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Racer Industries is currently purchasing Part No 76 from an outside supplier for 598 per unit. Because of supplier reliability problems, the company is considering
Racer Industries is currently purchasing Part No 76 from an outside supplier for 598 per unit. Because of supplier reliability problems, the company is considering producing the part internally in an idle manufacturing plant Annual volume over the next 6 years is expected to total 282,000 units at variable manufacturing costs of $93 per unit Racer must acquire 598,000 of new equipment if it reopens the plant. The equipment has a 6 year service life, a $15,800 salvage value, and will be depreciated by the straight-line method. Repairs and maintenance are expected to average $7,000 per year in years 4-6, and the equipment will be sold at the end of its life. Year 1 2 TV of si at 22x 1.220 1.488 1.816 2.215 2.703 w of an ordinary annuity at 22% 1.000 2.220 3.700 5.524 7.740 10.442 PV of 51 at 22% 0.820 0.1572 0.551 0.451 0.370 0.303 PV of an ordinary annuity at 221 0.520 1.492 2.042 2.494 2.564 3.167 Required: Use the net-present-value method (total cost approach) and a 22% hurdle rate to determine whether Racer should make or buy Part No 76. Ignore Income taxes. (Negative amounts should be indicated by a minus sign. Round your answers to the nearest dollar amount.) Buy Purchase Make Variable manufacturing costs New Equipment Repairs and maintenance Equipment sale Total Racer should make or buy
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