Shrieves Casting Company is considering adding a new line to its product mix, and the capital budgeting analysis is being conducted by Sidney Johnson, a recently graduated MBA. The production line would be set up in unused space in Shrieves’ main plant. The machinery’s invoice price would be approximately $200,000, another $10,000 in shipping charges would be required, and it would cost an additional $30,000 to install the equipment. The machinery has an economic life of 4 years, and Shrieves has obtained a special tax ruling that places the equipment in the MACRS 3year class. The machinery is expected to have a salvage value of $25,000 after 4 years of use. The new line would generate incremental sales of 1,250 units per year for 4 years at an incremental cost of $100 per unit in the first year, excluding depreciation. Each unit can be sold for $200 in the first year. The sales price and cost are both expected to increase by 3% per year due to inflation. Further, to handle the new line, the firm’s net working capital would have to increase by an amount equal to 12% of sales revenues. The firm’s tax rate is 40%, and its overall weighted average cost of capital is 10%. A. Define "incremental cash flow"- the difference between the cash flows the firm will have if it implements the project versus the cash flows it will have if it rejects the project. (1) Should you subtract interest expense or dividends when calculating project cash flow? Yes (2) Suppose the firm spent $100,000 last year to rehabilitate the production line site. Should this be included in the analysis? Explain. Yes, because the amount is part of the capital expenditure. (3) Now assume the plant space could be leased out to another firm at $25,000 per year. Should this be included in the analysis? If so, how? Yes, because it should be subtracted out of the annual revenue. (4) Finally, assume that the new product line is expected to decrease sales of the firm’s other lines by $50,000 per year. Should this be con¬sidered in the analysis? If so, how? Yes, it should also be subtracted out of the annual revenue. B. Disregard the assumptions in part a. What is Shrieves’ depreciable basis? What are the annual depreciation expenses? c. Calculate the annual sales revenues and costs (other than depreciation). Why is it important to include inflation when estimating cash flows? d. Construct annual incremental operating cash flow statements. E. Estimate the required net working capital for each year and the cash flow due to investments in net working capital. F. Calculate the after¬tax salvage cash flow. G. Calculate the net cash flows for each year. Based on these cash flows, what are the project’s NPV, IRR, MIRR, PI, payback, and discounted pay¬ back? Do these indicators suggest that the proj¬ ect should be undertaken?
Answers
Shrieves Casting Company is considering a new production line. Incremental cash flow is the difference between implementing and rejecting the project, and should only include cash inflows. Shrieves' depreciable basis is $240,000, with annual depreciation expenses under MACRS 3-year class.
A) Incremental cash flow is the difference between the cash flows a firm will have if it implements a project versus the cash flows it will have if it rejects the project. When calculating project cash flow, interest expense or dividends should be subtracted from the cash flows. The cash flows of the project should only reflect the cash inflows and outflows that are directly related to the project.
B) Shrieves' depreciable basis for the new production line is the total cost of the machinery and installation expenses, which is $240,000 ($200,000 + $10,000 + $30,000). The annual depreciation expenses under the MACRS 3-year class would be $80,000 in year 1, $128,000 in year 2, $38,400 in year 3, and $19,200 in year 4.
C) The annual sales revenues would be $250,000 in year 1 ($200 x 1,250), and the annual costs (excluding depreciation) would be $125,000 in year 1 ($100 x 1,250). It is important to include inflation when estimating cash flows because it affects the future cash flows in real terms and reflects the time value of money.
D) The annual incremental operating cash flow statements show the cash inflows and outflows directly related to the new product line. The incremental operating cash flow is calculated by subtracting the incremental costs (excluding depreciation and interest) from the incremental revenues and adjusting for taxes.
E) The required net working capital for each year is equal to 12% of the year's sales revenues. The cash flow due to investments in net working capital is the change in net working capital from the previous year to the current year.
F) The after-tax salvage cash flow is the cash flow received from the sale of the machinery after taxes are paid on the gain or loss from the sale.
G) The net cash flows for each year are calculated by subtracting the incremental costs (excluding depreciation and interest) and the investments in net working capital from the incremental revenues, adding back depreciation, and adjusting for taxes. The project's NPV, IRR, MIRR, PI, payback, and discounted payback can be calculated using the net cash flows.
