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project B

# project B - Sheet1 One possibility currently being examined...

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Sheet1 Page 1 Cost of new equipment 200000 Disposal value 40000 Total Production for Cans 5500000 Annual production or purchase needs 1100000 Salary for Employees (3*(2000*12*1.18 + 2500) 92460 Cost of raw materials per can 25¢ Other variable production costs per can Costs to purchase one can 45¢ Required rate of return 12.00% Tax rate 35.00% Working Note 1 Make Vs. Buy Make Buy Purchase price 495000 Variable Cost 330000 Employee Salary 92460 Total Cash Cost 422460 495000 Annual Cash Saving (Before Tax) 72540 Annual Cash Saving (After Tax) 47151 Working Note 2 Annual Depreciation = (200000-40000)/5 = \$32000 Tax Saving Due to Depreciation = 32000*.35 = 11200 Part 1 Annual cash flows over the expected life of the equipment Annual Cash Saving (Make vs. Buy ) 47151 Tax Saving Due to Depreciation 11200 Annual Cash Flow \$58,351.00 Part 2 Payback period One possibility currently being examined is to make the paint cans instead of purchasing them. The e \$40,000, and it would be able to produce 5,500,000 cans over the life of the machinery. The productio

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project B - Sheet1 One possibility currently being examined...

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