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BGA Task 3




Company A has developed a newly patented product?a corner fan with two blades that will fully circulate air in an L-shaped room. To bring the product to market, Company A;will need to purchase a new production machine at a cost of $360,000. The new machine will be depreciated using the double declining balance method;using a six-year life for three years, and then the method will be changed to straight line for the remaining three years;Expected weekly sales volume: 200 units;Selling price: $86;Incremental direct material costs per unit: $42;Incremental direct labor cost per unit: $16;Incremental manufacturing overhead allocation per unit: $12.50;Incremental annual selling and administration expenses: $60,000;Cost of capital: 15%;Corporate marginal tax rate: 25%;Company A expects a salvage value of $30,000 for this machine at the end of six years. An additional $40,000 in working capital will be required to support the operation of the machine due to the additional raw material inventory needed.;Task;A. Using the attached ?New Investment Analysis Template? and the information provided in the given, calculate the following;1. Payback period;2. Net present value (NPV);3. Internal rate of return (IRR);4. Profitability index (using NPV in the calculation);B. After you have completed your calculations, write responses to the prompts (1?2 paragraphs per prompt) using the Form.;? Click the Complete Form button that appears in the bar below this task.;? Answer the questions in the form. If you need additional space, include a Word attachment with your response.;Student Template for BGA1 - 308 1 8-01-04 06-11 (Capital investment task);Projected Income Statement for New Product;Year 1 Year 2 Year 3 Year 4 Year 5 Year 6;Expected Annual Sales of New Product 894400 894400 894400;360000 106667;Expected Costs of New Product;Direct materials 436800 438000 436800;Direct labor 166400 166857 166400;Overhead 130000 130357 130000;Depreciation on new asset 120000 80000 53333 25556 25556 25556;Selling and administrative expenses 60000 60000 60000;Income before taxes -18800 73630 75644;Income tax at 25% marginal rate -4700 18408 18911;Net income -14100 55223 56733;Net cash flow 79630;Check figures are provided for this table so that you don't have to unecessarily redo your work beyond this point.;Do not work beyond this point unless all of your numbers agree with the corresponding check figures.;Although you will not use these totals in working this task, the following are provided as check figures;The sum of net cash flow for the first three years is $291,033, ******Your total cash flow is 0;for the last three years it is $246,867************************************Your total cash flow is 79,630;Because the discount factors are different, net cash flow in the above table must be accurate for each year.;If you cannot figure out how to get your numbers to match the check figures by using the suggested learning resources;you should contact your mentor or progress manager.;Payback Period: Running;(add rows as necessary Cash Flows Balance;to show your calculations) Investment ----------------- 40000;Year 1;Year 2;Year 3;Year 4 Use the above box to identify the payback;Year 5 point in years, months.;Year 6;;Net Present Value: Present;Cash Flows PV Factors Value;Year 1;Year 2;Year 3;Year 4;Year 5;Year 6;Working Capital Return;Salvage Return;Total Present Value;Investment;Net Present Value;Internal Rate of Return;Cash Flows;Investment;Year 1;Year 2


Paper#79476 | Written in 18-Jul-2015

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