Based on these indicators, if the project has a positive NPV, IRR greater than the weighted average cost of capital, MIRR greater than the cost of capital, PI greater than 1, and a payback period within the acceptable range, then the project should be undertaken.
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Related Questions
Integrating a stakeholder perspective into a strategic framework allows firms to respond to stakeholder demands in ways that maximize both ________ and ________ value. economic; social stakeholder; social economic; shareholder environmental; stakeholder
Answers
Integrating a stakeholder perspective into a strategic framework allows firms to respond to stakeholder demands in ways that maximize both economic and social value.
The given statement means that companies are not only focused on creating value for their shareholders but also for their stakeholders, such as employees, customers, suppliers, and the community. By taking into account the needs and demands of these stakeholders, companies can develop strategies that not only benefit their bottom line but also create positive social and environmental impacts. This approach not only helps to build stronger relationships with stakeholders but also contributes to the long-term sustainability and success of the business.
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Target market for a skating rink?
Answers
Answer:
Civic organizations, school groups, and church groups are key target markets for McKenzie Roller Rink. Parties with over ten people would be considered a group. It is our intent to create a wholesome family atmosphere and so there will be an effort to encourage families to consider skating as a recreational option.
What was the primary reason for establishing catholic missions in spanish texas?.
Answers
The main goals of the catholic mission were to gain dominance over the area and propagate Christianity.
The Catholic missions were established with the intention of progressively integrating native Indians into Spanish culture. The frequently nomadic tribes are also reduced to or gathered into a settlement, converted to Christianity, and taught agricultural and craft skills. As a result, it was up to the priests to instruct the Indians on how the Spanish desired them to conduct themselves as Christians.
In order to prepare the Indians for absorption into Spanish civilization, the priests guided them through their daily routines. The mission was to be secularized once these objectives were achieved. The local bishop was to take control of the church and appoint "secular" clergy to run it. The land was to be turned over to the Christianized Indians.
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__________ best explains a ratio of (sales/average net fixed assets) that exceeds the industry average.
Answers
A ratio of (sales/average net fixed assets) that exceeds the industry average can be best explained by the presence of higher efficiency or productivity in utilizing fixed assets.
When a company's ratio of (sales/average net fixed assets) exceeds the industry average, it indicates that the company is utilizing its fixed assets more efficiently or productively. Fixed assets include long-term assets such as buildings, machinery, and equipment. A higher ratio suggests that the company is generating a greater amount of sales revenue per unit of fixed assets, which indicates effective asset management.
There are several factors that can contribute to a higher ratio. Firstly, the company may have implemented more efficient production processes or utilized advanced technology, enabling them to generate higher sales with fewer fixed assets. This could result in increased productivity and cost savings. Additionally, effective inventory management practices may have reduced the need for excessive fixed assets, allowing the company to achieve higher sales with a smaller asset base.
Moreover, a higher ratio can also be indicative of superior sales and marketing strategies. The company may have successfully identified and targeted profitable market segments, resulting in increased sales volumes. Additionally, effective pricing strategies and strong customer relationships may have contributed to higher revenues per fixed asset.
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Question 7, 2008 WAEC. Kofi is a dealer in general merchandise. The following are his transactions for the month of June, 2002. June 1: Sold goods to Mensah Le 20,000 less 10% trade discount. June 4: Purchases from Kwesi the following: 200 iron rods at Le20 each 100 fillers at Le30 each June 6: June 7: June 9: Invoice subject to 10% trade discount. Purchased from Asante Ltd., 10 bottles of gin at Le 30 each. Returned 60 iron rods purchased on 4th June, to kwesi. Sold the following to Kojo: 300 bags of cement at Le15 each, Less 15% trade discount, 150 tins of target at Le10 per tin. June 18: Kojo returned 10 bags of cement bought on the 9th of June. June 20: Sold to Jones 80 iron rods at Le50 each 110 bags of cement at Le16 each 250 fillers at Le35 each Invoice subject to 50% trade discount June 21: Jones was allowed 50% reduction on the total invoice price for goods damaged in transit. June 30: Purchased from Femi: 100 bags of cement at Le 15 each 50 gallon of oil paint at Le20 each 300 metal sheets at Le18 each You are required to write up the following: (a) sales day book (b) sales returns book (d)purchases returns book purchases day book.
