Beckingham Beads Final Exam Capital Budgeting Question

Beckingham Beads Final Exam Capital Budgeting Question - is...

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Beckingham Beads Capital Budgeting Question Beckingham Beads is an American company that produces beads for designer gowns and  premium jewelry.  Based on the results of a $25,000 market study, Beckingham Beads is  considering selling overseas and increasing revenues by an estimated $550,000 per year.  The engineering designs for the new machine have just been completed at a cost of  $18,000 and will be used as a guideline to the installation if the project is approved.  To  sell the additional $550,000 of their unique beads, Beckingham Beads will incur two new  costs.  First, Beckingham Beads will need to replace the old machine.  Second,  Beckingham Beads will need to hire some part-time design consultants and spend more  money on raw materials and labor.  These additional expenses will be $148,000 per  year. The old machine has an $85,000 market value if sold today, a $50,000 book value, and 
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Unformatted text preview: is being depreciated straight line to a zero book value over the next two years. If Beckingham Beads doesn’t expand overseas, this old machine will do an adequate job for 5 more years and then could be sold for $25,000. The new, higher-capacity machine will cost $750,000. Additionally, Beckingham Beads will pay a sales tax of 7.5% and delivery and installation fee of $44,000. The new machine will be depreciated on a straight-line basis over 5 years to its estimated salvage value of $75,000. If sales increase, Beckingham Beads will need to invest $28,000 in working capital which will be fully recovered at the end of the 5 year project. Beckingham Beads has a 15% cost of capital and a corporate tax rate of 32%....
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