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Comprehensive Capital Budgeting Problem [LO 2,6]




Comprehensive Capital Budgeting Problem [LO 2,6];Van Doren Corporation is considering producing a new product, Autodial. Marketing data indicate that the company will be able to sell 55,000 units per year at $30. The product will be produced in a section of an existing factory that is currently not in use.;To produce Autodial, Van Doren must buy a machine that costs $600,000. The machine has an expected life of 7 years and will have an ending residual value of $20,000. Van Doren will depreciate the machine over 7 years using the straight-line method for both tax and financial reporting purposes.;In addition to the cost of the machine, the company will incur incremental manufacturing costs of $440,000 for component parts, $484,000 for direct labor, and $247,500 of miscellaneous costs. Also, the company plans to spend $150,000 annually to advertise Autodial. Van Doren has a tax rate of 40 percent, and the company?s required rate of return is 15 percent.


Paper#34818 | Written in 18-Jul-2015

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