-Tax Salvage Value = $734,900 (first option)

Question 29

When the project project is analysed, the purchase cost of land of $120,500 2 years ago is a sunk cost as the same doesnt impact or influence the future cash-flow associated with the project and hence is not relevant.

The market value of $335,000 now is a relevant cash-flow --- this represents a opportunity cost as if the project be undertaken, the land wouldnt have been sold.

Since depreciation is not applicable on land, if there are tax liability for the friends, then tax will be paid on the excess of market value over purchase property ($335,000-$120,500) and net relevant cost will be the after tax market value. However, the question is silent on tax and hence the impact is not considered.

Thus, the answer is Yes, it was relevant to the analysis and the historical cost of the land was a sunk cost. (2nd option)

Particulars Marketing Research Study Total Construction Costs New Machinery Inventory Investment Annual Depreciation Interest Expenses Incremental Sales - Year 1 Incremental Sales - Year 2 Incremental Sales - Year 3 Incremental Sales - Year 4 Cost of goods sold Additional Fixed Costs Sell excess assets Remaining Inventory liquidation Relevant / Irrelevant Amount cash Flow Remarks $35,000 Irrelevant This is a sunk cost. This does not influence the future cash-flows of the project $1,300,000 Relevant Cost to be incurred if the project is undertaken $250,000 Relevant Cost to be incurred if the project is undertaken $65,000 Relevant Cost to be incurred if the project is undertaken $150,000 Relevant Depreciation has tax benefits which will impact the future cash flow $646,000 Relevant Cost to be incurred on the borrowed amount if the project is undertaken $1,200,000 Relevant Incremental sales directly associated with the project $1,900,000 Relevant Incremental sales directly associated with the project $2,100,000 Relevant Incremental sales directly associated with the project $1,200,000 Relevant Incremental sales directly associated with the project 50% of sales Relevant Incremental costs directly associated with the project $100,000 Relevant Incremental costs directly associated with the project $125,000 Relevant Salvage Value at the end of the project $40,000 Relevant Salvage Value at the end of the project

A B с 1 2 3 Cost of Telephone system 4 years ago 4 Book Value end of 5 years 5 Depreciable base 6 Life of Telephone system (years) 7 Depreciation per annum 8 Book Value now (after 4 years of purchase) 9 Market Value now 10 Profit on sale 11 Tax on Profit at 21% 12 After-Tax Salvage Value $2,250,000 Given in question $50,000 Given in question $2,200,000 =B3-B4 5 Given in question $440,000 =B5/B6 $490,000 =B3-(B7*4) $800,000 Given in question $310,000 =B9-B8 $65,100 =B10*21% $734,900 =B9-B11