A)

What is the Year 3 cash flow if Brisbane keeps using its current system?

B)

What is the Year 3 cash flow if Brisbane replaces its current system?

C)

Assuming a discount rate of 6%, what is the net present value if Brisbane keeps using its current system?

D)

Assuming a discount rate of 6%, what is the net present value if Brisbane replaces its current system?

Questions 1 & 2 ask for cash flows only, no present values. They are a critical part of the problem, but since the problem is primarily about capital budgeting, they are not worth any points, and you have unlimited tries. Questions 3 & 4 require that you use the correct cash flows from 1 and 2 to determine the net present values of the two alternatives. You should use the present value tables in the Coursepack. The Brisbane Manufacturing Company produces a single model of a CD player. Each player is sold for $208 with a resulting contribution margin of $77. Brisbane's management is considering a change in its quality control system. Currently, Brisbane spends $41,500 a year to inspect the CD players. An average of 1,800 units turn out to be defective - 1,260 of them are detected in the inspection process and are repaired for $85. If a defective CD player is not identified in the inspection process, the customer who receives it is given a full refund of the purchase price. The proposed quality control system involves the purchase of an X-ray machine for $200,000. The machine would last for five years and would have salvage value at that time of $20,000. Brisbane would also spend $430,000 immediately to train workers to better detect and repair defective units. Annual inspection costs would increase by $21,000. This new control system would reduce the number of defective units to 360 per year. 310 of these defective units would be detected and repaired at a cost of $45 per unit. Customers who still received defective players would be given a refund equal to 120% of the purchase price. Questions 1 & 2 ask for cash flows only, no present values. They are a critical part of the problem, but since the problem is primarily about capital budgeting, they are not worth any points, and you have unlimited tries. Questions 3 & 4 require that you use the correct cash flows from 1 and 2 to determine the net present values of the two alternatives. You should use the present value tables in the Coursepack. The Brisbane Manufacturing Company produces a single model of a CD player. Each player is sold for $208 with a resulting contribution margin of $77. Brisbane's management is considering a change in its quality control system. Currently, Brisbane spends $41,500 a year to inspect the CD players. An average of 1,800 units turn out to be defective - 1,260 of them are detected in the inspection process and are repaired for $85. If a defective CD player is not identified in the inspection process, the customer who receives it is given a full refund of the purchase price. The proposed quality control system involves the purchase of an X-ray machine for $200,000. The machine would last for five years and would have salvage value at that time of $20,000. Brisbane would also spend $430,000 immediately to train workers to better detect and repair defective units. Annual inspection costs would increase by $21,000. This new control system would reduce the number of defective units to 360 per year. 310 of these defective units would be detected and repaired at a cost of $45 per unit. Customers who still received defective players would be given a refund equal to 120% of the purchase price