Answers
Answer: Table uploaded in the Explanation Section
Explanation:
KOFFI SALES DAY BOOK
DATE QTY DESCRIPTION UNIT PRICE (N) AMOUNT (N) TOTAL (N)
1-Jun Mensah
Goods 20, 000
Less 10% Trade Discount (2, 000) 18, 000
9-Jun Kojo
300 Bags of Cement 15 4, 500
Less 15% Trade Discount -675 3, 825
150 Tins of Target 10 1, 500
5, 325
20-Jun Jones
80 Iron rods 50 4, 000
110 Bags of Cement 16 1, 760
250 Fillers 35 8, 750
14, 510
Less 15% Trade Discount (2, 177) 12, 333
35, 658
KOFFI PURCHASES DAY BOOK
DATE QTY DESCRIPTION UNIT PRICE (N) AMOUNT (N) TOTAL (N)
4-Jun Kwesi
200 Iron rods 20 4, 000
100 Fillers 30 3, 000
Less 10% Trade Discount -700 6, 300
6-Jun Asante Ltd
Bottles of Gin 30 300
30-Jun Femi
100 Bags of Cement 15 1, 500
50 Gallons of Oil Paint 20 1, 000
300 Metal Sheets 18 5, 400 7, 900
14, 500
SALES RETURNS BOOK
DATE QTY DESCRIPTION UNIT PRICE (N) AMOUNT (N)
18-Jun Kojo
10 Bags of Cement 15 150
2,250
PURCHASES RETURNS BOOK
DATE QTY DESCRIPTION UNIT PRICE (N) AMOUNT (N)
7-Jun Kwesi
60 Irons rod 20 1, 200
1, 200
can someone help with this?
Answers
Answer:
profit
Explanation:
Answer:
profit
Explanation:
The process of translating ideas into words that will convey meaning is referred to as?
Answers
The process of translating ideas into words that will convey meaning is referred to as encoding.
What is meant by encoding?A string of characters letters, numbers, punctuation, and particular symbols are transformed into a format for efficient transmission or storage through the process of encoding in computers. Decoding is the process of recovering the original string of characters from an encoded format.
While decoding is translating printed words into sounds or reading, encoding entails employing individual sounds to construct and produce words.
Thus, it is encoding.
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return on investment = multiple choice question. average operating assets ÷ net operating income net operating income ÷ segment revenue net operating income ÷ average operating assets segment revenue ÷ net operating income
Answers
Residual Income- average operating assets ÷ net operating income net operating.
What is Residual Income?The money that keeps coming in after an initial time and resource commitment has been made is known as residual revenue. Royalties from artists, rental income, interest income, and dividend payments are a few types of residual revenue.
Other circumstances in which the word "residual income" is used include:
The term "residual income" in personal finance can refer to a person's discretionary income or the total sum of money left over after meeting all of their personal commitments and debts.
In corporate finance, residual income is a metric for gauging how well a company is doing that takes into account all revenue received after all pertinent capital costs have been covered.
Hourly pay does not produce personal residual income. Instead, it calls for a substantial initial outlay of cash, time, or both, with the primary goal of generating ongoing income.
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What academic information do you have about sub-overseer?
Answers
Explanation:
Pre-Diploma in Civil Engineering (Civil Sub-Overseer) program is designed to prepare competent general civil sub-overseers equipped with knowledge, skills and attitude especially, in the area construction Engineering & Technology of building construction, water supply, irrigation and road and trail bridges sectors.
They can provide services in the growing infrastructure development industries (civil construction companies and consulting firms) government institutions (centre and local level), local as well as international non-governmental organizations or can start their own business in the country as well as abroad.
Advise the team leader on the activities that should take place during the
performing stage.
Answers
Answer is this.I think this is helpful
What are self-service BI tools?
Business intelligence tools that do not require any particular BLANK
expertise are called self-service tools.
Answers
Answer:
Technical
Explanation:
100% on test
TRUE/FALSE in the context of total cost of manufacturing (tcm); procurement, production, inventory, warehousing, and transportation per unit costs each go down as volume goes up.
