M4 Engineering is considering an investment in one of two machines.The CNC machine will increase productivity from producing 150 airplane mounting clamps per hour to producing 290 per hour. The contributionmargin per unit is $0.32 per clamp. Assume that any increased production of clamps can be sold.The second machine is an automatic packing machine. The packing machine will reduce packing labor cost. The labor cost saved is equivalent to $21per hour.The CNC machine will cost $260,000, have an eight-year life, and will operate for 1,800 hours per year. The packing machine will cost $85,000, have aneight-year life, and will operate for 1,400 hours per year. M4 Engineering seeks a minimum rate of return of 15% on its investments.Calculate the NPV and PV index for both machines (the packing machine will have a higher PV index). Utilize the PV tables from chapter 11/ chapter 25 foryour calculations. What machine should be purchased? Address both financial and non-financial reasons for your decision. Is there ever a reason to chosean alternative that is not the best financially?

PV index is the measure of efficiency under capital rationing for taking investment decisions. It is…

Answered: M4 Engineering is considering an…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Waterways is thinking of mass-producing one of its special-order sprinklers. To do so would increase unit variable costs for all sprinklers by an average of $0.70. The company also estimates that this change could increase the overall number of sprinklers sold by 10%, and the average unit sales price would increase $0.20. Waterways currently sells 490.000 sprinkler units at an average unit selling price of $28.60. The manufacturing costs are $7,866,260 variable and $2.011,486 fixed. Selling and administrative costs are $2,644.240 variable and $809,370 fixed. If Waterways begins mass-producing its special-order sprinklers, how would this affect the company? (Round ratio answers to O decimal places, e.g. 5X and net income answers to 2 decimal places, e.g. 5,275.25.) Contribution margin ratio Net income Current New % Effect Decrease Increase eTextbook and Media Save for Later Attempts: unlimited Submit Answer
A bicycle manufacturer currently produces 237,000 units a year and expects output levels to remain steady in the future. It buys chains from an outside supplier at a price of $2.20 a chain. The plant manager believes that it would be cheaper to make these chains rather than buy them. Direct in-house production costs are estimated to be only $1.60 per chain. The necessary machinery would cost $293,000 and would be obsolete after 10 years. This investment could be depreciated to zero for tax purposes using a 10-year straight-line depreciation schedule. The plant manager estimates that the operation would require $44,000 of inventory and other working capital upfront (year 0), but argues that this sum can be ignored since it is recoverable at the end of the 10 years. Expected proceeds from scrapping the machinery after 10 years are $21,975. If the company pays tax at a rate of 35% and the opportunity cost of capital is 15%, what is the net present value of the decision to produce the…
A company has a process that results in 980 kilograms of Product X that can be sold for $9 per kilogram. An alternative would be to process Product X further at a cost of $1960 and then sell it for $16 per kilogram. Should management sell Product X now or should Product X be processed further and then sold? Process further; the company will be better off by $4900. Sell now; the company will be better off by $4900. Process further; the company will be better off by $6860. Sell now; the company will be better off by $8820.
There are two competing alternatives in your textile business. A-type Tufting Machine costs $10,000 and B-Type Tufting Machine costs $35,000. A-type Tufting Machine can result in $11,000 labour savings in the first two years and $10,000 in year three. B-type Tufting Machine can result in $20,000 labour savings in the first two years. Assume MARR=8%. and find the difference between the net present worth of these two alternatives using infinite planning horizon with project repeatability. a) None of the answers are correct O b) Between $19,176 and $20,367 c) Between $29,176 and $30,367 d) Between $17,176 and $18,367 e) Between $23,176 and $24,367 f) Between $25,176 and $26,367
