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4. Assuming a discount rate of 6%, what is the net present value if Brisbane replaces its current system? Submit Answer

4. Assuming a discount rate of 6%, what is the net present value if Brisbane replaces its current system? Submit Answer

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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just need help with the last part 

 

part 4 

 

The Brisbane Manufacturing Company produces a single model of a CD player. Each player is sold for $197 with a resulting contribution margin of $77. Brisbane's management is considering a change in its quality control system. Currently, Brisbane spends $42,000 a year to inspect the CD players. An average of 2,000 units turn out to be defective: 1,400 of them are detected in the inspection process and are repaired for $80. If a defective CD player is not identified in the inspection process, the customer who receives it is given a full refund of the purchase price. The proposed quality control system involves the purchase of an x-ray machine for $210,000. The machine would last for five years and would have salvage value at that time of $20,000. Brisbane would also spend $440,000 immediately to train workers to better detect and repair defective units. Annual inspection costs would increase by $23,000. Brisbane expects this new control system to reduce the number of defective units to 350 per year. 290 of these defective units would be detected and repaired at a cost of only $43 per unit. Customers who still receive defective players will be given a refund equal to 120% of the purchase price. 1. What is the Year 2 cash flow if Brisbane keeps using its current system? Submit Answer 2. What is the Year 2 cash flow if Brisbane replaces its current system? Submit Answer 3. Assuming a discount rate of 6%, what is the net present value if Brisbane keeps using its current system? Submit Answer 4. Assuming a discount rate of 6%, what is the net present value if Brisbane replaces its current system? Submit Answer
Transcribed Image Text:The Brisbane Manufacturing Company produces a single model of a CD player. Each player is sold for $197 with a resulting contribution margin of $77. Brisbane's management is considering a change in its quality control system. Currently, Brisbane spends $42,000 a year to inspect the CD players. An average of 2,000 units turn out to be defective: 1,400 of them are detected in the inspection process and are repaired for $80. If a defective CD player is not identified in the inspection process, the customer who receives it is given a full refund of the purchase price. The proposed quality control system involves the purchase of an x-ray machine for $210,000. The machine would last for five years and would have salvage value at that time of $20,000. Brisbane would also spend $440,000 immediately to train workers to better detect and repair defective units. Annual inspection costs would increase by $23,000. Brisbane expects this new control system to reduce the number of defective units to 350 per year. 290 of these defective units would be detected and repaired at a cost of only $43 per unit. Customers who still receive defective players will be given a refund equal to 120% of the purchase price. 1. What is the Year 2 cash flow if Brisbane keeps using its current system? Submit Answer 2. What is the Year 2 cash flow if Brisbane replaces its current system? Submit Answer 3. Assuming a discount rate of 6%, what is the net present value if Brisbane keeps using its current system? Submit Answer 4. Assuming a discount rate of 6%, what is the net present value if Brisbane replaces its current system? Submit Answer
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