Computer-Aided Machining Company plans to invest in a state- of-the-art 5-axis machining center with invoice price of $450,000, freight of $25,000, site preparation $40,000, and installation costs of $35,000. The project also requires special tooling costing $50,000. The machining center has an expected life of ten years and the tooling only 5 years so tooling replacement is needed after the fifth year. The machining center is a 7-year depreciable asset and the tooling is a 3-year class. After it's useful life, the machining center is salvaged for $50,000 and the tooling is scrapped for $1500. The company expects to increase its annual production revenues by $400,000 with associated annual production costs of $45,000 direct materials, $75,000 direct labor, and $37,500 manufacturing overhead. Taxes are assessed at a 35% rate on taxable income. The company has decided to take an eight-year loan of $300,000 at 6% to help defray cash outlay and to establish working capital of $70,000. a) Develop the Income Statement and Cash Flow Statement

Computer-Aided Machining Company plans to invest in a state- of-the-art 5-axis machining center with invoice price of $450,000, freight of $25,000, site preparation $40,000, and installation costs of $35,000. The project also requires special tooling costing $50,000. The machining center has an expected life of ten years and the tooling only 5 years so tooling replacement is needed after the fifth year. The machining center is a 7-year depreciable asset and the tooling is a 3-year class. After it's useful life, the machining center is salvaged for $50,000 and the tooling is scrapped for $1500. The company expects to increase its annual production revenues by $400,000 with associated annual production costs of $45,000 direct materials, $75,000 direct labor, and $37,500 manufacturing overhead. Taxes are assessed at a 35% rate on taxable income. The company has decided to take an eight-year loan of $300,000 at 6% to help defray cash outlay and to establish working capital of $70,000. a) Develop the Income Statement and Cash Flow Statement

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Geary Machine Shop is considering a 4-year project to improve its production efficiency. Buying a new machine press for $697,448 is estimated to result in $179,470 in annual pretax cost savings. The press falls in the MACRS five-year class (Refer to the MACRS table on page 277), and it will have a salvage value at the end of the project of $129,270. The press also requires an initial investment in spare parts inventory of $59,897, along with an additional $ 9,967 in inventory for each succeeding year of the project. If the shop's tax rate is 0.28 and its discount rate is 0.14, what is the total cash flow in year 4? (Do not round your intermediate calculations.) (Make sure you enter the number with the appropriate +/- sign)
Kolby’s Korndogs is looking at a new sausage system with an installed cost of $725,000. This cost will be depreciated straight-line to zero over the project’s 7-year life, at the end of which the sausage system can be scrapped for $99,000. The sausage system will save the firm $211,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $63,000. If the tax rate is 24 percent and the discount rate is 10 percent, what is the NPV of this project? Please answer fast i give you uipvote.
Tanaka Machine Shop is considering a 4-year project to improve its production efficiency. Buying a new machine press for $395,000 is estimated to result in $151,000 in annual pretax cost savings. The press falls in the 5-year MACRS class, and it will have a salvage value at the end of the project of $51,000. The press also requires an initial investment in spare parts inventory of $22,000, along with an additional $3,200 in inventory for each succeeding year of the project. The shop’s tax rate is 22 percent and its discount rate is 9 percent. (MACRS schedule) Calculate the NPV of this project. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Assume that United Technologies is evaluating a proposal to change the company's manual design system to a computer-aided design (CAD) system. The proposed system is expected to save 10,000 design hours per year; an operating cost savings of $50 per hour. The annual cash expenditures of operating the CAD system are estimated to be $250,000. The CAD system requires an initial investment of $500,000. The estimated life of this system is five years with no salvage value. The tax rate is 40 percent. United Technologies has a cost of capital of 20 percent.Assume that management intends to use double-declining balance depreciation with a switch to straight-line depreciation (applied to any undepreciated balance) starting in Year 4.Determine the project's net present value
Cori's Meats is looking at a new sausage system with an installed cost of$304,000. This cost will be depreciated straight-line to zero over the project's five-year life, at theend of which the sausage system can be scrapped for $30,000. The sausage system will save the firm$116,000 per year in pretax operating costs and the system requires an initial investment in net workingcapital of $15,000. If the tax rate is 23 percent and the discount rate is 10 percent, what is the NPV ofthis project? Security F has an expected return of 11 percent and a standarddeviation of 47 percent per year. Security G has an expected return of 14 percent and a standarddeviation of 63 percent per year.a. What is the expected return on a portfolio composed of 65 percent of Security F and 35 percent ofSecurity G?b. If the correlation between the returns of Security F and Security G is. 15, what is the standarddeviation of the portfolio described in part (a)? One potential criticism of the internal rate of…