Syntech makes digital cameras for drones. Their basic digital camera uses $80 in variable costs and requires $1,400 per month in fixed costs. Syntech sells 100 cameras per month. If they process the camera further to enhance its functionality, it will require an additional $45 per unit of variable costs, plus an increase in fixed costs of $900 per month. The current price of the camera is $170. The marketing manager is positive that they can sell more and charge a higher price for the improved version. At what price level would the upgraded camera begin to improve operational earnings? Price to be charged Feedback
Can someone help me with part B of this problem?: Verasource Microprocessor Corporation sells 200 computer chips a month for $1,500 each. variable costs are $1,500,000. Fixed costs are $500,000. there's a defect rate of 8%. What is the hidden cost to the company of making this rate of defectives instead of 2,000 good chips each month? Suppose a six sigma effort can reduce the defects to a six sigma level. what is the impact on profitability?
Shelby Industries has a capacity to produce 45,00045,000 oak shelves per year and is currently selling 40,00040,000 shelves for $32$32 each. Martin Hardwoods has approached Shelby about buying 1,2001,200 shelves for a new project and is willing to pay $26$26 each. The shelves can be packaged in bulk; this saves Shelby $1.50$1.50 per shelf compared to the normal packaging cost. Shelves have a unit variable cost of $27$27 with fixed costs of $350,000$350,000. Because the shelves don’t require packaging, the unit variable costs for the special order will drop from $27$27 per shelf to $25.50$25.50 per shelf. Shelby has enough idle capacity to accept the contract. What is the minimum price per shelf that Shelby should accept for this special order?
Mighty Safe Fire Alarm is currently buying 58,000 motherboards from MotherBoard, Inc., at a price of $63 per board. Mighty Safe is considering making its own boards. The costs to make the board are as follows: direct materials, $31 per unit; direct labor, $10 per unit; and variable factory overhead, $14 per unit. Fixed costs for the plant would increase by $89,000. Which option should be selected and why? Oa. make, $464,000 increase in profits Ob. buy, $89,000 increase in profits Oc. make, $375,260 increase in profits Od. buy, $375,260 increase in profits
“In my opinion, we ought to stop making our own drums and accept that outside supplier’s offer,” said Wim Niewindt, managing director of Antilles Refining, N.V., of Aruba. “At a price of $20 per drum, we would be paying $5.45 less than it costs us to manufacture the drums in our own plant. Since we use 80,000 drums a year, that would be an annual cost savings of $436,000.” Antilles Refining’s current cost to manufacture one drum is given below (based on 80,000 drums per year): Direct materials $ 12.00 Direct labor 6.50 Variable overhead 1.50 Fixed overhead ($2.90 general company overhead, $1.80 depreciation, and $0.75 supervision) 5.45 Total cost per drum $ 25.45 A decision about whether to make or buy the drums is especially important at this time because the equipment being used to make the drums is completely worn out and must be replaced. The choices facing the company are: Alternative 1: Rent new equipment and continue to make the drums. The equipment would be…
Mighty Safe Fire Alarm is currently buying 55,000 motherboards from MotherBoard, Inc., at a price of $67 per board. Mighty Safe is considering making its own boards: The costs to make the board are as follows: direct materials, $34 per unit; direct labor, $11 per unit; and variable factory overhead, $16 per unit. Fixed costs for the plant would increase by $86,000. Which option should be selected and why? a. buy, $244,200 increase in profits O b. buy, $86,000 increase in profits Oc. make, $244,200 increase in profits Od. make, $330,000 increase in profits
Caspian Sea Drinks is considering the purchase of a plum juicer – the PJX5. There is no planned increase in production. The PJX5 will reduce costs by squeezing more juice from each plum and doing so in a more efficient manner. Mr. Bensen gave Derek the following information. What is the NPV of the PJX5? (ROUND TO 2 DECIMAL PLACES.) a. The PJX5 will cost $1.83 million fully installed and has a 10 year life. It will be depreciated to a book value of $284,956.00 and sold for that amount in year 10. b. The Engineering Department spent $44,242.00 researching the various juicers. c. Portions of the plant floor have been redesigned to accommodate the juicer at a cost of $20,794.00. d. The PJX5 will reduce operating costs by $438,196.00 per year. e. CSD’s marginal tax rate is 27.00%. f. CSD is 63.00% equity-financed. g. CSD’s 16.00-year, semi-annual pay, 5.71% coupon bond sells for $958.00. h. CSD’s stock currently has a market value of $24.35 and Mr. Bensen believes the market estimates that…

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