Question
In: Economics
FX, Inc. is a volume manufacturer of high technology automotive mirrors (including cell link and voice...
FX, Inc. is a volume manufacturer of high technology automotive mirrors (including cell link and voice activation). FX is looking to expand their operations to add a second product line capable of producing 1.3 Million units per year. The equipment investment cost for this new operation is $27 Million. The project falls under a 7 year MACRS class life and the company estimates that the salvage value will be $2.7 Million at the end of the 6 year project. The average selling price for each mirror is $85 per unit. The annual expected sales shown below:
|
Year |
2020 |
2021 |
2022 |
2023 |
2024 |
2025 |
|
Volume (000) |
600 |
750 |
1000 |
1200 |
1200 |
1200 |
The material cost for each mirror is $20 (with 25 % of the material imported from Canada and 35% from Mexico). The labor to produce each mirror is $15 with additional variable cost of manufacturing at $17 per unit. The fixed cost of manufacturing operations is $10 Million per year. FX maintains 1 month of raw materials and 1 month of WIP and finished goods combined to balance overall automotive demand. Assume that FX has a federal tax rate of 25% and a state tax rate of 5%. Also assume that FX uses a MARR of 15% for all economic analyses.
a) What is the NPV of the investment?
Solutions
Expert Solution
a) 27,093,405
| Year | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 |
| Sales Vol | 6,00,000 | 7,50,000 | 10,00,000 | 12,00,000 | 12,00,000 | 12,00,000 |
| Prod Vol | 6,50,000 | 8,12,500 | 10,83,333 | 13,00,000 | 13,00,000 | 13,00,000 |
| Sales Rev | 510,00,000 | 637,50,000 | 850,00,000 | 1020,00,000 | 1020,00,000 | 1020,00,000 |
| Material Cost | -120,00,000 | -150,00,000 | -200,00,000 | -240,00,000 | -240,00,000 | -240,00,000 |
| Labour Cost | -168,00,000 | -210,00,000 | -280,00,000 | -336,00,000 | -336,00,000 | -336,00,000 |
| Fixed Cost | -100,00,000 | -100,00,000 | -100,00,000 | -100,00,000 | -100,00,000 | -100,00,000 |
| Income | 122,00,000 | 177,50,000 | 270,00,000 | 344,00,000 | 344,00,000 | 344,00,000 |
| Federal Tax | -42,70,000 | -62,12,500 | -94,50,000 | -120,40,000 | -120,40,000 | -120,40,000 |
| State Tax | -4,88,000 | -7,10,000 | -10,80,000 | -13,76,000 | -13,76,000 | -13,76,000 |
| Income post Tax | 74,42,000 | 108,27,500 | 164,70,000 | 209,84,000 | 209,84,000 | 209,84,000 |
| -270,00,000 | 27,00,000 | |||||
| -270,00,000 | 74,42,000 | 108,27,500 | 164,70,000 | 209,84,000 | 209,84,000 | 236,84,000 |
| 270,93,405 |
b) 23,802,550
| Year | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 |
| Sales Vol | 6,00,000 | 7,50,000 | 10,00,000 | 12,00,000 | 12,00,000 | 12,00,000 |
| Prod Vol | 6,50,000 | 8,12,500 | 10,83,333 | 13,00,000 | 13,00,000 | 13,00,000 |
| Sales Rev | 510,00,000 | 637,50,000 | 850,00,000 | 1020,00,000 | 1020,00,000 | 1020,00,000 |
| Material Cost | -120,00,000 | -150,00,000 | -200,00,000 | -240,00,000 | -240,00,000 | -240,00,000 |
| Labour Cost | -168,00,000 | -210,00,000 | -280,00,000 | -336,00,000 | -336,00,000 | -336,00,000 |
| Fixed Cost | -100,00,000 | -100,00,000 | -100,00,000 | -100,00,000 | -100,00,000 | -100,00,000 |
| Income | 122,00,000 | 177,50,000 | 270,00,000 | 344,00,000 | 344,00,000 | 344,00,000 |
| Interest ($10MM at 10%) | -10,00,000 | -10,00,000 | -10,00,000 | -10,00,000 | -10,00,000 | -10,00,000 |
| Federal Tax (35%) | -42,70,000 | -62,12,500 | -94,50,000 | -120,40,000 | -120,40,000 | -120,40,000 |
