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42) Managerial Financial Accounting Assignments AP9-12 Solution

42) Managerial Financial Accounting Assignments AP9-12 Solution

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AP9-12 Comprehensive Capital Budgeting Problem [LO 2,6] Van Doren Corporation is considering producing a new product, Autodial. Marketing data indicate that the company will be able to sell 50,000 units per year at $30. The product will be produced in a section of an existing factory that is currently not in use. To produce Autodial, Van Doren must buy a machine that costs $500,000. The machine has an expected life of 6 years and will have an ending residual value of $15,000. Van Doren will depreciate the machine over 6
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Unformatted text preview: years using the straight-line method for both tax and financial reporting purposes. In addition to the cost of the machine, the company will incur incremental manufacturing costs of $400,000 for component parts, $440,000 for direct labor, and $225,000 of miscellaneous costs. Also, the company plans to spend $150,000 annually to advertise Autodial. Van Doren has a tax rate of 40 percent, and the company’s required rate of return is 14 percent....
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