In: Accounting
TopCap Co. is evaluating the purchase of another sewing machine that will be used to manufacture sport caps. The invoice price of the machine is $120,500. In addition, delivery and installation costs will total $4,500. The machine has the capacity to produce 12,000 dozen caps per year. Sales are forecast to increase gradually, and production volumes for each of the five years of the machine's life are expected to be as follows: Use Table 6-4. (Use appropriate factor(s) from the tables provided. Round the PV factors to 4 decimals.)
2019 | 3,600 | dozen |
2020 | 5,600 | dozen |
2021 | 8,500 | dozen |
2022 | 11,300 | dozen |
2023 | 12,000 | dozen |
The caps have a contribution margin of $9.00 per dozen. Fixed costs
associated with the additional production (other than depreciation
expense) will be negligible. Salvage value and the investment in
working capital should be ignored. TopCap Co.'s cost of capital for
this capacity expansion has been set at 12%.
Required: