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

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Question

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
covering the 10-year timeframe subject to 2% inflation with
final cash flows expressed in Actual Dollars and then
Constant Dollars.

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