Question
Using an Excel spreadsheet , please complete the calculations for this cost-saving problem. Assumptions: Smithfield Production, Inc. is considering investing in a new conveyor system
Using an Excel spreadsheet, please complete the calculations for this cost-saving problem.
Assumptions:
Smithfield Production, Inc. is considering investing in a new conveyor system for its distribution warehouse. The estimated cost of this conveyor system is $1,200,000. The conveyor system is estimated to have a four-year useful life and will be depreciated using the straight-line method. No salvage value is expected at the end of the machines life on December 31, Year 4.
Further, assume an annual inflation rate beginning in Year 2 of 3.0% per year. The firms income tax rate is 32.0%.
Year One values for the following have been provided to you by Smithfield Production, Inc.s Accounting Department:
Account | Year One Value |
Revenues | $19,000,000 |
Product and Labor Cost | $13,425,000 |
Other Cash Expenses | $3,750,000 |
|
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Note that each of the accounts listed above is expected to increase annually by the 3.0% inflation rate.
Annual Depreciation Expense on the firms currently owned fixed assets is expected to remain at $525,000 per year throughout the four-year analysis.
Given the above assumptions, prepare projected Income Statements for Smithfield Production, Inc., listing Revenues to After-Tax Profit accounts for Years 14.
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