Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

DC is a computer chip manufacturer based in France. By 2024, it expects to to produce and ship 615 of these prototypes (chips) at an

image text in transcribed
image text in transcribed
DC is a computer chip manufacturer based in France. By 2024, it expects to to produce and ship 615 of these prototypes (chips) at an average price of $95,000. that it will increase annual production and sales by an additional 65 chips each year through 2030; that is, demand will be 615 in 2018,680 in 2025,745 in 2026, and so on. At the current physical plant, DC cannot produce more than 585 chips annually. Therefore, it is considering two alternatives to be able to meet future demand: 1) either upgrade the current manufacturing plant, 2) replace it with a new one. The equipment used in this production is fully depreciated but can be sold for $4,200,000 if the existing physical plant is replaced. On the other hand, if the on the other hand, if the physical plant is modernized, the costs of doing so can be capitalized and depreciated over the useful life of the modernized plant. the useful life of the modernized plant. The old equipment (that used in that operation) would be retained in the case of modemization in the case of modernization. The data related to the two alternatives are as follows: DC uses straight-line depreciation, with no residual value. Assume that there are no changes or fluctuations in prices in the future, and that the investment is made at the beginning of 2024, and the in the future, and that the investment is made at the beginning of 2024, and the other transactions at the end of each year. On the other hand, the required DC rate of return is 14%, there is no tax impact, and no working capital is required no working capital is required in any of the alternatives. Required 1- Calculate and demonstrate the annual cash flows (inflows and outflows) associated with this investment between 2024-2030. with this investment between 2024-2030. 2- Calculate and demonstrate the payback period for each of the alternatives. 3- Calculate and demonstrate the net present value in the case of each of the alternatives. 4- Explain which factors DC should take into consideration when evaluating the alternatives using the methods in 2) and 2). alternatives using the methods in 2) and 3). Assume the same data, but that, now, if the contributory effect is considered, and a rate of 35%. This rate also applies to the gain or loss on the sale of the equipment (when applicable). 5- Calculate and demonstrate what will be the annual cash flows (inflows and outflows) associated with this investment between 2024-2030 with this investment from 20242030 , in this case. 6- Calculate and demonstrate the net present value in the case of each of the alternatives in this case

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_2

Step: 3

blur-text-image_3

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

Financial Accounting

Authors: Walter B. Meigs, Robert F. Meigs, Mark Bettner, Ray Whittington

9th Edition

0070434360, 978-0070434363

More Books

Students also viewed these Accounting questions

Question

What role does communication play in developing personal identity?

Answered: 1 week ago