Homework: Chapter 9 Homework Score: 0 of 1 pt P 9-33 (similar to) Sav 9 of 9 e complete) M HW Score: 66.67%, 6 of 9 i Question Help Billingham Packaging is considering expanding its production capacity by purchasing a new machine, the XC 750 The cost of the XC-750 is $2.83 million Unfortunately, installing this machine will take several months and will partially disrupt production. The firm has just completed a $49,000 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 05 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 $5.03 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 74% of their sale price increased production will also require increased inventory on hand of S1.14 milion during the life of the project, including year 0. . Human Resources: The expansion will require additional sales and administrative personnel at a cost of $203 million per year . Accounting The XC-750 will be depreciated via the straight-ine method over the 10-year lite of the machine. The firm expects receivables from the new sales to be 14% of revenues and payables to be 9% of the cost of goods sold Billingham's mag porate tax rate is 35%, a. Determine the incremental earnings from the purchase of the XC-750 b. Determine the free cash flow from the purchase of the XC-750 C. If the appropriate cost of capital for the expansion is 10.5%, compute the NPV of the purchase a. Determine the incremental earnings from the purchase of the XC-750 Wthout XC2750 d to the nearest dollar) Calculate the incremental earnings from the purchase of the XC-750 below w Incremental Effects Year Sales Revenues Cost of Goods Sold S, G, and A Expenses EBIT Enter any number in the eait flelds and then click Check Answer Check Answer Clear 12 parts ns Score: 0 of 1 pt 9 of 9 (6 complete) HW Score: 66.67%, 6 of g P 9-33 (similar to) Question Heip products produced by the XC-750 is expected to be 74% 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 $2.03 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 9% of the cost of goods sold Billingham's marginal corporate tax rate is 35% a. Determine the incremental earnings from the purchase of the XC-750 b. Determine the free cash flow from the purchase of the XC-750 C. If the appropriate cost of capital for the expansion is 10 5%, compute the NPV of the purchase. d. While the expected new sales will be $10.05 million per year from the expansion, estimates range from $7.95 million to $12.15 million. What is the NPV in the worst case? In the best case? e. What is the break-even level of new sales from the expansion? What is the breakeven level for the cost of goods sold? f. Billingham could instead purchase the XC-900, which offers even greater capacity The cost of the XC-900 is $4.08 million. The extra capacity would not be useful in the first two years of operation, but would allow for additional sales in years 3 through 10 What level of additional sales (above the sto 05 milion expected for the XC-750) per year in those years would justify purchasing the larger machine? a. Determine the incremental earnings from the purchase of the XC-750 Calculate the incremental earnings from the purchase of the XC-750 below (with vs. without XC?750) (Round to the nearest dollar) Incremental Effects 0 Year Sales Revenues Cost of Goods Sold S, G, and A Expenses Depreciation EBIT Enter any number in the edit fields and then click Check