1) Billingham Packaging is considering expanding its production capacity by purchasing a new? machine, the? XC-750. The cost of the XC-750 is $ 2.75million. Unfortunately, installing this machine will take several months and will partially disrupt production. The firm has just completed a $47,000 feasibility study to analyze the decision to buy the XC-750, resulting in the following estimates:

Marketing: Once the XC-750 is operational next year, the extra capacity is expected to generate $10.00 million per year in additional sales, which will continue for the? 10-year life of the machine.

Operations: The disruption caused by the installation will decrease sales by $5.01 million this year. As with Billingham's existing products, the cost of goods for the products produced by the XC-750 is expected to be 74% of their sale price. The increased production will also require increased inventory on hand of $1.16 million during the life of the project, including year 0.

Human Resources: The expansion will require additional sales and administrative personnel at a cost of $2.05 million per year.

Accounting: The XC-750 will be depreciated via the straight-line method over the 10-year life of the machine. The firm expects receivables from the new sales to be 15% of revenues and payables to be 10% of the cost of goods sold.Billingham's marginal corporate tax rate is 35%. Billingham could instead purchase the XC-900, which offers even greater capacity. The cost of the XC-900 is $4.07 million. The extra capacity would not be useful in the first two years of operation, but would allow for additional sales in years 3-10. What kind of real option does the XC-900 machine provide to Billingham?

What kind of real option does the? XC-900 machine provide to? Billingham

a. If it would be beneficial to expand production, Billingham will increase production with the XC-900.

b.The expansion will require additional sales and administrative personnel.

c.The XC-900 allows Billingham the option to expand production starting in year 3.

d.If it would be better if production remains the same, Billingham is under no obligation to utilize all of the XC-900 production capacity.

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2) Billingham Packaging is considering expanding its production capacity by purchasing a new machine, the XC-750. The cost of the XC-750 is $2.75 million. Unfortunately, installing this machine will take several months and will partially disrupt production. The firm has just completed a $50,000 feasibility study to analyze the decision to buy the XC-750, resulting in the following estimates:

Marketing: Once the XC-750 is operational next year, the extra capacity is expected to generate $10.00 million per year in additional sales, which will continue for the 10-year life of the machine.

Operations: The disruption caused by the installation will decrease sales by $5.00 million this year. As with Billingham's existing products, the cost of goods for the products produced by the XC-750 is expected to be 70% of their sale price. The increased production will also require increased inventory on hand of $1.00 million during the life of the project, including year 0.

Human Resources: The expansion will require additional sales and administrative personnel at a cost of $2.00 million per year.

Accounting: The? XC-750 will be depreciated via the straight-line method over the 10-year life of the machine. The firm expects receivables from the new sales to be 15% of revenues and payables to be 10% of the cost of goods sold.Billingham's marginal corporate tax rate is 35%. Billingham could instead purchase the XC-900, which offers even greater capacity. The cost of the XC-900 is $4.00 million. The extra capacity would not be useful in the first two years of operation, but would allow for additional sales in years 3-10. What level of additional sales (above the $10.00million expected for the? XC-750) per year in those years would justify purchasing the larger machine?

What kind of real option does the? XC-900 machine provide to? Billingham?

a.The expansion will require additional sales and administrative personnel.

b.If it would be beneficial to expand production, Billingham will increase production with the XC-900.

c,If it would be better if production remains the same, Billingham is under no obligation to utilize all of the XC-900 production capacity.

d.The XC-900 allows Billingham the option to expand production starting in year 3.

