RUNNING HEAD: Contribution Margin and Breakeven Analysis Simulation

Contribution Margin and Breakeven Analysis Simulation
Juan Vázquez-Nieves, RN, BSN
James Ciaramella
University of Phoenix

Contribution margin and breakeven analysis proved to be challenging, once again I’m face to interpret what I believe to be true. First going over the assign simulation was demanding to the point of taking the simulation three times or more, latter the article also proved to be a challenging in the attempts to express and explain my thoughts.

Considering Large Bulk Order
In order for Aunt Connie’s Cookies to decide how to proceed with the order she will need to understand the concept of contribution margin. A contribution margin reveals how the business would direct their resources. In the case of ACC to accept the proposal the manager who have to determine the following the sale price of the Real Mint minus the Variable Cost which then give the Contribution Margin. ACC has a production capacity of 3,500 (‘000 packs) in order to meet and accept the order ACC would have to reduce their current production of Real Mint to 1,500 (‘000 packs) and place an additional order of 1,000 (‘000 packs). This way ACC meets with bulk order requirements and does not affect the production of Lemon Crème. ACC should not accept the order if this was to affect maximizing operational profit. If ACC where to reduce Lemon Crème instead of Real Mint, ACC would not achieve maximizing operational profit. Furthermore ACC would want to produce more of Lemon Crème which gives greater contribution margin per unit. Peanut Butter Cookie Plant

By ACC acquiring the new plant, ACC would be able to meet their projection of 650,000 (‘000 packs) with an additional contribution margin of 480 plus 940 from current units of Lemon Crème cookies. However if ACC where to buy the unit and continue to produce Peanut Butter cookies they would have a negative contribution margin. In other words the production...

...Net Present Value
Net present value (NPV) and Internal rate of return (IRR) are used to determine whether to accept a project or not.Net Present Value (NPV)Net present value is the difference between the present value of cash inflows and the present value of cash outflows. It is used in capital budgeting to analyze the profitability of an investment or project.NPV= sum[CFt/(1+r)t]-C0
CFt– cash flow in the time t
C0 – initial investment
r – periodic interest rateNPV rule:
Accept all independent projects with NPV greater than 0 as they add value to shareholder. In case of mutually exclusive projects, the project with the highest NPV should be chosen
Advantages:
Direct measure of the dollar contribution to the stockholders.
NPV method is preferable for non-normal cash flows (e.g. negative cash flows)
Disadvantage:
Does NOT measure the project size.
Internal Rate of Return (IRR)
The discountrate makes the net present value of all cash flows from a project equal to zero. The higher a project's internal rate of return, the more desirable it is to undertake the project. IRR can be used to rank several prospective projects a firm is considering.
NPV=...

...“THE ADVANTAGES AND DISADVANTAGES OF USINFG NPV (NET PRESENT VALUE) AND IRR (INTERNAL RATE OF RETURN)”
NPV (NET PRESENT VALUE)
The difference between the present value of cash inflows and the present value of cash outflows. NPV is used in capital budgeting to analyze the profitability of an investment or project. NPV analysis is sensitive to the reliability of future cash inflows that an investment or project will yield.
NPV compares the value of a dollar today to the value of that same dollar in the future, taking inflation and returns into account. If the NPV of a prospective project is positive, it should be accepted. However, if NPV is negative, the project should probably be rejected because cash flows will also be negative.
Net present value, or NPV, is one of the calculations business managers use to evaluate capital projects. A capital project is a long-term investment or improvement, such as building a new store. The NPV calculation determines the present value of the project's projected future income. In the calculation, the present value of the project's cost is subtracted from the present value of future income. A positive net present value usually means you should accept or implement the project. Business owners who compare two or more projects tend to favor the...

...Key Financial Relationships: Bank of America and Wells Fargo
Bank of America and Wells Fargo are separate banks, however; both of these institutions share many similarities when reporting their financial statements. The inter-relationships of the data provided in the statements seem to exemplify the correlation of accounting practices between these two banks. As large as these two banks have become, and as complex, one can see that the banks’ roots are still tied firmly to the basic accounting equation. While both banks use organizational control techniques, their financial statements clearly indicate that each bank wishes to discuss a specific type of organizational control used by their company. To better understand the similarities and differences in how Bank of America and Wells Fargo choose to operate; an in-depth look at three specific topics is necessary.
A four part review of the inter-relationships of the data provided in the statements from both banks will provide a better understanding of how they compare. The first inter-relationship of data that can be viewed from these two banks is their statement of cash flows. While Bank of America and Wells Fargo’s statements of cash flows are not identical, the statements have three similarities. The similarities are operating activities, investing activities, and financing activities (Bank of America, 2007) (Wells Fargo...

