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Valencia Corporation produces specialized cylinders for automobile engines and has observed an increase demand in its products. The corporation plans on purchasing a new machine
Valencia Corporation produces specialized cylinders for automobile engines and has observed an increase demand in its products. The corporation plans on purchasing a new machine with an invoice price in the amount of $552,000 from another manufacturer. Shipping charges will amount to $15,000, installation costs will total $20,000, and testing charges for the new piece of equipment will be $4,000. Hence, the the total cost of the machine is $591,000. Company accountants have estimated the machine to have an estimated 6-year economic life; the machine will be depreciated over a 6-year period using the straight-line method. Salvage value for the machine is expected to be zero at the end of the 6th year. Company management requires a 15% Required Rate of Return. Sales estimates: Company managers are comfortable with selling 3,200 units of the products produced by this machine in year 1 at a sales price of $190 generating an annual sales revenue in year 1 in the amount of $608,000. Managers expect sales to grow at a rate of 3% per year. Costs estimates: The management accountants expect the following cost estimates including annual increases as follows: A) Labor and Maintenace Costs: $ 85,000.00 with an annual increase of: 4.0% B) Utilities costs in the amount of: $ 11,500.00 with an annual increase of: 2.0% C) Supplies costs in the amount of: $ 22,000.00 with an annual increase of: 3.0% D) Incremental overhead costs: $ 6,500.00 with an annual increase of: 5.0% 1) Prepare the Table showing the determination of both Net Income and Cash Flows for each of the 6 years.
| Valencia Corporation produces specialized cylinders for automobile engines and has observed an increase | ||||||||
| demand in its products. The corporation plans on purchasing a new machine with an invoice price in the | ||||||||
| amount of $552,000 from another manufacturer. Shipping charges will amount to $15,000, installation | ||||||||
| costs will total $20,000, and testing charges for the new piece of equipment will be $4,000. Hence, the | ||||||||
| the total cost of the machine is $591,000. | ||||||||
| Company accountants have estimated the machine to have an estimated 6-year economic life; the machine | ||||||||
| will be depreciated over a 6-year period using the straight-line method. Salvage value for the machine is | ||||||||
| expected to be zero at the end of the 6th year. | ||||||||
| Company management requires a 15% Required Rate of Return. | ||||||||
| Sales estimates: | ||||||||
| Company managers are comfortable with selling 3,200 units of the products produced by this machine in year 1 | ||||||||
| at a sales price of $190 generating an annual sales revenue in year 1 in the amount of $608,000. Managers expect | ||||||||
| sales to grow at a rate of 3% per year. | ||||||||
| Costs estimates: | ||||||||
| The management accountants expect the following cost estimates including annual increases as follows: | ||||||||
| A) Labor and Maintenace Costs: | $ 85,000.00 | with an annual increase of: | 4.0% | |||||
| B) Utilities costs in the amount of: | $ 11,500.00 | with an annual increase of: | 2.0% | |||||
| C) Supplies costs in the amount of: | $ 22,000.00 | with an annual increase of: | 3.0% | |||||
| D) Incremental overhead costs: | $ 6,500.00 | with an annual increase of: | 5.0% | |||||
| 1) Prepare the Table showing the determination of both Net Income and Cash Flows for each of the 6 years. |
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Financial ACCT2
Authors: Norman H. Godwin, C. Wayne Alderman
2nd edition
9781285632544, 1111530769, 1285632540, 978-1111530761
