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Capital Budgeting Decision Here is Project 2: Hampton Company: The production department has been investigating possible ways to trim total...
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# Can you assist me with the attached accounting project?  I have class

tomorrow night and will ask questions if necessary to clarify requirement.  Need the solution completed by 3:00 PM EST Friday, Apr 15, 2016

Capital Budgeting Decision Here is Project 2: Hampton Company: The production department has been investigating possible ways to trim total production costs. One possibility currently being examined is to make the cans instead of purchasing them. The equipment needed would cost \$1,000,000, with a disposal value of \$200,000, and would be able to produce 27,500,000 cans over the life of the machinery. The production department estimates that approximately 5,500,000 cans would be needed for each of the next 5 years. The company would hire six new employees. These six individuals would be full-time employees working 2,000 hours per year and earning \$15.00 per hour. They would also receive the same benefits as other production employees, 15% of wages in addition to \$2,000 of health benefits. It is estimated that the raw materials will cost 30¢ per can and that other variable costs would be 10¢ per can. Because there is currently unused space in the factory, no additional fixed costs would be incurred if this proposal is accepted. It is expected that cans would cost 50¢ each if purchased from the current supplier. The company's minimum rate of return (hurdle rate) has been determined to be 11% for all new projects, and the current tax rate of 35% is anticipated to remain unchanged. The pricing for the company’s products as well as number of units sold will not be affected by this decision. The unit- of-production depreciation method would be used if the new equipment is purchased. Required: 1. Based on the above information and using Excel, calculate the following items for this proposed equipment purchase. o Annual cash flows over the expected life of the equipment o Payback period o Simple rate of return o Net present value o Internal rate of return The check figure for the total annual after-tax cash flows is \$271,150. 2. Would you recommend the acceptance of this proposal? Why or why not? Prepare a short, double-spaced paper in MS Word elaborating on and supporting your answer.
Johnnie & Sons Paints Inc. Capital Budgeting Decision SAMPLE PROJECT The production department has been investigating possible ways to trim total production costs. One possibility currently being examined is to make the paint cans instead of purchasing them. The equipment needed would cost \$200,000, with a disposal value of \$40,000, and would be able to produce 5,000,000 cans over the life of the machinery. The production department estimates that approximately 1,000,000 cans would be needed for each of the next 5 years. These three individuals would be full-time employees working 2,300 hours per year and earning \$8.50 per hour. They would also receive the same benefits as other production employees, 18% of wages in addition to \$1,500 of health benefits. It is estimated that the raw materials will cost 20¢ per can and that other variable costs would be 10¢ per can. Because there is currently unused space in the factory, no additional fixed costs would be incurred if this proposal is accepted. It is expected that cans would cost 50¢ each if purchased from the current supplier. The company's minimum rate of return (hurdle rate) has been determined to be 10% for all new projects, and the current tax rate of 35% is anticipated to remain unchanged. The pricing for a gallon of paint as well as number of units sold will not be affected by this decision. The unit-of- production depreciation method would be used if the new equipment is purchased. Based on the above information and using Excel, calculate the following items for this proposed equipment purchase: 1. Annual cash flows over the expected life of the equipment 2. Payback period 3. Simple rate of return 4. Net present value 5. Internal rate of return Would you recommend the acceptance of this proposal? Why or why not?
ACCT505 Project 2 Sample Capital Budgeting Problem Solution This file can be used as the template for the actual project. Johnnie & Sons Paints Inc. Data: Cost of new equipment \$200,000 Expected life of equipment in years 5 Disposal value in 5 years \$40,000 Life production—number of cans 5,000,000 Annual production or purchase needs 1,000,000 Initial training costs 0 Number of workers needed 3 Annual hours to be worked per employee 2,300 Earnings per hour for employees \$8.50 Annual health benefits per employee \$1,500 Other annual benefits per employee—% of wages 18% Cost of raw materials per can \$0.20 Other variable production costs per can \$0.10 Costs to purchase cans—per can \$0.50 Required rate of return 10% Tax rate 35% Make Purchase Cost to Produce Annual cost of direct material: Need of 1 million cans per year \$200,000 Annual cost of direct labor for new employees: Wages 58,650 Health benefits 4,500 Other benefits 10,557 Total wages and benefits 73,707 Other variable production costs 100,000
Total annual production costs \$373,707 Annual cost to purchase cans \$500,000
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