Business Case: The Managerial Accounting Department at your company has been engaged by the Production Department...

Business Case:

The Managerial Accounting Department at your company has been engaged by the Production Department for assistance in evaluating a purchase decision. The equipment the production department is currently utilizing is outdated and has become costly to maintain. New machines would also provide increased efficiencies leading to increased sales. Due to this, the department is considering replacing all equipment with new machines.

Data:
- Cost of Current Machines: $800,000
- Cost of New Machines: $1,250,000
- Annual Maintenance on Current Machines: $125,000
- Annual Maintenance on New Machines: $54,000
- Salvage Value of Current Machines: $325,000
- Immediate employee training cost on new machines: $15,000 - Working Capital needed for new machines: $50,000

- Would be needed once machines are purchased and working capital released after 5 years
- Increased sales opportunity provided by new machines: $200,000 first year and growing at 5% per year after
- Company’s Required Rate of Return: 10%
- Contribution margin: 47%
- Depreciation and income taxes should be ignored.

Given the financial information listed above, provide the following 2 files:?

An Excel worksheet showing the annual cash flows by line-item and in total for the keep vs. purchase decision, for

8 years.

? Calculate the NPV in excel

? Calculate the IRR in excel

? Should the Department purchase new equipment or maintain the current equipment?

Solutions

Expert Solution

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

Business Case: The Managerial Accounting Department at your company has been engaged by the Production Department...

Business Case: The Managerial Accounting Department at your company has been engaged by the Production Department for assistance in evaluating a purchase decision. The equipment the production department is currently utilizing is outdated and has become costly to maintain. New machines would also provide increased efficiencies leading to increased sales. Due to this, the department is considering replacing all equipment with new machines. Data: - Cost of Current Machines: $800,000 - Cost of New Machines: $1,250,000 - Annual Maintenance on...

Capital Budgeting Project Business Case: The Managerial Accounting Department at your company has been engaged by...

Capital Budgeting Project Business Case: The Managerial Accounting Department at your company has been engaged by the Production Department for assistance in evaluating a purchase decision. The equipment the production department is currently utilizing is outdated and has become costly to maintain. New machines would also provide increased efficiencies leading to increased sales. Due to this, the department is considering replacing all equipment with new machines. Data: - Cost of Current Machines: $800,000 - Cost of New Machines: $1,250,000 -...

describe managerial accounting and the role of managerial accounting in business.

A company is engaged in the production of feed for farm birds. The company's marketing department...

A company is engaged in the production of feed for farm birds. The company's marketing department has released an advertisement that ensures that the birds that are fed with this product will have a weight gain of at least 130 grams during its first week. The weight gain of these birds is known to follow a normal distribution with variance of 120g2. Given the complaint of fraudulent advertising, filed by some buyers, the Consumer Defender launched an investigation. A sample...

You are the head of the engineering department in a certain company. your department has been...

You are the head of the engineering department in a certain company. your department has been allocated an annual budget of R2.6 million for this year. it is now towards the endof the financial year and your department has overspent by 25%. your senior manager wants you to justify why this is so. YOur task is to present a report showing all the expense of your department for the year and analyse them in a form of a Pareto analysis...

You are the head of the engineering department in a certain company. your department has been...

Describe the role of managerial accounting in your current or former place of business. If you...

Describe the role of managerial accounting in your current or former place of business. If you have not been employed by a company that uses managerial accounting, choose a well-known company and describe how managers of that company might use managerial accounting information. Be specific. Do not choose a company that one of your classmates has already written about.

You are part of an accounting firm Advisory team that has been engaged by a client...

You are part of an accounting firm Advisory team that has been engaged by a client to assess how they might make their “sales to order” process more “efficient”, perhaps with the introduction of new technologies. The client has provided a written description of their business, and the process under review, as follows: HHH is a small manufacturer of university based sportswear (a highly competitive market where fast response times are prized by customers). Sales span every region of the...

Managerial Accounting For each of the following managerial accounting techniques, read the definition provided in your...

Managerial Accounting For each of the following managerial accounting techniques, read the definition provided in your textbook. In your post, provide an example of a personal situation where you would benefit from the use of each technique. Break-even point Budget Differential Analysis: Relevant Costs & Benefits

Your client Corp A is a company engaged in the production of heavy equipment and markets...

Your client Corp A is a company engaged in the production of heavy equipment and markets its products on a business to business (B2B) basis. Goods produced by Corp A are heavy equipment such as: Excavators, Bulldozers, Mobile Cranes, Motor Scrapers, etc. There are also a number of finished products in the form of heavy equipment which are self-used by Corp A. After several years of self-use, that heavy equipment is sold, which is in the fiscal year that you...

Subjects