3) What is the incremental after-tax net income for the business line associated with new component in 2012?

Sven's Component Sven Nys is a divisional manager of Vandelay Industries. Sven is considering introducing a new business to the existing product line. Introducing the new component would require the purchase of new equipment. The equipment would cost $170,000, last for 2 years, and have zero salvage value at the end of the two years. The new product will also require hiring a new employee at an annual wage of $30,000/year. This employee manufactures the new component. Sven estimates that other fixed overhead associated with the new component will be $95,000 a year. The new component consumes $20/unit of direct materials. The production volume, sales, and marketing costs for this new component in each of the two years that the new component would be produced are as follows: Year 2012 2013 Production (units) 1,800 1,700 Sales (units) 1,200 2,300 Selling Price/u $150 $150 Marketing Cost $10,000 $10,000 Vandelay Industries uses full absorption costing for both financial reporting and tax purposes. Fixed overhead is allocated on the basis of units produced. Vandelay Industries uses straight-line depreciation for all production machinery. Vandelay Industries uses the LIFO (last in, first out) inventory method. Vandelay Industries uses a 12% discount rate for all net present value calculations and faces a tax rate of 30%. The company must pay for the machine in cash upon delivery. For purposes of the analysis, assume that all other expenses associated with producing the new component will be paid in cash at the end of the year in which they occur. Also, assume that all sales of the new component will be received in cash at the end of the year in which they occur. Assume that all units produced in the year are complete and the ending balance of WIP (work-in-process) is O. Sven's compensation is a base salary (regardless of whether the firm takes the project) plus a bonus of 10% of after-tax net income, which is paid in cash at the end of the year. Ignore the bonus when calculating the after-tax net income below