Answers
It is a myth that when production volume increases, the cost of procurement, production, inventory, warehousing, and transportation per unit decreases.
The total cost of manufacturing is the sum of all expenses a company incurs during a reporting period for its production operations. It includes all potential expenditures made by the production process, such as direct material costs, direct labor costs, and manufacturing overhead.
Calculating the overall manufacturing cost has many benefits. First, it is simpler to benchmark these expenditures and identify which ones can be cut if you have a thorough grasp of them. This continuing process of cutting back on spending can eventually lead to significant cost savings. The identification of which suppliers are overcharging could also result in a reorganization of the supplier mix in favor of those who are more prepared to negotiate prices with the business.
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Which of the following auditor's defenses usually means non-reliance on the financial statements by the user?
A) Lack of duty
B) Non-negligent performance
C) Absence of causal connections
D) Contributory negligence
Answers
The auditor's defense that usually means non-reliance on the financial statements by the user is lack of duty (option A).
This defense means that the auditor did not owe a duty of care to the user of the financial statements, and therefore the user cannot rely on them. The lack of duty defense is often used in cases where the user of the financial statements is not the intended beneficiary of the audit, or where there is no contractual relationship between the auditor and the user.
In such cases, the user cannot hold the auditor liable for any losses or damages resulting from their reliance on the financial statements. However, it is important to note that the lack of duty defense is not absolute, and the auditor may still be held liable if they were aware of the user's reliance on the financial statements and failed to take reasonable steps to prevent harm. The correct option is A.
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When communication goes from lower to higher ranks in the hierarchy of an organization, it is called ______ communication. group of answer choices
Answers
When communication goes from lower to higher ranks in the hierarchy of an organization, it is called upward communication.
Upward communication refers to the flow of information and messages from lower-level employees to higher-level managers or executives within an organizational hierarchy. This type of communication allows employees at lower ranks to provide feedback, share ideas, report problems, or seek guidance from their superiors. Upward communication is crucial for creating an open and transparent organizational culture, encouraging employee participation, and ensuring that valuable insights and perspectives from the frontlines reach decision-makers. It allows employees to have a voice and contributes to effective decision-making and problem-solving processes. By engaging in upward communication, organizations can foster a sense of trust, empower employees, and establish a feedback loop that facilitates continuous improvement and aligns the organization's goals with the experiences and expertise of its employees.
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Assume a firm has a debt-equity ratio of 48. The firm's cost of equity is:Multiple Choicea. directly related to the risk level of the firmb. unaffected by changes in the market risk premium.c. generally less than the firm's aftertax cost of debt.d. generally less than its WACC.
Answers
The firm's cost of equity is directly related to the risk level of the firm.
The correct answer is (a).
The debt-equity ratio is a measure of a firm's financial leverage, which represents the proportion of debt and equity used to finance its assets. A higher debt-equity ratio indicates a higher risk level for the firm, as it relies more on borrowed money.
The firm's cost of equity is the return required by equity investors (such as shareholders) for their investment in the firm. This cost of equity is directly related to the risk level of the firm because investors will demand a higher return for taking on more risk. As the firm's risk level increases (indicated by a higher debt-equity ratio), the required return on equity will also increase.
Therefore, correct option is A.
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All of the following allow for a monopoly to exist EXCEPT ______________.
a. geography
b. competition
c. a patent
d. government mandate
Economics
Answers
Answer:
d. government mandate economics
Explanation:
during the industrial era the government stepped in to stop wealthy monopoly companies from corruption of the government
The correct option is (d) Government mandate economics.
What does government mandate economics mean?The group of people responsible for governing the country is called the government. If some government has a mandate for carrying out any policy or task, then they somewhat get the authority to win the election or vote. Hence (d) is correct out of all options.
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Turn to Part C of the Systems Analyst's Toolkit and review the concept of net present value (NPV). Determine the NPV for the following: An information system will cost $175,000 as an initial investment to implemented over a six month period and will produce no savings during the last six months of first year once it has gone online. When the system goes online, the company will save $27,750 during the second year of operation. For the next four years, the savings will be $39,250,$45,500,$48,500, and $40,250, respectively per year. Assuming a 4.25% discount rate, what is the NPV of the system? Explain in detail whether.or.not this a good investment (one four sentence paragraph at a minimum).
