The Super Project Essay Example

The Super Project Essay Example The Super Project Essay The Super Project Essay Similarly, had the firm not engaged this excess capacity in the production of Super, it is likely that it would have been put to another productive use (probably In the production of Jell-O, a product line whose production levels have recently Increased substantially). For these reasons, the proportional use of the costs associated with the Jell-O building (66. 6%) and agglomerate (50%) must be added as Opportunity Costs; this also necessitates certain assumptions regarding CA tax shields and depreciation (see Appendix 8). Overhead Cost Allocation: The Stand Alone principle requires that a reject par If It is using resources from other departments. However, since overhead spending decisions at SGF are made separately from decisions to Increase volume (p. 444), projects should be evaluated on an Incremental basis. Since overhead cash flows (utilities, etc. ) are the same whether or not the project is accepted, charging overhead to the project would be inappropriate in this case. ROOF: ROOF at SGF is calculated by dividing the 10-year average profit before taxes by 10-year average funds employed. In essence, SGF Is using the Average Accounting Return (EAR). There are 3 major problems with this approach: first, the method uses accounting numbers rather than real cash flows; second, because It Is an average, the timing of cash flows (I. E. When inflows/outflows occur) is not taken into account; third, the 40% ROOF is chosen somewhat arbitrarily. The EAR method may entice managers to only choose projects that are profitable in the near term, rather than evaluating them based on their long-term value and contribution. The first period only depreciates by 5% while the next nine will depreciate by 10%. After all the depreciation has occurred there will just be the salvage value remaining for the capital asset. With depreciation being paid each year there is a tax shield created. A tax shield is a deduction in income taxes that result from taking an allowable deduction from taxable income. To find out how much the tax shield the Super Project has, just take the amount of depreciation for that period and multiple it by the tax rate (52%). The tax rate used was the average tax rate over the past 10 years. Cost of Debt and cost of equity help get different rates that are an important factor in figuring out the weighted average cost of capital (WACC). Cost of debt gives the interest rate General Foods would pay for all the current debts. While the cost of equity is the minimum rate of return that they must offer shareholders to keep them investing in their company. The Super Project has cost of debt of 1. 57% and cost of equity of 13%. This helps figure out the WACC which is the rate we expect to pay on average to all security holders to finance our assets. The WACC for the super project is 11. 77% which is less than the 13% rate of return that the shareholders are looking for. This tells us that the Super Project might not be the best idea. NPV is still the best measure for capital budgeting so we went ahead and did the calculations for it. To figure out the net present value we have to first figure out the cash flow. In 1968 we get earnings before income taxes of $283. This is the $643 total investment minus the $360 cost for test markets that we see as a sunk cost and are not including it as part of the Super Project. The cash flow generates positive revenue for the Super Project but we still have to factor in that the Super Project is eroding 20% of Jell-O causing their revenues to decrease along with their cash flow. After cash flow is figured out we are finally able to see what the NPV is. When calculating NPV you have to get the sum of discounted cash flows and add it to the initial investment. For the Super Project we get $298. 4 discounted cash flow + (653) fixed investment = (354. 6) NPV. With the NPV being a negative number, we know to reject the super project.

Statistics for Leap Day on February 29

Statistics for Leap Day on February 29 The following explore different statistical aspects of a leap year.  Leap years have one extra day due to an astronomical fact about the earth’s revolution around the sun.  Almost every four years it’s a leap year. It takes roughly 365 and one-quarter days for the earth to revolve around the sun, however, the standard calendar year lasts only 365 days. Were we to ignore the extra quarter of a day, strange things would eventually happen to our seasons - like winter and snow in July in the northern hemisphere. To counteract the accumulation of additional quarters of a day, the Gregorian calendar adds an extra day of February 29 nearly every four years. These years are called leap years, and February 29th is known as leap day. Birthday Probabilities Assuming that birthdays are spread uniformly throughout the year, a leap day birthday on February 29 is the least probable of all birthdays. But what is the probability and how could we calculate it? We start by counting the number of calendar days in a four-year cycle. Three of these years have 365 days in them. The fourth year, a leap year has 366 days. The sum of all of these is 365365365366 1461. Only one of these days is a leap day. Therefore the probability of a leap day birthday is 1/1461. This means that less than 0.07% of the world’s population was born on a leap day. Given current population data from the U.S. Census Bureau, only about 205,000 people in the U.S. have a February 29th birthday. For the world‘s population approximate 4.8 million have a February 29th birthday. For comparison, we can just as easily calculate the probability of a birthday on any other day of the year. Here we still have a total of 1461 days for every four years. Any day other than February 29 occurs four times in four years. Thus these other birthdays have a probability of 4/1461. The decimal representation of the first eight digits of this probability is 0.00273785. We could have also estimated this probability by calculating 1/365, one day out of the 365 days in a common year. The decimal representation of the first eight digits of this probability is 0.00273972. As we can see, these values match each other up to five decimal places. No matter which probability we use, this means that around 0.27% of the worlds population was born on a particular non-leap day. Counting Leap Years Since the institution of the Gregorian calendar in 1582, there have been a total of 104 leap days. Despite the common belief that any year that is divisible by four is a leap year, it’s not really true to say that every four years is a leap year. Century years, referring to years that end in two zeros such as 1800 and 1600 are divisible by four, but may not be leap years.  These century years count as leap years only if they are divisible by 400. As a result, only one out of every four years that end in two zeros is a leap year. The year 2000 was a leap year, however, 1800 and 1900 were not. The years 2100, 2200 and 2300 will not be leap years. Mean Solar Year The reason that 1900 was not a leap year has to do with the precise measurement of the average length of earth’s orbit. The solar year, or amount of time that it takes the earth to revolve around the sun, varies slightly over time. it is possible and helpful to find the mean of this variation.   The mean length of revolution is not 365 days and 6 hours, but instead 365 days, 5 hours, 49 minutes and 12 seconds. A leap year every four years for 400 years will result in three too many days being added during this time period. The century year rule was instituted to correct this overcounting.