Question
Harker Company manufactures automobile components for the worldwide market. The company has three large production facilities in Virginia, New Jersey, and California, which have been
Harker Company manufactures automobile components for the worldwide market. The company has three large production facilities in Virginia, New Jersey, and California, which have been operating for many years. Brett Harker, vice president of production, believes it is time to upgrade operations by implementing computer-integrated manufacturing (CIM) at one of the plants. Brett has asked corporate controller Connie Carson to gather information about the costs and benefits of implementing CIM. Carson has gathered the following data:
| Initial equipment cost | $ | 6,000,000 | ||
| Working capital required at start-up | $ | 500,000 | ||
| Salvage value of existing equipment | $ | 75,000 | ||
| Annual operating cost savings | $ | 900,000 | ||
| Salvage value of new equipment at end of its useful life | $ | 100,000 | ||
| Working capital released at end of its useful life | $ | 500,000 | ||
| Useful life of equipment | 10 years |
Harker Company uses a 12% discount rate. The net present value Chesters is $(1,146,620) & internal rate of return is 7.64%. (c) Do you recommend that the company proceed with the purchase and implementation of CIM? Why or why not?
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Cost Accounting A Managerial Emphasis
Authors: Charles T. Horngren, George Foster, Srikant M. Datar, Madhav T. Rajan, Chris M. Ittner
13th Edition
0131355589, 978-0131355583
