Make an income statement and cash flow statement for each project to determine which project is ideal and show the net income, net cash flow, present worth, and the internal rate of return for each project.
A company is considering two projects. The company uses a MARR of 8% and depreciates t 7 year MACRS. The Companies effective income tax rate is 35%. Each of the projects requires a working capital of $185,000. s assets using Project1 Equipment cost: Four grinders at $575,000 each and a useful life of 8 years. Each of the grinders require a set of tooling at a cost of $52,000 each. The grinders and tooling are subject to a sales tax at 6.5%. The total cost of the freight and handling is expected to be $60,000. The total cost to install all four grinders is $120,000. Testing and startup costs to place the equipment in service are estimated to be $50,000. It is estimated that the equipment can be sold for a total of $550,000 at the end of the project. There will be one operator per grinder at a rate of $31.50 per hour. The plant operates 4080 hours per year. Maintenance labor costs are estimated to be 35% of operating hour at $28.00 per hour. Operating supplies are estimated to be $200,000 per year Manufacturing overhead is expected to be an additional $360,000 per year Revenues are expected to be $1,455,800 for the first year and will increase 5% per year thereafter as a result of this project Project 2 Equipment cost: Four honing machines at $595,000 each and a useful life of 8 years. The honing machines are subject to a sales tax at 6.5%. The total cost for freight and handling is expected to be $40,000. The total cost to install all four honing machines is $100,000 Testing and startup costs to place the equipment in service are estimated to be $75,000 Also, special training to operate the honing machines will cost a total of $40,000. It is estimated that the equipment can be sold for a total of $700,000 at the end of the project. There will be one operator per honing machine at a rate of $29.75 per hour and one helper per machine at a rate of $28.00 per hour. The plant operates 4080 hours per year Maintenance labor costs are estimated to be 25% of operating hours at $28.00 per hour Operating supplies are estimated to be $160,000 per year. Manufacturing overhead is expected to be $320,000 per year Revenues are expected to be $1,788,000 for the first year and will increase by 4% each year thereafter as a result of the project
