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Project 1: A bicycle manufacturer has an opportunity to begin making a new higher-end model which has additional features from the models they currently
Project 1: A bicycle manufacturer has an opportunity to begin making a new higher-end model which has additional features from the models they currently make. To manufacture the required parts for the new model, the company will need new machinery. Because of the risk level involved in taking on a new product, management is trying to determine whether the returns will justify the risk. Members of management are evaluating the project and have determined a 11% discount rate is appropriate for evaluation purposes. To aid management in their decision-making process, your supervisor has asked you to prepare an analysis of the project giving the following information and assumptions: $35,000 and a 7-year useful life. Straight line depreciation will be used. 1) 2) The projected revenues, costs, and results for each of the 7 years of this project are as follows: Sales $394,000 Less: Manufacturing costs $255,000 Depreciation 50,000 Shipping costs 27,600 Administrative costs 14,400 347,000 Income before income taxes 47,000 Income tax expense 11,750 Net income $35,250 Instructions:
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