Question

1 Approved Answer

Posted on Sep 02, 2024

1. Windsor Co. is a global manufacturer of printing and imaging equipment. It is now considering the purchase and installation of new automated machinery to

1. Windsor Co. is a global manufacturer of printing and imaging equipment. It is now considering the purchase and installation of new automated machinery to recycle and remanufacture toner- and printer cartridges. The company's current recycling process consists of a sequence of operations carried out almost entirely by hand, with the help of hand tools and a simple machine. The investment proposal calls for replacing this process with new automated machinery that costs an estimated 3.5 million dollars fully installed. The new equipment could process the company's projected volume using fewer employees, resulting in savings of both direct labor and training costs. It also would require only minimal maintenance expenditures compared to the equipment it replaces, and no significant change in working capital. The following table compares projected operating data for the existing recycling process and the proposed automated process, assuming an inflation of 7% per year. The new equipment would have a useful life of 10 years and would be depreciated under the straight-line method for both tax and financial reporting purposes. Salvage value is likely to equal disposal costs at the end of the useful life. The manual equipment being replaced would last many more years. Currently, it has a book value of 250,000 dollars, and three years of straight-line depreciation remaining. However, its market value is thought to be at about 175,000 dollars. The firm's tax rate is 35%. wan untur Damra la arial) Vatt Yarn Orang MP Yeard Years Ver Yeart * 140 M 05 ta al LI L2 T26 1544 17 1947 DSCN 2011 11 2017 3. ROOT 23242 111 M Then 18 3234 1190 11 1971 26781 147 21 101N 2001 13 Other th 00 12 7311 138,10 91601 91 14, 14 1141 LIM LOOM 11 16 1.11 LIM EN LI 1.1. DES LES 1012 1.10 1 310 11 LAR 1 13 TR To 1) Calculate the free cash flows each year associated with this proposed investment 2) If the discount rate is 12%, should the company go ahead with the proposal? 3) If the discount rate is 25%, is the proposal still acceptable? Why or why not? equal disposal costs at en u w USA. The mana vyums p LE last many more years. Currently, it has a book value of 250,000 dollars, and three years of straight-line depreciation remaining. However, its market value is thought to be at about 175,000 dollars. The firm's tax rate is 35%. o Comparison of Projected Operating Data for Diert Recycling Processes (thousands of dollars, unless noted) Year1 Year 2 Year 3 Year 4 Years Year 6 Year 7 Year 8 Year Year 10 Projected Operating Costs Masual Proces the volume (0) 886 546 600 0 660 60 660 660 RO Materials Dirut Labor Ovalad 564.816 1.115,181 1.680,000 661,788 1312.572 1.797.600 782,4% 1.51997 1.921.432 920.951 181R 303 2068072 985,417 1.915,677 212137 1.050.3% 2.081,821 216287 1.128,204 2.227519 2.821.227 1.227,178 2,383,677 2.697.713 1,191,681 2590321 2.886,58 1180.00 2,728,80 1088611 Materials Direct about 1.1387 2.3181 L2185 2.8057 1 2017 28741 13950 2750 14927 29171 1.5971 31534 1.2009 33702 1.8286 36101 1.9566 3.8631 20235 CIUS Projected Operating Costs, New Automatic Equipment Unit comem) 1986 546 600 660 660 660 660 60 660 Malah Dolabor Ovabad 502.223 524136 1.566211 638.197 616,909 1.675.816 751,158 726101 1.798.15 880113 851,621 1918,676 916,001 914.455 2052.983 1,012.221 978,4% 2.196,692 1,081,076 1,046918 2.350.400 1,158,891 1.120234 2.514993 L2 1.19865 2,691,00 1.126819 1,282.556 2,879,15 Mount Direct labout 1.0932 1.0567 11697 L1307 1.2516 1.2018 13392 12915 1.4330 1.3852 1873 15233 11821 16106 1.5899 L7554 1.6969 2.00% 1907 L8157 1. Windsor Co. is a global manufacturer of printing and imaging equipment. It is now considering the purchase and installation of new automated machinery to recycle and remanufacture toner- and printer cartridges. The company's current recycling process consists of a sequence of operations carried out almost entirely by hand, with the help of hand tools and a simple machine. The investment proposal calls for replacing this process with new automated machinery that costs an estimated 3.5 million dollars fully installed. The new equipment could process the company's projected volume using fewer employees, resulting in savings of both direct labor and training costs. It also would require only minimal maintenance expenditures compared to the equipment it replaces, and no significant change in working capital. The following table compares projected operating data for the existing recycling process and the proposed automated process, assuming an inflation of 7% per year. The new equipment would have a useful life of 10 years and would be depreciated under the straight-line method for both tax and financial reporting purposes. Salvage value is likely to equal disposal costs at the end of the useful life. The manual equipment being replaced would last many more years. Currently, it has a book value of 250,000 dollars, and three years of straight-line depreciation remaining. However, its market value is thought to be at about 175,000 dollars. The firm's tax rate is 35%. wan untur Damra la arial) Vatt Yarn Orang MP Yeard Years Ver Yeart * 140 M 05 ta al LI L2 T26 1544 17 1947 DSCN 2011 11 2017 3. ROOT 23242 111 M Then 18 3234 1190 11 1971 26781 147 21 101N 2001 13 Other th 00 12 7311 138,10 91601 91 14, 14 1141 LIM LOOM 11 16 1.11 LIM EN LI 1.1. DES LES 1012 1.10 1 310 11 LAR 1 13 TR To 1) Calculate the free cash flows each year associated with this proposed investment 2) If the discount rate is 12%, should the company go ahead with the proposal? 3) If the discount rate is 25%, is the proposal still acceptable? Why or why not? equal disposal costs at en u w USA. The mana vyums p LE last many more years. Currently, it has a book value of 250,000 dollars, and three years of straight-line depreciation remaining. However, its market value is thought to be at about 175,000 dollars. The firm's tax rate is 35%. o Comparison of Projected Operating Data for Diert Recycling Processes (thousands of dollars, unless noted) Year1 Year 2 Year 3 Year 4 Years Year 6 Year 7 Year 8 Year Year 10 Projected Operating Costs Masual Proces the volume (0) 886 546 600 0 660 60 660 660 RO Materials Dirut Labor Ovalad 564.816 1.115,181 1.680,000 661,788 1312.572 1.797.600 782,4% 1.51997 1.921.432 920.951 181R 303 2068072 985,417 1.915,677 212137 1.050.3% 2.081,821 216287 1.128,204 2.227519 2.821.227 1.227,178 2,383,677 2.697.713 1,191,681 2590321 2.886,58 1180.00 2,728,80 1088611 Materials Direct about 1.1387 2.3181 L2185 2.8057 1 2017 28741 13950 2750 14927 29171 1.5971 31534 1.2009 33702 1.8286 36101 1.9566 3.8631 20235 CIUS Projected Operating Costs, New Automatic Equipment Unit comem) 1986 546 600 660 660 660 660 60 660 Malah Dolabor Ovabad 502.223 524136 1.566211 638.197 616,909 1.675.816 751,158 726101 1.798.15 880113 851,621 1918,676 916,001 914.455 2052.983 1,012.221 978,4% 2.196,692 1,081,076 1,046918 2.350.400 1,158,891 1.120234 2.514993 L2 1.19865 2,691,00 1.126819 1,282.556 2,879,15 Mount Direct labout 1.0932 1.0567 11697 L1307 1.2516 1.2018 13392 12915 1.4330 1.3852 1873 15233 11821 16106 1.5899 L7554 1.6969 2.00% 1907 L8157