Requirement: As a team, you are to deliver a presentation to the


Question Description:

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See attached file. Open to price and time suggestion. homerwork cost.doc Requirement: As a team, you are to deliver a presentation to the board of directors (the class). The Board of Directors of Manufacturing International has asked your team to evaluate 4 projects and make a recommendation as to which project or projects you recommend pursuing and why. The production volume (1,000,000 units at full capacity) has been running at about 85% capacity and sales are expected to increase about 100,000 units in the upcoming year. Future years are expected to have increased sales volumes of 5%. In an effort to increase capacity, four projects have been considered. In total, the Board of Directors will only authorize a total of $250,000 to be spent on capital expenditures for projects during the year. The Board of Directors will expect to see that your work is well supported with documentation that utilizes all of the capital budgeting tools available. Your job, to sell the Board of Directors on the best project(s) to undertake and why. Project 1: Management is considering purchasing a Model 4555 Green Mean Robot for $50,000 that would have a useful life of 8 years and $5,000 salvage value. For tax purposes, the entire original cost of the asset would be depreciated over 8 years using the straight-line method. The asset would generate annual Earnings before tax of $30,000 throughout its useful life. The project would require immediate additional working capital of $5,000, which would be released at the end of the project. The company’s tax rate is 40% and its discount rate is 12%. All existing equipment would remain in full use. This unit would increase capacity about 40,000 units per year. Project 2: Management is considering purchasing a Model 8999 Super Deluxe Rad Robot for $115,000 that would have a useful life of 10 years and a $5,000 salvage value. For tax purposes, the entire original cost of the asset would be depreciated over 10 years using the straight-line method. The asset would generate annual earnings before tax of $45,000 throughout its useful life. The project would require additional working capital of $12,000, which would be released at the end of the project. The company’s tax rate is 40% and its discount rate is 12%. All existing equipment would remain in full use. This unit would increase capacity about 70,000 units per year. Project 3: Management is considering purchasing a Model 10,000 Ultimate Silver Streak Robot, for $170,000 that would have a useful life of 12 years and a $10,000 salvage value. For tax purposes, the entire original cost of the asset would be depreciated over 12 years using the straight-line method. The asset would generate annual earnings before tax of $70,000 throughout its useful life. The project would require additional working capital of $22,000, which would be released at the end of the project. The company’s tax rate is 40% and its discount rate is 12%. All existing equipment would remain in full use. This unit would increase capacity about 125,000 units per year. Project 4: Management is considering upgrading/repairing some of the existing equipment. The cost to repair is $25,000. Increased income would be $19,500 per year as a result of less wasted material and lower maintenance costs. The equipment is expected to last 8 more years with the upgrades. The salvage value on the equipment upgrade would only increase by $1,000. For tax purposes, the entire upgrade cost of the asset would be depreciated over 8 years using the straight-line method. The upgrade would require immediate additional working capital of $3,000, which would be released at the end of the life of the asset. The company’s tax rate is 40% and its discount rate is 12%. This upgrade/repair would increase capacity about 10,000 units per year. Read more

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