| State Tax (10%) | -4,88,000 | -7,10,000 | -10,80,000 | -13,76,000 | -13,76,000 | -13,76,000 |
| Income post Tax | 64,42,000 | 98,27,500 | 154,70,000 | 199,84,000 | 199,84,000 | 199,84,000 |
| -270,00,000 | 27,00,000 | |||||
| -270,00,000 | 64,42,000 | 98,27,500 | 154,70,000 | 199,84,000 | 199,84,000 | 226,84,000 |
| 238,02,550 |
c) Cost will increase by 2% while the Sales price remains the same
1,721,326
| Year | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
| Sales Vol | 6,00,000 | 7,50,000 | 10,00,000 | 12,00,000 | 12,00,000 | 12,00,000 | |
| Prod Vol | 6,50,000 | 8,12,500 | 10,83,333 | 13,00,000 | 13,00,000 | 13,00,000 | |
| Sales Rev | 510,00,000 | 637,50,000 | 850,00,000 | 1020,00,000 | 1020,00,000 | 1020,00,000 | |
| 1.2 | Material Cost | -144,00,000 | -180,00,000 | -240,00,000 | -288,00,000 | -288,00,000 | -288,00,000 |
| 1.2 | Labour Cost | -201,60,000 | -252,00,000 | -336,00,000 | -403,20,000 | -403,20,000 | -403,20,000 |
| 1.2 | Fixed Cost | -120,00,000 | -120,00,000 | -120,00,000 | -120,00,000 | -120,00,000 | -120,00,000 |
| Income | 44,40,000 | 85,50,000 | 154,00,000 | 208,80,000 | 208,80,000 | 208,80,000 | |
| Interest ($10MM at 10%) | -10,00,000 | -10,00,000 | -10,00,000 | -10,00,000 | -10,00,000 | -10,00,000 | |
| Federal Tax (35%) | -15,54,000 | -29,92,500 | -53,90,000 | -73,08,000 | -73,08,000 | -73,08,000 | |
| State Tax (10%) | -1,77,600 | -3,42,000 | -6,16,000 | -8,35,200 | -8,35,200 | -8,35,200 | |
| Income post Tax | 17,08,400 | 42,15,500 | 83,94,000 | 117,36,800 | 117,36,800 | 117,36,800 | |
| -270,00,000 | 27,00,000 | ||||||
| -270,00,000 | 17,08,400 | 42,15,500 | 83,94,000 | 117,36,800 | 117,36,800 | 144,36,800 | |
| 17,21,326 |
Rahul Sunny answered 1 year agoRelated Solutions
FX, Inc. is a volume manufacturer of high technology automotive mirrors (including cell link and voice...
FX, Inc. is a volume manufacturer of high technology automotive
mirrors (including cell link and voice activation). FX is looking
to expand its operations to add a second product. The equipment
investment cost for this new operation is $125,000. The project
falls under a 7-year MACRS class life and the company estimates
that the salvage value will be $50,000 at the end of the 5-year
project. The annual revenue for the new line is $100,000. The
annual manufacturing costs are...
FX, Inc. is a volume manufacturer of high technology automotive mirrors (including cell link and voice...
FX, Inc. is a volume manufacturer of high technology automotive
mirrors (including cell link and voice activation). FX is looking
to expand its operations to add a second product. The equipment
investment cost for this new operation is $125,000. The project
falls under a 7-year MACRS class life and the company estimates
that the salvage value will be $50,000 at the end of the 5-year
project. The annual revenue for the new line is $100,000. The
annual manufacturing costs are...
FX, Inc. is a volume manufacturer of high technology automotive mirrors (including cell link and voice...
FX, Inc. is a volume manufacturer of high technology automotive
mirrors (including cell link and voice activation). FX is looking
to expand their operations to add a second product line capable of
producing 1.3 Million units per year. The equipment investment cost
for this new operation is $27 Million. The project falls under a 7
year MACRS class life and the company estimates that the salvage
value will be $2.7 Million at the end of the 6 year project. The...
X, Inc. is a volume manufacturer of high technology automotive mirrors (including cell link and voice...
