P 9-33 (similar to) 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 $2.79 million. Unfortunately, installing this machine will take several months and will partially disrupt production. The firm has just completed a S16,000 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 $10,10 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 $4.91 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 70% of their sale price. The increased production will also require increased inventory on hand of $1.01 million during the life of the project, including year o. Human Resources: The expansion will reculre additional sales and administrative personnel at a cost of $1.93 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 16% of revenues and payables to be 10% of the cost of goods sold. Billingham's marginal corporate tax rate is 35%. a. Determine the incremental eamings 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 9.8%, compute the NPV of the purchase. d. While the expected new sales will be $10.10 million per year from the expansion, estimates range from $8.05 million to S12.15 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? 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 Year 0 $ Sales Revenues Cost of Goods Sold SG, and A Expenses Depreciation EBIT s S S Taxes at 35% S Unlevered Net Income S P 9-33 (similar to) 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 $2.79 million. Unfortunately, installing this machine will take several months and will partially disrupt production. The firm has just completed a S16,000 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 $10,10 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 $4.91 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 70% of their sale price. The increased production will also require increased inventory on hand of $1.01 million during the life of the project, including year o. Human Resources: The expansion will reculre additional sales and administrative personnel at a cost of $1.93 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 16% of revenues and payables to be 10% of the cost of goods sold. Billingham's marginal corporate tax rate is 35%. a. Determine the incremental eamings 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 9.8%, compute the NPV of the purchase. d. While the expected new sales will be $10.10 million per year from the expansion, estimates range from $8.05 million to S12.15 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? 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 Year 0 $ Sales Revenues Cost of Goods Sold SG, and A Expenses Depreciation EBIT s S S Taxes at 35% S Unlevered Net Income S