Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Your company is upgrading to more efficient production equipment for your firm's only product. This upgrade was based on the recommendations of a consulting firm
Your company is upgrading to more efficient production equipment for your firm's only product. This upgrade was based on the recommendations of a consulting firm the company hired at a cost of $34,400. The new equipment will cost $2,000,000 and shipping costs of $10,000 will be incurred. Because the industry is changing rapidly, the equipment will be obsolete in 4 years so there will be no salvage value. The new equipment will allow you to make more of your product in the same amount of time. As a result your total sales will increase by $400,000 annually and expenses will decrease by $260,000 annually. Because your production will be increasing, inventory levels will need to be increased by $40,000 and accounts receivable will also increase by $30,000. Rather than paying your suppliers within 10 days, you will move to 30 day payments which will increase accounts payable by $20,000. The equipment will be depreciated for tax purposes at CCA rate of 20%. The company's tax rate is 40% and the company requires a rate of return of 7% on all capital expenditure projects. A) Determine the amount of the initial investment B) Determine the amount that is subject to depreciation
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started