Bilingham Packaging is considering expanding its production capacity by purchasing a new machine, the 6 C-750. The cost of the XC-750 is $2.85 million. Unfortunately, instaling this machine will take several months and wal partially disupt production. The firm has just completed a $48,000 feasiblity study to analyze the decision to buy the XC-750, resulting in the following estimates. - Morkethg: Once the XC-750 is operational next year, the extra capacity is expected to gonerate $10.20 million per year in addeional salet, which will continue for the 10 -year ife of the machine. - Openations: The disruption caused by the installation wit decrease sales by $5.02 millon this year. As with Balingham's existing products, the cost of gocds for the products produced ty the XC-750 is expected to be 68% of their sale price. The increased production will also require increased inventory on hand of $1.16 milion during the lfe of the project, including year 0 - Human Resources: The expansion will requite addicnal sales and adiministrative persconnel at a cost of $2.09 milion per year. - Accounting: The XC-750 will be depreciated via the straight-line method over the 10-year lffe of the machine. The firm expects receivables trom the new sales to be 10% of reverines and payabies to be 10% of the cost of goods sold. Blingham's marginal corpotate tax mate is 21%. a. Determine the incremental earrings from the purchase of the XC-750. b. Determine the tree cash flow from the purchase of the XC-750. c. If the appropriate cost of capital for the expantion is 10.3%, compute the NPV of the purchase d. While the expected new sales will be $10.20 milion per year from the expansion, estimates range from $8.15 mition to 512.25 million. What is the NPV in the worst case? in the best case? a. Dotermine the incremental earnings from the purchase of the C750. Calculate the incremental earnings from the purchase of the XC-750 below (wen ve. werout XCr7s0) (Round to the nearest dollar) Bilingham Packaging is considering expanding its production capacity by purchasing a new machine, the 6 C-750. The cost of the XC-750 is $2.85 million. Unfortunately, instaling this machine will take several months and wal partially disupt production. The firm has just completed a $48,000 feasiblity study to analyze the decision to buy the XC-750, resulting in the following estimates. - Morkethg: Once the XC-750 is operational next year, the extra capacity is expected to gonerate $10.20 million per year in addeional salet, which will continue for the 10 -year ife of the machine. - Openations: The disruption caused by the installation wit decrease sales by $5.02 millon this year. As with Balingham's existing products, the cost of gocds for the products produced ty the XC-750 is expected to be 68% of their sale price. The increased production will also require increased inventory on hand of $1.16 milion during the lfe of the project, including year 0 - Human Resources: The expansion will requite addicnal sales and adiministrative persconnel at a cost of $2.09 milion per year. - Accounting: The XC-750 will be depreciated via the straight-line method over the 10-year lffe of the machine. The firm expects receivables trom the new sales to be 10% of reverines and payabies to be 10% of the cost of goods sold. Blingham's marginal corpotate tax mate is 21%. a. Determine the incremental earrings from the purchase of the XC-750. b. Determine the tree cash flow from the purchase of the XC-750. c. If the appropriate cost of capital for the expantion is 10.3%, compute the NPV of the purchase d. While the expected new sales will be $10.20 milion per year from the expansion, estimates range from $8.15 mition to 512.25 million. What is the NPV in the worst case? in the best case? a. Dotermine the incremental earnings from the purchase of the C750. Calculate the incremental earnings from the purchase of the XC-750 below (wen ve. werout XCr7s0) (Round to the nearest dollar)