X, Inc. is a volume manufacturer of high technology automotive
mirrors (including cell link and voice activation). FX is looking
to expand their operations to add a second product line capable of
producing 1.3 Million units per year. The equipment investment cost
for this new operation is $27 Million. The project falls under a 7
year MACRS class life and the company estimates that the salvage
value will be $2.7 Million at the end of the 6 year project. The...
Q: Philips Company manufactures a variety of high- and low-volume products, including product 456, in its...
Q: Philips Company manufactures a variety of high- and
low-volume products, including product 456, in its Westchester
Plant. The following information pertains to the most recent
year:
Total for product 456
Total for Westchester
Unit-level overhead
$200,000
Batch-level overhead
300,000
Product-level overhead
500,000
Plant-level overhead
400,000
Total overhead
$1,400,000
Units produced
100
5,000
Direct labor hours
200
20,000
Machine hours
90
10,000
Setups
6
120
Setup hours
30
500
Design changes
4
40
Design hours
280
4,000
REQUIRED:
(1) If...
Flow of Costs and Income Statement Technology Accessories Inc. is a designer, manufacturer, and distributor of...
Flow of Costs and Income Statement
Technology Accessories Inc. is a designer, manufacturer, and
distributor of accessories for consumer electronic products. Early
in 20Y3, the company began production of a leather cover for tablet
computers, called the iLeather. The cover is made of stitched
leather with a velvet interior and fits snugly around most tablet
computers. In January, $762,000 was spent on developing marketing
and advertising materials. For the first six months of 20Y3, the
company spent an additional $1,405,000...
Security Technology Inc. (STI) is a manufacturer of an electronic control system used in the manufacture...
Security Technology Inc. (STI) is a manufacturer of an
electronic control system used in the manufacture of certain
special-duty auto transmissions used primarily for police and
military applications. The part sells for $55 per unit and has
sales of 24,000 units in the current yeard, 2018. STI has no
inventory on hand at the beginning of 2018 and is projecting sales
of 26,000 units in 2019. STI is planning the same production level
for 2019 as in 2018, 25000 units...
Security Technology Inc. (STI) is a manufacturer of an electronic control system used in the manufacture...
Security Technology Inc. (STI) is a manufacturer of an
electronic control system used in the manufacture of certain
special-duty auto transmissions used primarily for police and
military applications. The part sells for $56 per unit and had
sales of 24,050 units in the current year, 2018. STI has no
inventory on hand at the beginning of 2018 and is projecting sales
of 26,150 units in 2019. STI is planning the same production level
for 2019 as in 2018, 25,100 units....
Flow of Costs and Income Statement Technology Accessories Inc. is a designer, manufacturer, and distributor of...
Flow of Costs and Income Statement
Technology Accessories Inc. is a designer, manufacturer, and
distributor of accessories for consumer electronic products. Early
in 20Y3, the company began production of a leather cover for tablet
computers, called the iLeather. The cover is made of stitched
leather with a velvet interior and fits snugly around most tablet
computers. In January, $780,000 was spent on developing marketing
and advertising materials. For the first six months of 20Y3, the
company spent an additional $1,406,000...
Flow of Costs and Income Statement Technology Accessories Inc. is a designer, manufacturer, and distributor of...
Flow of Costs and Income Statement
Technology Accessories Inc. is a designer, manufacturer, and
distributor of accessories for consumer electronic products. Early
in 20Y3, the company began production of a leather cover for tablet
computers, called the iLeather. The cover is made of stitched
leather with a velvet interior and fits snugly around most tablet
computers. In January, $750,000 was spent on developing marketing
and advertising materials. For the first six months of 20Y3, the
company spent an additional $1,400,000...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Training and Development assignment. Describe the usage of Computer Based Training (CBT) in McDonald's Company training...
- PUT IN JAVA PROGRAMMING LANGUAGE The Rectangle class: Design a class named Rectangle to represent a...
- Journal article summary on inter-group conflict Peer Reviewed Journal article from past 3 years. Please include...
- "Ethical Considerations" Please respond to the following: Reflect upon the responsibilities placed on auditors by the...
- A Japanese company has a bond outstanding that sells for 93 percent of its ¥100,000 par...
- What is the difference among the principles of modularization, abstraction, encapsulation, and separation of interface and...
- An investment project costs $20,100 and has annual cash flows of $4,400 for six years. ...
ADVERTISEMENT