Answers
The NPV of the system is the sum of the present values of the cash flows minus the initial investment, which needs to be calculated based on the given data.
To calculate the NPV, we need to discount the future cash flows to their present values and subtract the initial investment. Using a discount rate of 4.25%, we can calculate the present value of each cash flow and sum them up. The present value of each cash flow is calculated by dividing the cash flow by (1 + discount rate) raised to the corresponding period. After calculating the present values, we subtract the initial investment of $175,000. If the resulting NPV is positive, it indicates that the project is a good investment. If the NPV is negative, it suggests that the project may not be worthwhile.
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Tammy is the owner of British Brushes. Due to the price of paint, she has to raise the prices of her painting classes. What curve is affected and what determinant caused this change?
a. The Supply Curve shifted to the Left because the cost of inputs increased.
b. The Demand Curve shifted to the Right because of the change in consumer income
c. The Supply Curve shifted to the Right because the cost for new technology decreased
Answers
In a condition where Tammy has to increase the prices for her painting classes, the supply curve will show a shift to the left because the input costs also saw a rise. Therefore, the option A holds true.
What is the significance of input costs?Input costs can be referred to or considered as costs that are associated with the production of goods or services for a firm in the economy. A business can not grow or sustain without incurring input costs. When input costs for a firm increase, the supply curve of an economy shifts to the left.
In the above condition, when prices of paint increase, it also leads to an increase in the input costs for Tammy, and as a result of the same, the supply curve shows a shift towards the left.
Therefore, the option A holds true and states regarding the significance of input costs of British Brushes.
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Explain a situation where user would transpose data on a spreadsheet in Microsoft Excel. Give at least one example to illustrate your reasoning. Use details to support your answer.
Answers
Answer:
below
Explanation:
function must be entered as an array formula in a range that has the same number of rows and columns, respectively, as the source range has columns and row
What is the cost per unit for lifts completed and transferred out to Finished Goods Inventory? Why would management be interested in this cost? The cost per unit for lifts completed and transferred out to Finished Goods Inventory is per lift. Why would management be interested in the cost per unit for lifts completed and transferred out to Finished Goods Inventory? A. Managers would compare the average cost per lift against their budgeted costs to determine whether the costs of the Testing Department remain under control. If budgeted costs are higher than the actual average cost per lift, then the managers have done a good job controlling costs. In contrast, if the budgeted costs are lower than the actual average cost per lift, managers will investigate the reason for the higher-than-expected costs in an effort to regain control over costs. B. Managers use the cost per lift for external financial reporting specifically to calculate the Cost of Goods Sold on the Income Statement. C. Managers use the cost per lift for external financial reporting specifically to calculate the ending inventory balances on the Balance Sheet. D. All of the above are reasons why management would be interested in this cost per unit for lifts completed and transferred out to Finished Goods Inventory.
Answers
The Finished goods inventory management is an essential part of the eCommerce business. It allows you to know what a business owns, the value of the products or goods it owns, and to reduce waste.
The inventory of the stock must be done carefully and precisely because the tax administration may dispute it because it affects a company's performance and, consequently, the amount of taxes that must be paid. This article will define finished goods, explain their significance, and specifically demonstrate how to compute finished goods inventory by providing both the formula and some examples. You can determine how much inventory is required for the production process and stockout by calculating the finished products inventory. Additionally, it helps you prevent the scenario in which customers postpone their purchases while waiting for a product's restock. The cost per unit.
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A factory is considered what type of resource?
land
labor
physical capital
human capital
Answers
A factory falls under the category of physical capital, representing tangible assets and infrastructure utilized in the production process. Option C.
Physical capital refers to the tangible assets that are used in the production process to create goods or services. These assets include machinery, equipment, buildings, vehicles, and infrastructure. They are essential resources that contribute to the production capacity and efficiency of a business or organization.
A factory is a prime example of physical capital as it represents a dedicated space or facility equipped with machinery, tools, and equipment designed for manufacturing or production activities. It provides the necessary infrastructure and resources for transforming raw materials into finished products.
Factories typically house specialized equipment and machinery specific to the industry or production process they serve. This physical capital enables businesses to carry out mass production, streamline operations, and achieve economies of scale.