...The relationshipbetween exchange rates, interest rates • In this lecture we will learn how exchange rates accommodate equilibrium in ﬁnancial markets. For this purpose we examine the relationshipbetween interest rates and exchange rates. Interest rates are the return to holding interest-bearing ﬁnancial assets. In the previous lecture we have pointed out that as being a ﬁnancial asset exchange rates tend to adjust more quickly to new information that goods prices. Like exchange rates, interest rates are also the prices of ﬁnancial assets and hence adjust quickly to new information. • The proﬁt-seeking arbitrage activity will bring about an interest parity relationshipbetween interest rates of two countries and exchange ratebetween these countries. • A U.S. investor deciding between investing say in New York and in Tokyo must consider several things: – the interest rate in the U.S., i$ , (interest rate in aU.S¿ dollar denominated bond, or rate of return in a U.S. dollar denominated US stock etc), interest rate in Japan (iY ; – the spot exchange rate, S; and – the future exchange rate for maturity date, forward...

...Sociology Essay
As part of this essay there will be explanation on two sociological theories, the conflict theory and the functionist theory, and the relationshipbetween social factors and depression.
Depression or depressive disorder is a feeling of sadness “which happens to all of us” but in most cases the feeling of sadness passes over a short period of time, It becomes a mental health issue when the feeling of sadness starts to affect daily life (Norquist 2013). Depression is known as a condition of emotional dejection and withdrawal over a prolonged period of time (Anon, 2013).
The conflict theory is derived from Karl Marx idea that “class interests and the confrontations of power that they bring in their wake are the central determinant of social process” (Bancroft A Et Al 2010) which means that social class is what shapes the individual known as determinism. The conflict theory focuses on the conflicts within society is what shapes us as an individual. The conflict being that the higher you are in class the more resources you have available to you (Browne 1998). Which views the capitalist society as based on class inequality and the exploitation of one class by another for their own gain. For example depression is a health issue which affects society as the individual cannot work effectively for the “richer man” so they can reap the benefits. So within society if you suffer from depression you are no longer able to...

...external need which is satisfying the shareholders. In order to make a decision about the capital structures, several factors need to been consider in making a good decision for the company. There are a lot of factors that related in determinants of capital structure. This study refers for the determinants of capital structure in manufacturing company which been carried out in Malaysia.
The issues of determinants of capital structure had been explained by several capital structure theories. There are Modigliani–Miller theory (M&M theory), trade off theory, agency theory and pecking order theory. Furthermore, the factors that influence the capital structure had been debated for a long time until now. There’s a number of researchers had been research and carried out this issues for over the years. However, all the research been done did not give the satisfactory answers towards this issues.
In additional, this research chooses January 1999 to December 2009 to observe the determinants of capital structure of manufacturing company in Malaysia. Therefore, this research use data stream to find the balance sheet and income statement of the listed manufacturing company in Malaysia.
1.1 BACKGROUND OF STUDY
The background of the study is about the relationshipbetween several factors of organization with the firm’s choice of capital structure. The several factors include size...

...How do the results of the NPV technique relate to the goal of maximizing shareholder wealth?
The NPV technique measures the present value of the future cash flows that a project will produce. A positive NPV means that the investment should increase the value of the firm and lead to maximizing shareholder wealth. A positive NPV project provides a return that is more than enough to compensate for the required return on the investment. Thus, using NPV as a guideline for capital investment decisions is consistent with the goal of creating wealth.
In theory, why is NPV the most appropriate technique for making capital budgeting decisions?
The NPV method is theoretically the most appropriate method for making capital budgeting decisions because it measure wealth creation, which is the assumed goal of financial management. NPV is an absolute measure of a project’s profitability and indicates the expected change in owners’ wealth from a capital investment. As an evaluation technique, NPV considers all expected future cash flows, the time value of money, and the risk of the future cash flows. Thus, NPV can help identify projects that maximize shareholder wealth.
If a firm selects a project with an NPV of $75,000, what impact should this decision have on shareholder wealth?
If the estimated cash flows and...

...NPV Versus IRR W.L. Silber
I.
Our favorite project A has the following cash flows:
-1000 0
0 1
0 2
+300 3
+600 4
+900 5
We know that if the cost of capital is 18 percent we reject the project because the net present value is negative:
- 1000 + 300 600 900 + + = NPV 3 4 (1.18) (1.18) (1.18)5
- 1000 + 182.59 + 309.47 + 393.40 = -114.54
We also know that at a cost of capital of 8% we accept the project because the net present value is positive:
- 1000 +
300 600 900 + + = NPV 3 4 (1.08 ) (1.08 ) (1.08 )5
- 1000 + 238.15 + 441 .02 + 612 .52 = 291.69
II.
Thus, somewhere between 8% and 18% we change our evaluation of project A
from rejecting it (when NPV is negative) to accepting it (when NPV is positive). We can calculate the point at which NPV shifts from negative to positive by searching for the value of r, called the internal rate of return (IRR) in the following equation, which makes the NPV=0.
- 1000 +
300 600 900 + + =0 3 4 (1 + r ) (1 + r ) (1 + r )5
More generally, if CFi is the cash flow in period i, the IRR is that rate, r, such that:
CF0 +
CFt CF1 CF2 + +L+ =0 2 (1 + r ) (1 + r ) (1 + r )t
In our case, CF0 = -1000, CF3 = 300, CF4 = 600 and CF5 = 900. All the other CFi = 0.
III.
The IRR can, in general,...

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