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1) Sam buys the new product. System costs $100 000. It has the economic life of three years, at which time its estimated disposal value will be= $32 000. Sam evaluates that improved efficiency will decrease operating costs by= $46 000 a year before depreciation and taxes. Depreciation utilized for tax purposes is straight line to disposal value. Firm’s debt ratio is 55% and cost of capital is 21%. Marginal tax rate is 40% and he can suppose that tax is paid in same year as it is incurred. Should the system be obtained? Describe why? Illustrate the formula.

2) Products Kappa and Sigma are joint products. Joint production cost of products is $= 800. Kappa has the market value of $450at split off point. If Kappa is further processed at the extra cost of $600, its market value is= $1400. Product Sigma has the market value of $1550 at split off point. If product Sigma is further processed at the extra cost of $300, its market value is= $1400. By using relative sales value method, compute joint product cost which would be allocated to Kappa and Sigma. How do you know if one of the products must be further processed?

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