Question
Following are some managerial accounting questions, please help me with these questions. Thank you so much. 1.a) X Corp. is pondering a factory overhaul that
Following are some managerial accounting questions, please help me with these questions. Thank you so much.
1.a) X Corp. is pondering a factory overhaul that will cost $729,956 this year(2021) and disrupt production while the overhaul is occuring. This disruption will cost the firm $407,113 in contribution margin this year. Starting in 2022, X will benefit from the overhaul by seeing its variable cost per unit fall by %21. Annual fixed costs will increase for maintenance ($100,000 the first year increasing by $50,000 each year thereafter, so 150,000 in the 2nd year, etc.) and $146,971 for depreciation(same every year).
Absent an overhaul, the factory produces 2 million units per year at variance cost of $3 per unit, fixed cost of $2.5 million, with the output sold for $5 per unit. After an overhaul, the company would intend to cut the price to $4.60 per unit, enabling the firm to produce and sell 2.3 million units annually. The factory is old and expected to be shut down at the end of 2025. Regardless of the overhaul decision. The factory would then be sold to another firm. Without an overhaul, the sale price for the factory would be $2 million. With an overhaul, the sale price for the factory would be $2.3 million.
Calculate the appropriate amount to include in an NPV calculation for 2021. (Note the present value, but the amount that would be present valued.) in other words, exclude any effects for other years.
Give the answer as a number of $million (round to 3 significant digits). So e.g., 6,444,265 should be written as 6.44
b) calculate the appropriate amount to include in an NPV calculation for 2022. (note the present value, but the amount that would be present valued.) Give the answer as a number of $million (round to 3 significant digits).
c) calculate the appropriate amount to include in an NPV calculation for 2025. (note the present value, but the amount that would be present valued.) Give the answer as a number of $million (round to 3 significant digits). Note that we are skipping two years.
d) notwithstanding the answers given above, assume the annual amounts were as follows (including the two years you didn't calculate):
2021: -1.17million
2022: 0.5million
2023: 0.55 million
2024: 0.55 million
2025: 0.63 million
Assume the cost of capital is 0.17. Calculate the NPV of the overhaul. Report it as a number of $ million (3 significant digits)
e) Using the numbers provided in the previous question, calculate the NPVI for the overhaul. (3 significant digits).
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