Physical capital is an important factor of production alongside other resources such as land, labor, and human capital. It plays a crucial role in enhancing productivity, output, and overall economic growth.
Effective management and investment in physical capital can lead to improved efficiency, cost reduction, and technological advancements in production processes.
In summary, a factory is categorized as physical capital, representing the tangible assets and infrastructure used in the production process. So Option C is correct.
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A person offers you the following deal. You can have the proceeds of $2 doubled each year at the end of 15 years, or you can have $10,000 at the end of 15 years. Which deal should you take? Why?
Answers
Answer:
The deal I would take is the first deal.
Explanation:
I would take the first deal because as it's getting doubled by the number after the fourth year you would make $65,536 which is way more money then $10,000 at the end of 15 years.
When should a shipment of eggs be rejected?
Answers
When should a shipment of eggs be rejected if the The eggs are not delivered at45 degrees F and when you receive a shipment of eggs, you should reject them if any of the eggs are cracked. Eggs that are cracked.
The shipment is the part of supply chain. The shipment in which the goods or products are packed after the process of manufacturing or production.
The eggs are rejected when the eggs got cracked and accidently cracked by the process of delivery to the consumer. Shipment is the important process in the supply chain if the shipment process is not done well, the rejection will arise.
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how many tines in earth does the sun intersect equartor
Answers
Answer:
два
Explanation:
Brooke is evaluating two alternatives for improving the exterior appearance of her Victorian-style house that she is remodeling inside. She plans to keep this as her home for 20 more years. The house can be completely painted at a cost of $12,000. The paint is expected to remain attractive for 5 years, at which time repainting will be necessary. Every time the building is repainted (i. E. , in years 5, 10, and 15), the cost will increase by 20% over the previous time.
As an alternative, the exterior can be covered with a vintage-appearing vinyl-coated siding now and again 10 years from now at a cost 33% greater than the present cost of the siding.
At a MARR of 10% per year, what is the maximum amount that Brooke should spend now on the siding alternative so that the two alternatives will just break even?
Answers
the maximum amount that Brooke should spend now on the vinyl-coated siding alternative is $26,753.53 so that the two alternatives will just break even.
The present worth of the cost of painting the house over a 20-year period can be calculated as follows:
PW = -$12,000 + (-$12,000 * 1.2) / (1 + 0.1)^5 + (-$12,000 * 1.2^2) / (1 + 0.1)^10 + (-$12,000 * 1.2^3) / (1 + 0.1)^15 + (-$12,000 * 1.2^4) / (1 + 0.1)^20
= -$12,000 + (-$9,102.16) + (-$6,598.69) + (-$4,791.90) + (-$3,468.90)
= -$36,861.65.
The present worth of the cost of using vinyl-coated siding now and again in 10 years can be calculated as follows:PW = -x - (x * 1.33) / (1 + 0.1)^10
= -x - 0.3805x
= -1.3805x, where x is the initial cost of the vinyl-coated siding.
To find the maximum amount that Brooke should spend now on the siding alternative so that the two alternatives will just break even, we need to equate the present worth of the two alternatives and solve for x:
-$36,861.65 = -1.3805x
x = $26,753.53.
Therefore, the maximum amount that Brooke should spend now on the vinyl-coated siding alternative is $26,753.53 so that the two alternatives will just break even.
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What Economic Issue arises in this graphic due to the Max Price being below Equilibrium?
Answers
As u asked in ur question which food we should have before exercise : ANSWER is - Option (B)
cross check if u have doubt it's correct..
Which of the following is NOT a characteristic of effective promotion? *
Appropriate
O Misleading
Answers
Answer:
i think no.1
sssssss
What step is most important for sellers to focus on.
Answers
The step that is most important for sellers to focus on is Identifying customers with lifetime value to the seller.
Who is a seller?A seller is an individual or group that is responsible for selling the product or service to the consumer.
However, the seller needs to Identifying customers with lifetime value because this will help in the long run.
Therefore option C is correct
CHECK THE COMPLETE QUESTION;
What step is most important for sellers to focus on?
