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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

/in /by
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 years5
Disposal value in 5 years$40,000
Life production—number of cans5,000,000
Annual production or purchase needs1,000,000
Initial training costs0
Number of workers needed3
Annual hours to be worked per employee2,300
Earnings per hour for employees$8.50
Annual health benefits per employee$1,500
Other annual benefits per employee—% of wages18%
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 return10%
Tax rate35%
MakePurchase
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:
Wages58,650
Health benefits4,500
Other benefits10,557
    Total wages and benefits73,707
Other variable production costs100,000
Total annual production costs$373,707
Annual cost to purchase cans$500,000
Part 1 Cash Flows Over the Life of the Project
Before TaxTaxAfter Tax
ItemAmountEffectAmount
Annual cash savings$126,2930.65$82,090
Tax savings due to depreciation32,0000.35$11,200
Total after-tax annual cash flow$93,290
Part 2 Payback Period
$200,000 / $93290 = 2.14years
Part 3 Simple Rate of Return
Accounting income as result of decreased costs
Annual cash savings$126,293
Less depreciation32,000
Before tax income94,293
Tax at 35% rate33,003
After tax income$61,290
$61,290 / $200,000 = 30.65%
Part 4 Net Present Value
Before TaxAfter Tax10% PVPresent
ItemYearAmountTax %AmountFactorValue
Cost of machine0-$200,000-$200,0001.000-$200,000
Cost of training0001.0000
Annual cash savings1-5$126,2930.65         82,090 3.791311,205
Tax savings due to depreciation1-5$32,0000.35         11,200 3.79142,459
Disposal value5$40,00040,0000.62124,840
Net Present Value$178,504
Part 5 Internal Rate of Return
    
Excel function method to calculate IRR
This function requires that you have only one cash flow per period (Period 0 through Period 5, for our example).
This means that no annuity figures can be used. The chart for our example can be revised as follows.
After Tax
ItemYearAmount
Cost of machine and training0 $  (200,000)
Year 1 inflow1 $    93,290
Year 2 inflow2 $    93,290
Year 3 inflow3 $    93,290
Year 4 inflow4 $    93,290
Year 5 inflow5 $   133,290
The IRR function will require the range of cash flows, beginning with the initial cash outflow for the investment
and progressing through each year of the project. You also have to include an initial guess for the
possible IRR. The formula is:  =IRR(values,guess)
IRR FunctionIRR(f84..f89,.30)39.2%
 
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