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Billingham Packaging is considering expanding its praduction capacity by purchasing a new machine, the XC-750. The cost of the XC-750 is $2.68 million. Unfortunately, installing this machine will take several months and will partially disrupt production. The firm has just completed a $47,000 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 $4.98 milion this year. As with Billingham's existing products, the cost of goods for the products produced by the C 750 is expected to be 72% o their sale price The increased production will also require increased inventory on hand of $1.18 million during the life of the projact, including year 0. Human Resources: The expansion will require additional sales and administrative personnel at a cost of $2.03 million per year the ne sales to be 16% of evenues and payables to be 11% of the cost of goods sold. Billingham's marginal Accounting: The C 750 will be depreciated via the straight ne method over the 10-year life of the machine. The firm expects recen ables fr corporate tax rate is 35% a. Determine the incremental earnings from the purchase of the XC-750. b. Determine the free cash fow from the purchase of the XC-750. C. If the appropriate cost of capital for the expansion is 96%, compute the NPV of the pu d. Whilo the expocted now salos will bo $10.05 million per yoar from the expansion, o. What is the break-ovan level of new sales from the expansion? What is the breakeve ostimatos rango from $8.15 milion to $11.95 milion. What is tho NPV in the worst case? In tho best case? n level for the cost of goods sold? Billingham Packaging is considering expanding its praduction capacity by purchasing a new machine, the XC-750. The cost of the XC-750 is $2.68 million. Unfortunately, installing this machine will take several months and will partially disrupt production. The firm has just completed a $47,000 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 $4.98 milion this year. As with Billingham's existing products, the cost of goods for the products produced by the C 750 is expected to be 72% o their sale price The increased production will also require increased inventory on hand of $1.18 million during the life of the projact, including year 0. Human Resources: The expansion will require additional sales and administrative personnel at a cost of $2.03 million per year the ne sales to be 16% of evenues and payables to be 11% of the cost of goods sold. Billingham's marginal Accounting: The C 750 will be depreciated via the straight ne method over the 10-year life of the machine. The firm expects recen ables fr corporate tax rate is 35% a. Determine the incremental earnings from the purchase of the XC-750. b. Determine the free cash fow from the purchase of the XC-750. C. If the appropriate cost of capital for the expansion is 96%, compute the NPV of the pu d. Whilo the expocted now salos will bo $10.05 million per yoar from the expansion, o. What is the break-ovan level of new sales from the expansion? What is the breakeve ostimatos rango from $8.15 milion to $11.95 milion. What is tho NPV in the worst case? In tho best case? n level for the cost of goods sold
