Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Beta Company is considering the purchase of a new equipment to automate part of their manufacturing process. The old system can be sold for $55,000.

Beta Company is considering the purchase of a new equipment to automate part of their manufacturing process. The old system can be sold for $55,000. The new system will cost $4,500,000 and will last for 10 years. The new equipment will have a salvage value of 45,000 at the end of its useful life. The company's cost of capital is 14%. A working capital of $100,000 is necessary in the first year and another $150,000 is needed at the end of year 7 to run the new equipment. The investment in working capital will be recovered at the end of the useful life. The new equipment will increase production and sales by 15% annually. Unit selling price and variable cost per unit will remain unchanged.

Selling price per unit

$25

Variable cost per unit

$18

Units produced and sold (before investment in new equipment)

250,000

The annual cash savings associated with the system are as follows:

Decreased waste

$150,000

Increased quality

200,000

Decrease in operating costs

125,000

Increase in on-time deliveries

25,000

Required:

a.Calculate the NPV for the new equipment.

b.Should the company invest in this new equipment based on the NPV analysis? Explain.

c.Calculate the payback period for the new equipment.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Survey Of Accounting

Authors: Carl S. Warren, Amanda Farmer

9th Edition

0357132599, 978-0357132593

More Books

Students also viewed these Accounting questions

Question

Please implement bonberman Game using JAVA FX library.

Answered: 1 week ago

Question

3. Im trying to point out what we need to do to make this happen

Answered: 1 week ago

Question

1. I try to create an image of the message

Answered: 1 week ago