FootballComm LLC is a manufacturer of devices for football coaches and their coaching staffs that enables them to quickly and effectively communicate with one another during a game through a wireless sideline headset system. Currently, the company purchases all of the headsets included in their systems from a China-based supplier, but they have experienced a significant decrease in overall headset quality. To correct the problem, the company is considering producing their own headsets in-house. The company estimates that the transition will take place over 12 months. The system is expected to have an eight-year service life and produce savings and expenditures given in the table below. If the firm's MARR is 15%, use the NPW method to calculate the economic worth of producing the headsets in house. D In-House Headset Manufacturing Investment Worth Factor Compound Amount Factor (F/A, i, N) Now (building) Single Payment Compound Present Amount Factor (F/P, i, N) 1.1500 1.3225 1.5209 $500,000 $2,200,000 (P/F, i, N) First year (equipment and facilities) 0.8696 1.0000 2.1500 0.7561 $5,000,000 Annual savings in materials and quality inspection 0.6575 3.4725 Incremental annual expenses $1,500,000 1.7490 0.5718 4.9934 2.0114 Incremental annual income taxes Economic service life 0.4972 $800,000 8 years 6.7424 Net salvage value $1,500,000 2.3131 0.4323 8.7537 2.6600 0.3759 11.0668 3.0590 0.3269 13.7268 3.5179 0.2843 16.7858 4.0456 0.2472 20.3037 2123 N 4 5 6 7 8 9 10 Equal Payment Series Sinking Present Fund Worth Factor Factor (A/F, I, N) (P/A, i, N) 0.8696 1.0000 0.4651 1.6257 0.2880 2.2832 0.2003 2.8550 0.1483 3.3522 0.1142 3.7845 0.0904 4.1604 0.0729 4.4873 0.0596 4.7716 0.0493 5.0188 Capital Recovery Factor (A/P, i, N) 1.1500 0.6151 0.4380 0.3503 0.2983 0.2642 0.2404 0.2229 0.2096 0.1993
FootballComm LLC is a manufacturer of devices for football coaches and their coaching staffs that enables them to quickly and effectively communicate with one another during a game through a wireless sideline headset system. Currently, the company purchases all of the headsets included in their systems from a China-based supplier, but they have experienced a significant decrease in overall headset quality. To correct the problem, the company is considering producing their own headsets in-house. The company estimates that the transition will take place over 12 months. The system is expected to have an eight-year service life and produce savings and expenditures given in the table below. If the firm's MARR is 15%, use the NPW method to calculate the economic worth of producing the headsets in house. D In-House Headset Manufacturing Investment Worth Factor Compound Amount Factor (F/A, i, N) Now (building) Single Payment Compound Present Amount Factor (F/P, i, N) 1.1500 1.3225 1.5209 $500,000 $2,200,000 (P/F, i, N) First year (equipment and facilities) 0.8696 1.0000 2.1500 0.7561 $5,000,000 Annual savings in materials and quality inspection 0.6575 3.4725 Incremental annual expenses $1,500,000 1.7490 0.5718 4.9934 2.0114 Incremental annual income taxes Economic service life 0.4972 $800,000 8 years 6.7424 Net salvage value $1,500,000 2.3131 0.4323 8.7537 2.6600 0.3759 11.0668 3.0590 0.3269 13.7268 3.5179 0.2843 16.7858 4.0456 0.2472 20.3037 2123 N 4 5 6 7 8 9 10 Equal Payment Series Sinking Present Fund Worth Factor Factor (A/F, I, N) (P/A, i, N) 0.8696 1.0000 0.4651 1.6257 0.2880 2.2832 0.2003 2.8550 0.1483 3.3522 0.1142 3.7845 0.0904 4.1604 0.0729 4.4873 0.0596 4.7716 0.0493 5.0188 Capital Recovery Factor (A/P, i, N) 1.1500 0.6151 0.4380 0.3503 0.2983 0.2642 0.2404 0.2229 0.2096 0.1993
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:FootballComm LLC is a manufacturer of devices for football coaches and their coaching staffs that enables them to quickly and effectively communicate with one another during a game through a wireless sideline headset system. Currently, the company purchases all of the headsets included in their systems from a China-based supplier, but they have experienced a significant decrease in overall headset quality. To correct the problem, the company is considering producing their own headsets in-house. The company estimates that the transition will take place over 12 months. The system is expected to have an eight-year service life and produce savings and expenditures given in the table below.
If the firm's MARR is 15%, use the NPW method to calculate the economic worth of producing the headsets in-house.
### In-House Headset Manufacturing
#### Investment
- **Now (building):** $500,000
- **First year (equipment and facilities):** $2,200,000
- **Annual savings in materials and quality inspection:** $5,000,000
- **Incremental annual expenses:** $1,500,000
- **Incremental annual income taxes:** $800,000
- **Economic service life:** 8 years
- **Net salvage value:** $1,500,000
### Discount Factors Table
The table below provides the necessary factors for computing the NPW at various times (N) for a given interest rate (i), in this case 15%.
| N | Compound Amount Factor (F/P, i, N) | Present Worth Factor (P/F, i, N) | Compound Amount Factor (F/A, i, N) | Sinking Fund Factor (A/F, i, N) | Present Worth Factor (P/A, i, N) | Capital Recovery Factor (A/P, i, N) |
|----|-----------------------------------|----------------------------------|-----------------------------------|---------------------------------|---------------------------------|-----------------------------------|
| 1 | 1.1500 | 0.8696 | 1.0000 | 1.0000 | 0.8696 | 1.1500 |
| 2 | 1.3225 | 0.7561 | 2.3225 | 0.4651 | 1.6257 | 0.6151 |
| 3 | 1.5209 | 0.6575
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