Billingham Packaging is considering expanding its production capacity by purchasing a new machine, the XC-750. The cost of the XC-750 i 12.6 milion Unfortunately, installing this machine will take several months and will partially disrupt production. The firm has just completed a $50.000 feasibility study to analyze the decision to buy the XC-750, resulting in the following estimates: Marketing Once the XC-750 is operating next year, the extra capacity is expected to generate $10.1 milion per year in additional sales, which will continue for the ten-year ife of the machine Operations: The disruption caused by the installation wil decrease sales by $4.91 million this year. As with Blingham?s existing products, the cost of goods for the products produced by the XC 750 is expected to be 75% of their le price. The increased production will also require increased inventory on hand of $1.14 milion during the life of the project. The increased production will recure additional Inventory of $1.14 milion, to be added in your and depleted in year 10 Human Resources: The expansion will require additional sales and administrative personnel at a cost of $2.07 milion pet you Accounting. The XC-750 will be depreciated via the straight-line method in years 1780. Receivables are expected to be 14% of revenues and payable to be 9% of the cost of goods sold Bilingham's marginal corporate tax rate is 15% a. Determine the increment earnings 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 expansion is 10.1%, compute the NPV of the purchase d. While the expected new sales will be $10.1 milion per year from the expansion, estimates range from 105 milion to 512.15 milion What is the NPV in the worst case in the best case? .. What is the break even level of new sales from the expansion What is the break even level for the cost of goods sold? 1. Bingham could instead purchase the XC 900, which offers even greater capacity. The cost of the XC-600 94.07 mio. The extra capacity would not be useful in the first two years of operation, but would allow for additionale in yours 3-10. What level of addition to above 10.1 milion expected for the XC-750 per you in those years would july purchasing the larger machine? at es ng rit nk a. Determine the incremental carrings from the purchase of the XC-750 Calculate the incremental carrings from the purchase of the XC-750 below (Round to the nearest dolor incremental Earnings Year Sales Revenues $ Cost of Goods Sold 5 5, G. and A Expenses 5 Clear All Check Answer Help Me Solve This View an Example Get More Help a. Determine the incremental earnings from the purchase of the XC-750. Calculate the incremental earnings from the purchase of the XC-750 below: (Round to the nearest dollar.) Incremental Earnings Year $ Sales Revenues Cost of Goods Sold S, G, and A Expenses Depreciation EBIT Taxes at 15% Unlevered Not Income $
