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The Taylor Company Limited reported a cost of goods sold of $718,040 last year, when 23,200 units were produced and sold. The cost of goods
The Taylor Company Limited reported a cost of goods sold of $718,040 last year, when 23,200 units were produced and sold. The cost of goods sold was 36% materials, 40% direct labour, and 24% overhead. The company is considering the purchase of a machine costing $191,400, with an expected useful life of five years and a salvage value at that time of $29,000. The machine would have a maximum capacity of 34,800 units per year and is expected to reduce direct labour costs by 30%; however, it would require an additional supervisor at a cost of $52,200 per year. The machine would be depreciated over the five years using the straight-line method. Production and sales for the next five years are expected to be as follows: Year 2020 2021 2022 2023 2024 Production and Sales 23,200 units 23,200 units 25,520 units 25,520 units 25,520 units Click here to view PV table. (a) Determine whether the company should purchase the machine if the company has a minimum desired rate of return of 12%. (If the net present value is negative, use either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). For calculation purposes, use 5 decimal places as displayed in the factor table provided, e.g. 1.25124 and final answer to 0 decimal places, e.g. 5,275.) Click here to view PV table. Net present value $ The company purchase the equipment. should eTextbook al should not
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