Help fast please!!
0 Billingham Packaging is considering expanding its production capacity by purchasing a new machine, the XC-750. The cost of the XC-750 is $2.76 million. Unfortunately, installing this machine will take several months and will partially disrupt production. The firm has just completed a $48,000 feasibility study to analyze the decision to buy the XC-750, resulting in the following estimates: Marketing: Once the XC-750 is operational next year, the extra capacity is expected to generate $10.20 million per year in additional sales, which will continue for the 10-year life of the machine. Operations: The disruption caused by the installation will decrease sales by $4.98 million this year. As with Billingham's existing products, the cost of goods for the products produced by the XC-750 is expected to be 68% of their sale price. The increased production will also require increased inventory on hand of $1.14 million during the life of the project, including year 0. Human Resources: The expansion will require additional sales and administrative personnel at a cost of $2.01 million per year. Accounting: The XC-750 will be depreciated via the straight-line method over the 10-year life of the machine. The firm expects receivables from the new sales to be 14% of revenues and payables to be 11% of the cost of goods sold. Billingham's marginal corporate tax rate is 35%. Billingham could instead purchase the XC-900, which offers even greater capacity. The cost of the XC-900 is $4.02 million. The extra capacity would not be useful in the first two years of operation, but would allow for additional sales in years 3-10. a. What kind of real option does the XC-900 machine provide to Billingham? b. If Billingham knows that it can sell the XC-750 to another firm for $2.06 million in two years, what kind of real option would that provide? a. What kind of real option does the XC-900 machine provide to Billingham? (Select all the choices that apply.) A. If it would be beneficial to expand production, Billingham will increase production with the XC-900. B. If it would be better if production remains the same, Billingham is under no obligation to utilize all of the XC-900 production capacity. C. The expansion will require additional sales and administrative personnel. D. The XC-900 allows Billingham the option to expand production starting in year 3. 0 Billingham Packaging is considering expanding its production capacity by purchasing a new machine, the XC-750. The cost of the XC-750 is $2.76 million. Unfortunately, installing this machine will take several months and will partially disrupt production. The firm has just completed a $48,000 feasibility study to analyze the decision to buy the XC-750, resulting in the following estimates: Marketing: Once the XC-750 is operational next year, the extra capacity is expected to generate $10.20 million per year in additional sales, which will continue for the 10-year life of the machine. Operations: The disruption caused by the installation will decrease sales by $4.98 million this year. As with Billingham's existing products, the cost of goods for the products produced by the XC-750 is expected to be 68% of their sale price. The increased production will also require increased inventory on hand of $1.14 million during the life of the project, including year 0. Human Resources: The expansion will require additional sales and administrative personnel at a cost of $2.01 million per year. Accounting: The XC-750 will be depreciated via the straight-line method over the 10-year life of the machine. The firm expects receivables from the new sales to be 14% of revenues and payables to be 11% of the cost of goods sold. Billingham's marginal corporate tax rate is 35%. Billingham could instead purchase the XC-900, which offers even greater capacity. The cost of the XC-900 is $4.02 million. The extra capacity would not be useful in the first two years of operation, but would allow for additional sales in years 3-10. a. What kind of real option does the XC-900 machine provide to Billingham? b. If Billingham knows that it can sell the XC-750 to another firm for $2.06 million in two years, what kind of real option would that provide? a. What kind of real option does the XC-900 machine provide to Billingham? (Select all the choices that apply.) A. If it would be beneficial to expand production, Billingham will increase production with the XC-900. B. If it would be better if production remains the same, Billingham is under no obligation to utilize all of the XC-900 production capacity. C. The expansion will require additional sales and administrative personnel. D. The XC-900 allows Billingham the option to expand production starting in year 3
