BH is considering the manufacture of a new product which requires the use of both a new machine and existing machine. The following information has been prepared: (a) New Machine - current purchase price - residual value end Year 5 2$ 450,000 30,000 Existing Machino - cost 2 years ago - current written down value - current disposal value - residual value end Year 5 (b) 240,000 180,000 100,000 NIL The existing machine has sufficient spare capacity for the manufacture of the new product with no alternative use (c) New Product - life 5 years. Sales, 15,000 units per year at $ 46 per unit Cost per Unit Material Direct Labour, 2 hours at $ 8 per hour Variable ovorhead Fixed overhead (including depreciation of the new machine) 16 4 10 (d) working capital required $ 45,000 immediately, it will remain at $ 45,000 during the Years 1 to 5 (e) direct labour is in short supply. It would need to be diverted from other work currently earning a $ 4 per hour (f) proceeds from the disposal of the machine and the liquidation of the working capital will be received at the end of Year 5 Required: Prepare a schedule showing the expected cash inflows, cash ouflows and net cashflows for each year of the product's life
BH is considering the manufacture of a new product which requires the use of both a new machine and existing machine. The following information has been prepared: (a) New Machine - current purchase price - residual value end Year 5 2$ 450,000 30,000 Existing Machino - cost 2 years ago - current written down value - current disposal value - residual value end Year 5 (b) 240,000 180,000 100,000 NIL The existing machine has sufficient spare capacity for the manufacture of the new product with no alternative use (c) New Product - life 5 years. Sales, 15,000 units per year at $ 46 per unit Cost per Unit Material Direct Labour, 2 hours at $ 8 per hour Variable ovorhead Fixed overhead (including depreciation of the new machine) 16 4 10 (d) working capital required $ 45,000 immediately, it will remain at $ 45,000 during the Years 1 to 5 (e) direct labour is in short supply. It would need to be diverted from other work currently earning a $ 4 per hour (f) proceeds from the disposal of the machine and the liquidation of the working capital will be received at the end of Year 5 Required: Prepare a schedule showing the expected cash inflows, cash ouflows and net cashflows for each year of the product's life
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:BH is considering the manufacture of a new product which requires the use of both a
new machine and existing machine. The following information has been prepared:
(a)
- current purchase price
- residual value end Year 5
New Machine
2$
450,000
30,000
(b)
Existing Machine
- cost 2 years ago
- current written down value
- current disposal value
- residual value end Year 5
2$
240,000
180,000
100,000
NIL
The existing machine has sufficient spare capacity for the manufacture of the new
product with no alternative use
(c)
New Product - life 5 years. Sales, 15,000 units per year at $ 46 per unit
Cost per Unit
Material
Direct Labour, 2 hours at $ 8 per hour
Variable overhead
16
4
Fixed overhead
10
(including depreciation of the new machine)
(d)
working capital required $ 45,000 immediately, it will remain at $ 45,000 during
the Years 1 to 5
(e)
direct labour is in short supply. It would need to be diverted from other work
currently earning a $ 4 per hour
(f)
proceeds from the disposal of the machine and the liquidation of the working
capital will be received at the end of Year 5
Required:
Prepare a schedule showing the expected cash inflows, cash ouflows and net cashflows
for each year of the product's life
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