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- After spending $9,600 on client-development, you have just been offered a big production contract by a new client. The contract will add $196,000 to your revenues for each of the next five years and it will cost you $96,000 per year to make the additional product. You will have to use some existing equipment and buy new equipment as well. The existing equipment is fully depreciated, but could be sold for $45,000 now. If you use it in the project, it will be worthless at the end of the project. You will buy new equipment valued at $29,000 and use the 5-year MACRS schedule to depreciate it. It will be worthless at the end of the project. Your current production manager earns $79,000 per year. Since she is busy with ongoing projects, you are planning to hire an assistant at$38,000 per year to help with the expansion. You will have to immediately increase your inventory from $20,000 to $30,000. It will return to $20,000 at the end of the project is 21% and your discount rate is 14.7%. What…"I'm not sure we should lay out $335,000 for that automated welding machine," said Jim Alder, president of the Superior Equipment Company. "That's a lot of money, and it would cost us $91,000 for software and installation, and another $56,400 per year just to maintain the thing. In addition, the manufacturer admits it would cost $54,000 more at the end of three years to replace worn-out parts." "I admit it's a lot of money," said Franci Rogers, the controller. "But you know the turnover problem we've had with the welding crew. This machine would replace six welders at a cost savings of $121,000 per year. And we would save another $8,200 per year in reduced material waste. When you figure that the automated welder would last for six years, I'm sure the return would be greater than our 18% required rate of return." "I'm still not convinced," countered Mr. Alder. "We can only get $20,500 scrap value out of our old welding equipment if we sell it now, and in six years the new machine will…A computerized machining center has been proposed for a small tool manufacturing company. If the new system, which costs $125,000, is installed, it will generate annual revenues of $100,000 and will require $20,000 in annual labor, $12,000 in annual material expenses, and another $8,000 in annual overhead (power and utility) expenses. A loan of $100,000 is borrowed from the bank for installation of the machining center which is repaid by equal annual repayments in 5 years at an interest rate of 8% compounded quarterly. Note that there is a working-capital requirement of $23,331 in year 0 and full recovery of the working capital at the end of year 5 for the machining center. The machining center would be classified as a seven-year MACRS property. If the asset is held for eight years, we can depreciate a seven-year property in respective percentages of 14.29%, 24.49%, 17.49%, 12.49%, 8.93%, 8.92%, 8.93%, and 4.46%. The company expects to phase out the facility at the end of five years,…
- Jason is interested in finding the breakeven point for a new pump it plans to produce. The price of the pump is $250 and the variable cost ratio is 50% of the price. Jason calculated that the fixed costs will be about $400,000. What is the breakeven point of operations?Oahu Inc. is considering an investment in new equipment that will be used to manufacture a smartphone. The phone is expected to generate additional annual sales of 5,100 units at $276 per unit. The equipment has a cost of $521,700, residual value of $39,300, and an 8-year life. The equipment can only be used to manufacture the phone. The cost to manufacture the phone follows: Line Item Description Amount Cost per unit: Direct labor $47.00 Direct materials 182.00 Factory overhead (including depreciation) 31.60 Total cost per unit $260.60 Determine the average rate of return on the equipment. If required, round to the nearest whole percent.Heer Enterprises needs someone to supply it with 160,000 cartons of machine screws per year to support its manufacturing needs over the next three years, and you've decided to bid on the contract. It will cost you $840,000 to install the equipment necessary to start production and you estimate that it can be salvaged for $160,000 at the end of the three-year contract. Your fixed production costs will be $290,000 per year, and your variable production costs should be $8.50 per carton. If you require a 12 percent return on your investment, what is the minimum bid price you should submit?
- Consider a project to supply Detroit with 27,000 tons of machine screws annually for automobile production. You will need an initial $6,000,000 investment in threading equipment to get the project started; the project will last for 6 years. The accounting department estimates that annual fixed costs will be $1,450,000 and that variable costs should be $275 per ton; accounting will depreciate the initial fixed asset investment straight-line to zero over the 6-year project life. It also estimates a salvage value of $825,000 after dismantling costs. The marketing department estimates that the automakers will let the contract at a selling price of $392 per ton. The engineering department estimates you will need an initial net working capital investment of $580,000. You require a return of 11 percent and face a tax rate of 22 percent on this project. a-1. What is the estimated OCF for this project? (Do not round intermediate calculations. and round your answer to the nearest whole number,…“I’m not sure we should lay out $350,000 for that automated welding machine,” said Jim Alder, president of the Superior Equipment Company. “That’s a lot of money, and it would cost us $94,000 for software and installation, and another $60,000 per year just to maintain the thing. In addition, the manufacturer admits it would cost $57,000 more at the end of three years to replace worn-out parts.” “I admit it’s a lot of money,” said Franci Rogers, the controller. “But you know the turnover problem we’ve had with the welding crew. This machine would replace six welders at a cost savings of $124,000 per year. And we would save another $8,500 per year in reduced material waste. When you figure that the automated welder would last for six years, I’m sure the return would be greater than our 15% required rate of return.” “I’m still not convinced,” countered Mr. Alder. “We can only get $22,000 scrap value out of our old welding equipment if we sell it now, and in six years the new machine…Consider a project to supply Detroit with 28,000 tons of machine screws annually for automobile production. You will need an initial $5,800,000 investment in threading equipment to get the project started; the project will last for 6 years. The accounting department estimates that annual fixed costs will be $1,400,000 and that variable costs should be $265 per ton; accounting will depreciate the initial fixed asset investment straight-line to zero over the 6-year project life. It also estimates a salvage value of $775,000 after dismantling costs. The marketing department estimates that the automakers will let the contract at a selling price of $380 per ton. The engineering department estimates you will need an initial net working capital investment of $560,000. You require a return of 14 percent and face a tax rate of 25 percent on this project. a-1. What is the estimated OCF for this project? (Do not round intermediate calculations and round your answer to the nearest whole…
- A mill producing steel plate has fixed costs of $100,000 per week and variable costs of $0.09 per pound of steel plate produced. If the steel plate sells for $0.77 per pound, how many pounds must be produced each week for the plant to breakeven? Express your answer in pounds to the nearest 1,000 pounds.Letang Industrial Systems Company (LSC) is trying to decide between two different conveyor belt systems. System A costs $325,000, has a four-year life, and requires $121,000 in pretax annual operating costs. System B costs $405,000, has a sle-year life. and requires $115,000 in pretax annual operating costs. Suppose the company always needs a conveyor belt system when one wears out, it must be replaced. Assume the tax rate is 22 percent and the discount rate is 11 percent Calculate the EAC for both conveyor belt systems. (A negative answer should be Indicated by a minus sign. Do not round Intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) System A System D 11:36 AM/HELP ME
