Solution 1 Assignment 1 25 marks Total 125 330 S1 2017 Due date 7 April 2017 Part A Capital budgeting 20 marks Palmy Snow Ice PSI Ms Davi Patel
Solution Assignment marks Total S Due date April Part A Capital budgeting marks Palmy Snow Ice PSI
Solution Assignment marks Total S Due date April Part A Capital budgeting marks
S Due date April Part A Capital budgeting marks Palmy Snow Ice PSI Ms Davi Patel
Solution Assignment marks Total S Due date April Part A Capital
budgeting marks Palmy Snow Ice PSI Ms Davi Patel
Solution Assignment marks Total S Due date April
Solution Assignment marks Total
(Solution) 1 Assignment#1 - 25 marks Total 125.330 S1 2017 - Due date: 7 April 2017 Part A: Capital budgeting (20 marks) Palmy Snow Ice (PSI) Ms. Davi Patel...

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Hi,Unsure how much this question is worth, feel free to give any offer.cheers.1 Assignment#1 – 25 marks Total 125.330 S1 2017 - Due date: 7 April 2017 Part A: Capital budgeting (20 marks) Palmy Snow Ice (PSI) Ms. Davi Patel moved from Cardiff, UK to Palmerston North in 2010 with her extensive experience in ice cream business to open a home-made Gelato-style ice cream parlor (e.g. the word ‘geleto’ in Italian means ‘ice cream’) named ‘Palmy Snow Ice (PSI)’ around The Square (heart of Palmerston North city). It was the first of its kind and was successful in building its customer base (or even fan base) thanks to the unique flavor and texture of its products. As the sole owner of PSI, Ms. Patel fully enjoyed the abnormal profits during the first few years of the business when there was high profit margin and no competition (in the local specialty ice cream market) in the city. Starting in 2015, however, a few other in-house specialty ice cream parlors have started their businesses in the same city while also locating around the central area of Palmerston North. As a keen business woman, Ms. Patel knew she needed to make a move, and fast. Coming from Cardiff herself, Ms. Patel has had her eyes on what has been popular in her hometown - the liquid nitrogen ice cream (LNC). The three main advantages of liquid nitrogen ice cream are: 1) ice cream can be made faster due to lower temperature than other ways of making ice creams; 2) smoother texture as there will be less developing of pesky ice crystals when ice cream freezes relatively slowly; and 3) better showmanship as customers can see the display of ice cream making right in front of them. The introduction of liquid nitrogen ice cream will require a new setup of the production line as the processes are somewhat different from the current one, which is already running at its 90% capacity. The new LNC facilities will be set up in an unused empty commercial space Ms. Patel owns. It is located in Kelvin Grove, a fast-growing suburban Palmerston North. A new machine with an estimated cost of $ 500,000 will be purchased. It will cost another $10,000 to ship over the machine from the UK while $20,000 will be expenses to have it installed (by UK experts). These additional initial outlays of $30,000 cannot be expensed to deduct tax right away but are allowed to be put into the initial cost in investments (e.g. will be expensed through annual depreciation expenses on the machine through its life). In addition, PSI’s inventories (e.g. milk and other ingredients) that are related to LNC will increase by $10,000 since the very beginning (could be several months in reality but just for simplification). The increase in inventory related to the LNC product is projected to grow about 5% each year. All other current assets of the company will not be affected by the introduction of liquid nitrogen ice cream. The new machine has a remaining economic life of 4 years of which the straight-line method of depreciation will be used. For accounting purpose, the salvage value is projected as zero at the end of the fourth year. However, Ms. Patel has an agreement with other established business in Wellington to sell that machine for $60,000 at that point in time (e.g. four years from now). The section of the facility where the production of LNC will take place accounts for 70% of the whole Kelvin Grove facility. This facility has been unused since Ms. Patel bought it in early 2011. The original plan was to pursue another business that would be a partnership with her now ex-husband. The facility was rather deserted since the couple separated in late 2011 (100% owned by Ms. Patel and thus PSI after the divorce). Consequently, it had

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