Proctoring Enabled: MH Lab 4: Capital Budgeting a Saved Help Save & Exit Submit Westwood Furniture Company is considering the purchase of two different machines, as described below: 12 Machine A. A compacting machine has just come onto the market that would permit Westwood Furniture Company to compress sawdust into various shelving products. At present the sawdust is disposed of as a waste product. The following information is available on the machine: 01:27:33 a. The machine would cost $370,800 and would have a 10% salvage value at the end of its 13-year useful life. The company uses straight-line depreciation and considers salvage value in computing depreciation deductions. b. The shelving products manufactured from use of the machine would generate revenues of $270,000 per year. Variable manufacturing costs would be 20% of sales. c. Fixed expenses associated with the new shelving products would be as follows (per year): advertising, $80,600; salaries, $60,000; utilities. $2,800; insurance, $600. eBook Machine B. A second machine has come onto the market that would allow Westwood Furniture Company to automate a sanding process that is now done largely by hand. The following information is available: uiz Tools 100% a. The new sanding machine would cost $195,000 and would have no salvage value at the end of its 13-year useful life. The company would use straight-line depreciation on the new machine. b. Several old pieces of sanding equipment that are fully depreciated would be disposed of at a scrap value of $5,000. C. The new sanding machine would provide substantial annual savings in cash operating costs. It would require an operator at an annual salary of $30,100 and $2,700 in annual maintenance costs. The current, hand-operated sanding procedure costs the company $82,000 per year in total. Collapse Westwood Furniture Company requires a simple rate of return of 15% on all equipment purchases. Also, the company will not purchase equipment unless the equipment has a payback period of four years or less. Required: 1. For machine A: a. Prepare an income statement showing the expected net income each year from the new shelving products. Use the contribution format. (Round your answers to the nearest whole dollar amount.) Required: 1. For machine A: 12 a. Prepare an income statement showing the expected net income each year from the new shelving products. Use the contribution format. (Round your answers to the nearest whole dollar amount.) 8 01:27:11 WESTWOOD FURNITURE COMPANY Income Statement eBook Deduct: Fixed expenses ols Total fixed expenses b. Compute the simple rate of return. (Round intermediate calculations to the nearest whole dollar amount and final answer to 1 decimal place (i.e., 0.123 should be considered as 12.3%).) Simple rate of return % Help Save & Exit Subr c. Compute the payback period. (Round intermediate calculations to the nearest whole dollar amount.) Payback period |years 15 2. For machine B: a. Compute the simple rate of return. Simple rate of return % b. Compute the payback period. Payback period years 3. According to the company's criteria, which machine, if either, should the company purchase? O Machine A O Machine B