Briggs Excavation Company is planning an investment of $932,100 for a bulldozer. The bulldozer is expected to operate for 3,000 hours per year for eight years. Customers will be charged $140 per hour for bulldozer work. The bulldozer operator costs $32 per hour in wages and benefits. The bulldozer is expected to require annual maintenance costing $30,000. The bulldozer uses fuel that is expected to cost $42 per hour of bulldozer operation. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 1.833 1.736 1.690 1.626 1.528 3 2.673 2.487 2.402 2.283 2.106 4 3.465 3.170 3.037 2.855 2.589 5 4.212 3.791 3.605 3.352 2.991 6 4.917 4.355 4.111 3.784 3.326 7 5.582 4.868 4.564 4.160 3.605 8 6.210 5.335 4.968 4.487 3.837 9 6.802 5.759 5.328 4.772 4.031 10 7.360 6.145 5.650 5.019 4.192 a. Determine the equal annual net cash flows from operating the bulldozer. Use a minus sign to indicate cash outflows.…
Masters Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $902,400 is estimated to result in $300,800 in annual pretax cost savings. The press falls in the MACRS five-year class (MACRS Table), and it will have a salvage value at the end of the project of $131,600. The press also requires an initial investment in spare parts inventory of $37,600, along with an additional $5,640 in inventory for each succeeding year of the project. If the shop's tax rate is 21 percent and its discount rate is 16 percent, what is the NPV for this project? Multiple Choice $-69,008.14 $-65,686.09 $-153,856.79 $-72,458.55 $-65,557.74
United Pigpen is considering a proposal to manufacture high-protein hog feed. The project would require use of an existing warehouse, which is currently rented out to a neighboring firm. The next year's rental charge on the warehouse is $120,000, and thereafter, the rent is expected to grow in line with inflation at 4% a year. In addition to using the warehouse, the proposal envisages an investment in plant and equipment of $1.32 million. This could be depreciated for tax purposes straight-line over 10 years. However, Pigpen expects to terminate the project at the end of 8 years and to resell the plant and equipment in year 8 for $440,000. Finally, the project requires an immediate investment in working capital of $370,000. Thereafter, working capital is forecasted to be 10% of sales in each of years 1 through 7. Working capital will be run down to zero in year 8 when the project shuts down. Year 1 sales of hog feed are expected to be $4.60 million, and thereafter, sales are forecasted…
Warmack Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $480,000 is estimated to result in $195,000 in annual pretax cost savings. The press falls in the MACRS five- year class, and it will have a salvage value at the end of the project of $81,000. The press also requires an initial investment in spare parts inventory of $21,000, along with an additional $2,600 in inventory for each succeeding year of the project. The shop's tax rate is 30 percent and its discount rate is 8 percent. MACRS schedule : 1st year = 20% 2nd year = 32% 3rd year = 19.2% 4th year = 11.52% 5th year = 5.76%
Cameron Industries is purchasing a new chemical vapor depositor in order to make silicon chips. It will cost $6,000,000 to buy the machine and $20,000 to have it delivered and installed Building a clean room in the plant for the machine will cost an additional $3 million. The machine is expected to raise gross profits by $3,000,000 per year, starting at the end of the first year, with associated costs of $1 million for each of those years. The machine is expected to have a working life of six years and will be depreciated over those six years. The marginal tax rate is 20%. What are the incremental free cash flows associated with the new machine in year 0? OA-$6,000,000 OB. -$8,118,000 C. $1,003,333 OD. -$9.020,000
Emperor's Clothes Fashions can invest $5 million in a new plant for producing invisible makeup. The plant has an expected life of 5 years, and expected sales are 6 million jars of makeup a year. Fixed costs are $3.8 million a year, and variable costs are $2.50 per jar. The product will be priced at $3.90 per jar. The plant will be depreciated straight-line over 5 years to a salvage value of zero. The opportunity cost of capital is 10%, and the tax rate is 30%. a. What is project NPV under these base-case assumptions? Note: Do not round intermediate calculations. Enter your answer in millions, rounded to 2 decimal places. b. What is NPV if variable costs turn out to be $2.80 per jar? Note: Do not round intermediate calculations. Enter your answer in millions, rounded to 2 decimal places. c. What is NPV if fixed costs turn out to be $3.3 million per year? Note: Do not round intermediate calculations. Enter your answer in millions, rounded to 2 decimal places. d. At what price per jar…
Tanaka Machine Shop is considering a 4-year project to improve its production efficiency. Buying a new machine press for $420,000 is estimated to result in $166,000 in annual pretax cost savings. The press falls in the 5-year MACRS class, and it will have a salvage value at the end of the project of $66,000. The press also requires an initial investment in spare parts inventory of $27,000, along with an additional $3,450 in inventory for each succeeding year of the project. The shop's tax rate is 22 percent and its discount rate is 9 percent. (MACRS schedule) Calculate the NPV of this project. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV Should the company buy and install the machine press? O Yes O No 4