Course Project B - AC505 (Additional)

Course Project B - AC505 (Additional) - PROJECT B - Capital...

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PROJECT B - Capital Budgeting Decision Student Name: Facts: Equipment 200000 Unit 1000000 Salvage 40000 Depr 16000 Life 5 DL 8.5 DL hours 2300 Benefits 5019 Materials 0.2 Variable 0.1 Buying price 0.5 Hurdle rate 10% Tax rate 35% Annual cash flows over the expected life of the equipment INITIAL CASH OUTFLOWS Initial Investments Equipment Purchase Price = 200000 YEAR 0 YEAR 1 YEAR 2 Buying Price 500000 500000 Less: direct materials 200000 200000 Less: Variable costs 100000 100000 Less: direct labor 58650 58650 production costs. One possibility currently being examined is to make the paint cans instead of purchasin equipment needed would cost $200,000 with a disposal value of $40,000 and would be able to produce cans over the life of the machinery. The production department estimates that approximately 1,000,000 c be needed for each of the next five year. These three individuals would be full-time employees working 2,300 hours per year and earning $8.50 p They would also receive the same benefits as other production employees, 18% of wages in addition to health benefits. It is estimated that the raw materials will cost 20¢ per can and that other variable costs would be 10¢ per there is currently unused space in the factory, no additional fixed costs would be incurred if this proposal It is expected that cans would cost 50¢ per can if purchased from the current supplier. The company's m of return (hurdle rate) has been determined to be 10% for all new projects, and the current tax rate of 35 anticipated to remain unchanged. The pricing for a gallon of paint as well as number of units sold will not by this decision. The unit-of-production depreciation method would be used if the new equipment is purc
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Less: fringe benefits 15057 15057 Cash flow from operations 126293 126293 Less: Depreciation* 16000
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Course Project B - AC505 (Additional) - PROJECT B - Capital...

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