The Taylor Company Limited reported a cost of goods sold of $640,000 last year, when 20,000 units

Question:

The Taylor Company Limited reported a cost of goods sold of $640,000 last year, when 20,000 units were produced and sold. The cost of goods sold was 35% materials, 42% direct labour, and 23% overhead.
The company is considering the purchase of a machine costing $165,000, with an expected useful life of five years and a at that time of $25,000. The machine would have a maximum capacity of 30,000 units per year and is expected to reduce direct labour costs by 30%; however, it would require an additional supervisor at a cost of $45,000 per year. The machine would be depreciated over the five years using the straight-line method.
Production a
Year _____________________Production and Sales
2012...........................................20,000 units
2013...........................................20,000 units
2014...........................................22,000 units
2015...........................................22,000 units
2016...........................................22,000 units
Instructions
(a) Determine whether the company should purchase the machine if the company has a minimum desired rate of return of 12%.
(b) Calculate the payback on this investment.
(c) At 12%, calculate how high the must be before recommending that the company make the investment.nd sales for the next five years are expected to be as follows:
Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...