P 9-36 (book/static) Question Help Billingham Packaging is considering expanding its production capacity by purchasing a new machine, the XC-750. The cost of the XC-750 is S2.75 million. Unfortunately, installing this machine will take several months and will partally disrupt production. The firm has just comipleled a 350,000 easibilily sluty to analyze the decisio lo buy Unc XC-750, resulting in the folkwi etirnales Mavketing Once the X-5 is operational next year, theextra capacity is expected to generate $10 million per year in addit onal sales, which will rontinue for the 1-year lite ctne machine price. The owat r . The disruption caused by hB Islalla un will decrease sales by $5 00 million this year. As with Billing" rn's exislin produc s lhe c sl of goods o' he pc ducis po duced y lhe XC 750 is expec d lo b? 70% o he r sa increased production will also require increased inventory on hand of S1.00 million during the life of the project, including year 0 HUNTar Resources. The expansion wileqire addiional saes and adrinistrative persoriiel at a coslo2.00 million per yar cooun ng: The XC 750 will be depreciated V1? the straight line method over the 10 year life o the macnne. The firm expects receivables rom the new sales to be 15% of revenues and payables o be 10% o the cost of goods sold. Billingham s marginal corporate tax rate is 35% Billingh?m could instead purchase the XC 900 which offers even greater capacity. The cost o the C 900 is $4.00 m on. The extra capac y would not be useful in he irst two years o opere on, but would alow or Edditiona sales in years 3 10 What eve of addi tional sales (above the 310.00 million experted for the XC-750) per yar in those years would justify purchasing the larger machine? a. What kind of real option doos the XC-900 machinc provdc to Billingham? b. It Hillingham knows that it can sell the XC-rb to snother trm tor$X million in two years, whst kind ot real ption would that provide? a. Whal kind of real olon does the XC-900 macie provide lo Billingharn? Select al he choices thal applv.j A. The expansion will require additional sales and admin strative personnel B. The XC 900 allows Billingham the option to expend production starting in year 3. C. ? D 11 it would be benefical to expand production, Billingham will increase production with the XC-00D 11 it would be bener it production remains the same Billingham s under no obi ation to utilize all of the XC-9 D production capacity P 9-36 (book/static) Question Help Billingham Packaging is considering expanding its production capacity by purchasing a new machine, the XC-750. The cost of the XC-750 is S2.75 million. Unfortunately, installing this machine will take several months and will partally disrupt production. The firm has just comipleled a 350,000 easibilily sluty to analyze the decisio lo buy Unc XC-750, resulting in the folkwi etirnales Mavketing Once the X-5 is operational next year, theextra capacity is expected to generate $10 million per year in addit onal sales, which will rontinue for the 1-year lite ctne machine price. The owat r . The disruption caused by hB Islalla un will decrease sales by $5 00 million this year. As with Billing" rn's exislin produc s lhe c sl of goods o' he pc ducis po duced y lhe XC 750 is expec d lo b? 70% o he r sa increased production will also require increased inventory on hand of S1.00 million during the life of the project, including year 0 HUNTar Resources. The expansion wileqire addiional saes and adrinistrative persoriiel at a coslo2.00 million per yar cooun ng: The XC 750 will be depreciated V1? the straight line method over the 10 year life o the macnne. The firm expects receivables rom the new sales to be 15% of revenues and payables o be 10% o the cost of goods sold. Billingham s marginal corporate tax rate is 35% Billingh?m could instead purchase the XC 900 which offers even greater capacity. The cost o the C 900 is $4.00 m on. The extra capac y would not be useful in he irst two years o opere on, but would alow or Edditiona sales in years 3 10 What eve of addi tional sales (above the 310.00 million experted for the XC-750) per yar in those years would justify purchasing the larger machine? a. What kind of real option doos the XC-900 machinc provdc to Billingham? b. It Hillingham knows that it can sell the XC-rb to snother trm tor$X million in two years, whst kind ot real ption would that provide? a. Whal kind of real olon does the XC-900 macie provide lo Billingharn? Select al he choices thal applv.j A. The expansion will require additional sales and admin strative personnel B. The XC 900 allows Billingham the option to expend production starting in year 3. C. ? D 11 it would be benefical to expand production, Billingham will increase production with the XC-00D 11 it would be bener it production remains the same Billingham s under no obi ation to utilize all of the XC-9 D production capacity