G&W Machine Shop is evaluating the proposed acquisition of a new milling machine in 2019. The investment in year zero will be $162,000. The milling machine has an estimated service life of five years, with a salvage value of $45,000. With this milling machine, the firm will be able to manufacture 10,000 units per year, and the unit price would be $17.19. However, it requires a specially trained operator to run the machine. The estimated unit labor cost will be $6.00, and the unit material cost will be $4.50. In addition, the company operation will entail $10,000 in annual overhead expenses (fixed cost).The milling machine falls into the seven-year MACRS class. Also, assume that $64,800 of the initial investment is obtained through debt financing. The loan is to be repaid in equal annual installments at 12% interest (annual effective rate) over five years. The remaining will be provided by equity (e.g., from retained earnings) What is the maximum amount that you recommend to G & W Machine Shop to invest? What are the benefits of performing a sensitivity analysis and break-even analysis
G&W Machine Shop is evaluating the proposed acquisition of a new milling machine in 2019. The investment in year zero will be $162,000. The milling machine has an estimated service life of five years, with a salvage value of $45,000. With this milling machine, the firm will be able to manufacture 10,000 units per year, and the unit price would be $17.19. However, it requires a specially trained operator to run the machine. The estimated unit labor cost will be $6.00, and the unit material cost will be $4.50. In addition, the company operation will entail $10,000 in annual overhead expenses (fixed cost).The milling machine falls into the seven-year MACRS class. Also, assume that $64,800 of the initial investment is obtained through debt financing. The loan is to be repaid in equal annual installments at 12% interest (annual effective rate) over five years. The remaining will be provided by equity (e.g., from
What is the maximum amount that you recommend to G & W Machine Shop to invest?
What are the benefits of performing a sensitivity analysis and break-even analysis
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