Best writers. Best papers. Let professionals take care of your academic papers

Order a similar paper and get 15% discount on your first order with us
Use the following coupon "FIRST15"
ORDER NOW

CapitalBudgeting Decision Here is Project 2:

/in /by

CapitalBudgeting Decision<?xml:namespace prefix = o ns =

“urn:schemas-microsoft-com:office:office” />

Here is Project 2:

Company: The production department hasbeen investigating possible ways to trim total production costs. Onepossibility currently being examined is to make the cans instead of purchasingthem. 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 beneeded for each of the next 5 years.

The company would hire six newemployees. These six individuals would be full-time employees working 2,000hours per year and earning $15.00 per hour. They would also receive the samebenefits as other production employees, 15% of wages in addition to $2,000 ofhealth benefits.

It is estimated that the raw materialswill cost 30¢ per can and that other variable costs would be 10¢ per can. Becausethere is currently unused space in the factory, no additional fixed costs wouldbe 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 ofreturn (hurdle rate) has been determined to be 11% for all new projects, andthe current tax rate of 35% is anticipated to remain unchanged. The pricing forthe company’s products as well as number of units sold will not be affected bythis decision. The unit-of-production depreciation method would be used if thenew equipment is purchased.

Required:

1. Based on the above information andusing Excel, calculate thefollowing items for this proposed equipment purchase.

    • Annual cash flows over the expected life of the equipment
    • Payback period
    • Simple rate of return
    • Net present value
    • Internal rate of return

The check figure for the total annualafter-tax cash flows is $271,150.

 
Looking for a Similar Assignment? Order now and Get 10% Discount! Use Coupon Code "Newclient"