A North American tire manufacturing company owns a rubber plantation in Brazil through its Brazilian subsidiary. It is deciding whether to open its new tire manufacturing facility in the US or Canada. The new facility will produce 1 million tires per year and expects to sell them at $100 per tire irrespective of the location in which the facility is opened. Each tire is expected to require 50 pounds of rubber. All of the rubber required for the tires is expected to be procured from the Brazilian subsidiary and shipped to the plant. The costs of shipping the rubber will be borne by the subsidiary which gets the manufacturing facility. If the facility is opened in the US, the US subsidiary will incur shipping costs of $25 per 50 pounds of rubber and additional costs for manufacturing the tire incurred by the US subsidiary is $30 per tire (excluding the cost of rubber transferred from Brazil). If the facility is opened in Canada, the Canadian subsidiary will incur shipping costs of $30 per 50 pounds of rubber and additional costs for manufacturing the tire incurred by the Canadian subsidiary is $35 per tire (excluding the cost of rubber transferred from Brazil). At the expected demand for rubber from the new manufacturing facility, the Brazilian subsidiary estimates its full absorption cost per pound of rubber to be $0.4. Assuming that corporate tax rates are 15% in Canada, 35% in the US and 20% in Brazil and tax authorities in the 3 countries will allow any transfer price between full absorption cost and $0.6 per pound of rubber, where would the tire manufacturing company prefer to open its tire manufacturing facility?
The tire manufacturing company should be started in US. The complete solution can be seen below:-
A North American tire manufacturing company owns a rubber plantation in Brazil through its Brazilian subsidiary....
A North American tire manufacturing company owns a rubber plantation in Brazil through its Brazilian subsidiary. It is deciding whether to open its new tire manufacturing facility in the US or Canada. The new facility will produce 1 million tires per year and expects to sell them at $100 per tire irrespective of the location in which the facility is opened. Each tire is expected to require 50 pounds of rubber. All of the rubber required for the tires is...
I need help with B only Decision on Accepting Additional Business Miramar Tire and Rubber Company has capacity to produce 153,000 tires. Miramar presently produces and sells 117,000 tires for the North American market at a price of $91.00 per tire. Miramar is evaluating a special order from a South American automobile company, Rio Motors. Rio Motors is offering to buy 18,000 tires for $74.65 per tire. Miramar’s accounting system indicates that the total cost per tire is as follows:...
Decision on Accepting Additional Business Miramar Tire and Rubber Company has capacity to produce 238,000 tires. Miramar presently produces and sells 182,000 tires for the North American market at a price of $101.00 per tire. Miramar is evaluating a special order from a South American automobile company, Rio Motors. Rio Motors is offering to buy 28,000 tires for $82.05 per tire. Miramar’s accounting system indicates that the total cost per tire is as follows: Direct materials $38 Direct labor 14...
Decision on Accepting Additional Business Miramar Tire and Rubber Company has capacity to produce 230,000 tires. Miramar presently produces and sells 176,000 tires for the North American market at a price of $115.00 per tire. Miramar is evaluating a special order from a South American automobile company, Rio Motors. Rio Motors is offering to buy 27,000 tires for $97.65 per tire. Miramar's accounting system indicates that the total cost per tire is as follows: Direct materials Direct labor Factory overhead...
The Giseppe Tire Company manufactures racing tires for bicycles. sells tires for $80 each. Giseppe is planning for the next year by developing a master budget by quarters. balance sheet for follows Requirements: 1.Prepare Giseppe'operating budget and cash budget for 2019 by quarter. Required schedules and budgets include: sales budget, production budget, direct materials budget, direct labor budget, manufacturing overhead budget, cost of goods sold budget, selling and administrative expense budget, schedule of cash receipts, schedule of cash payments, and...
Suppose Goodyear Tire and Rubber Company is considering divesting one of its manufacturing plants. The plant is expected to generate free cash flows of $1.68 million per year, growing at a rate of 2.6% per year. Goodyear has an equity cost of capital of 8.6%, a debt cost of capital of 7.1%, a marginal corporate tax rate of35%,and a debt-equity ratio of 2.8. If the plant has average risk and Goodyear plans to maintain a constant debt-equity ratio, what after-tax...
Megamax Top Co. Ltd. is a tire and tube manufacturer with its factory located in Houston, Texas. Megamax Top's products obtained ISO-9001 certification. Assume that Megamax Top has recently developed a new model of scooter tire after extensive research and development and proved that there is a significant market for the new model. The new model will be put into the market this year and is expected to stay in the market for four years. Except for the initial investment...
The Gerard Tire Company manufactures racing tires for bicycles. Gerard sells tires for $90 each. Gerard is planning for the next year by developing a master budget by quarters. Gerard’s balance sheet for December 31, 2018, follows: Other data for Gerard Tire Company: Budgeted sales are 1,500 tires for the first quarter and expected to increase by 200 tires per quarter. Cash sales are expected to be 10% of total sales, with the remaining 90% of sales on account. Finished...
The Gerard Tire Company manufactures racing tires for bicycles. Gerard sells tires for $90 each. Gerard is planning for the next year by developing a master budget by quarters. Gerard’s balance sheet for December 31, 2018, follows: Other data for Gerard Tire Company: Budgeted sales are 1,500 tires for the first quarter and expected to increase by 200 tires per quarter. Cash sales are expected to be 10% of total sales, with the remaining 90% of sales on account. Finished...
Other data for Grady Tire Company: Click the icon to view the other data.) Read the requirements The Grady Tire Company manufactures racing tires for bicycles. Grady sells tires for $70 each. Grady is planning for the next year by developing a master budget by quarters. Grady's balance sheet for December 31, 2018, follows: (Click the icon to view the balance sheet.) Grady Tire Company Direct Materials Budget For the Year Ended December 31, 2019 First Second Third Quarter Quarter...