A: Keeping all customers at all cost
B: Keeping loyal customers and forgetting about the others
C: Identifying customers with lifetime value to the seller
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An unsecured loan...
typically has lower interest rates than a secured loan
is less difficult to qualify for than a secured loan
is connected to collateral, which can be taken by the lender if the loan is not paid
is not connected to collateral and, therefore, a higher risk for lenders
Answers
Answer:
is not connected to collateral and, therefore, a higher risk for lenders
Explanation:
Unsecured loans are the loans issued without any securities attached to them. The lender relies on the borrower's creditworthiness as the basis for granting the loan. Unsecured loans are mostly available to salaried workers whose pay is processed by the lending institutions.
Unsecured loans pose a higher risk to the lender because they are not backed by any collateral. For this reason, they attract a higher interest rate than secured loans.
Answer:
D
Explanation:
took the test
4) The specification for a plastic handle calls for a length of 6.0 inches ± 0.3 inches (5.7 to 6.3
inches). The process is known to operate at a mean thickness of 5.9 inches. The minimum
acceptable process capability is 4-sigma (1.33). The standard deviation (σ) of the process is
currently 0.06 inches.
a) Can the company meet the customer’s specification requirements at this time? If it cannot, explain if it is due to a drifting of the mean or too much variability.
b) Suppose that the mean of the process has now shifted to 5.95 inches. What is the maximum standard deviation (σ) of this process if the company wants to ensure that it can
maintain a Cpk of 1.33 or greater?
c) The specification limits have not changed. Suppose that the mean of the process is still 5.95 inches with a standard deviation (σ) of 0.06. What is the range (upper and lower limits) on the mean of the process to maintain a Cpk of 1.33 or greater?
d) Suppose that the mean of the process is still operating at a mean of 5.95 inches but the standard deviation is worsened and is now 0.1 inches and the process follows a normal probability distribution.
The lower spec (specification) limit is still 5.70 and the upper spec limit is still 6.30. What percent of the values are below the lower spec limit?
Answers
approximately 0.62% of the values would be below the lower specification limit of 5.7 inches.
a) To determine if the company can meet the customer's specification requirements, we need to calculate the process capability index (Cpk). Cpk measures how well the process fits within the specification limits.
Cpk is calculated using the formula: Cpk = min[(USL - mean) / (3 * σ), (mean - LSL) / (3 * σ)]
Given:
Specification limits (USL and LSL) = 6.3 inches and 5.7 inches
Process mean = 5.9 inches
Process standard deviation (σ) = 0.06 inches
Cpk = min[(6.3 - 5.9) / (3 * 0.06), (5.9 - 5.7) / (3 * 0.06)]
Cpk = min[0.67, 0.33]
Cpk = 0.33
Since the Cpk value is less than 1.33, the company cannot meet the customer's specification requirements. The issue is primarily due to too much variability in the process.
b) To maintain a Cpk of 1.33 or greater, we need to determine the maximum standard deviation (σ) for the shifted process mean of 5.95 inches.
Cpk = (USL - mean) / (3 * σ)
Rearranging the formula to solve for σ:
σ = (USL - mean) / (3 * Cpk)
σ = (6.3 - 5.95) / (3 * 1.33)
σ = 0.35 / 3.99
σ ≈ 0.0877
Therefore, the maximum standard deviation for the process with a mean of 5.95 inches to maintain a Cpk of 1.33 or greater is approximately 0.0877 inches.
c) To determine the range on the mean of the process to maintain a Cpk of 1.33 or greater, we can use the following formula:
Range on the mean = 3 * σ * Cpk
Range on the mean = 3 * 0.06 * 1.33
Range on the mean ≈ 0.238 inches
Therefore, the range on the mean of the process to maintain a Cpk of 1.33 or greater is approximately ±0.238 inches around the current mean of 5.95 inches.
d) To calculate the percentage of values below the lower specification limit (LSL) when the mean is 5.95 inches and the standard deviation is 0.1 inches, we can use a standard normal distribution table.
Z-score = (LSL - mean) / σ
Z-score = (5.7 - 5.95) / 0.1
Z-score = -2.5
Using the standard normal distribution table, the percentage of values below a Z-score of -2.5 is approximately 0.0062 or 0.62%.
Therefore, approximately 0.62% of the values would be below the lower specification limit of 5.7 inches.
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